Mid-Morning Look: May 23, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look
Wednesday, May 23, 2018

U.S. equities open lower, off their worst levels overnight, but slide amid weakness in energy stocks (oil reverses lower on bearish inventory data), as well as concerns related to trade and geopolitical news. Stocks have been on a roll lately, with the Dow and S&P coming off their best levels in over 2-months this week, while the Small Cap Russell 2000 has also trade to a record high recently. But with the outlook for a resolution of U.S.-China trade relations and the uncertainty on the planned summit with North Korea became more unlikely, markets taking an opportunity to take profits. There are also political situations in Italy, weaker data Europe, Iran sanctions (and likely for Venezuela as well) and a plunge in the Turkish Lira to record lows all garnering attention as well. Defensive/safe haven assets opened higher with gains in bonds (sending yields lower – 10-yr back to 3%), gold and the Japanese yen. The Federal Reserve will release minutes from its last meeting at 2:00 PM EST. Interest rate sensitive sectors including utilities and real estate gain as yields retreat. Rising borrowing costs are preventing more U.S. homeowners from reducing their loan payments or turning home equity into cash. A gauge of mortgage refinancing volume fell 3.7% last week, the fifth straight decline, to the lowest point since December 2000, according to Mortgage Bankers Association data released.

Treasuries, Currencies and Commodities

· In currency markets, the euro down over -0.5%, trading as low as 1.1685 earlier (lowest since mid-November), before edging back above the 1.17 level – the lower euro comes after weaker PMI data in the region. The dollar trades to best levels in 6-hours vs. the Japanese yen, off earlier lows of 109.56, though still down -0.65% at 110.16 – defensive/safe haven assets moving higher this morning (yen, gold, bonds). Bitcoin prices fall over -2.5% to below $7,900. Turkish lira plunging to an all-time low while Argentine peso also falling.
· Commodity prices; gold prices slip after early gains, initially trading back above the $1,300 an ounce level as stock futures opened lower; but as stocks have recovered off lows, defensive assets have declined, with gold back down around $1,295 an ounce as the dollar rises.
· Oil prices pulled back from best levels in over 3 ½ years, slipping after bearish weekly inventory data as the EIA reported a weekly crude oil build of 5.78M barrels, which compared to a -2M barrel drawdown; gasoline inventories also a surprise build of 1.88M barrels vs. est. draw.
· Treasury market’s rise as the 10-year Treasury yield earlier reached as low as 3%. Currently, it’s off more than four basis points to 3.02%. Treasury yields held decline after new home sales data came in softer as the 10-year yield at 3.025%; 2-year yield at 2.569%; 30-year yield at 3.177%.

Economic Data

· New Home Sales for April fell (-1.5%) to 662K, below the 680K estimate; new home sales fell 10k in April from prior month, while the previous three months’ new home sales data revised down by 41K; median new home price rose 0.4% y/y to $312,400; average selling price at $407,300; 22% of new homes sold in April cost more than $500,000, up from 16% prior month.
· IHS Markit flash services PMI climbs to 55.7 in May from 54.6 in April, while IHS Markit flash manufacturing PMI inches up to 56.6 in May from 56.5 in April.

Sector Movers Today

· Restaurants; RRGB shares plunge after disappointing Q1 results led to Stifel downgrading shares to hold saying it was unable to continue the strong traffic out-performance it experienced during 4Q due to aggressive competitive promotional activity (also downgraded at BTIG); SHAK was downgraded to neutral at Longbow based entirely on valuation; TAST init buy at SunTrust; Cleveland Research said MCD early 2Q U.S. comps look better vs trend and consensus
· Housing & Building Products; LOW Q1 results missed estimates on EPS, sales and comparable sales, as its greater exposure to outdoor and seasonal goods and weather-impacted locations, but analysts note results unsurprising as shares advanced; TCS shares fell after reporting 4Q and FY earnings while one analyst said while underlying sales trends are accelerating the company remains in the early stages for many initiatives; homebuilders attempted rebound after decline yesterday on TOL results
· Software movers; WAGE tgt cut to $62 from $88 at SunTrust as they lower their organic sales growth assumption to 4% in ’18 and ’19 vs. 9% and 7% previously; INTU reported better-than-expected F3Q results and raised FY18 guidance in excess of the F3Q beat; WDAY downgraded to mixed from positive at OTR Global; EA acquired the cloud gaming technology assets and personnel of a GameFly unit
· Biotech movers; ESPR third Phase 3 study of bempedoic acid met its primary endpoint of lowering LDL cholesterol (LDL-C) by 23% at week 12, compared to a 1% reduction for placebo, in an intent-to-treat analysis of statin-intolerant patients; CMTA falls as reports Statistically Significant Palovarotene data evaluating Palovarotene; CELG was upgraded to outperform at Bernstein with $102 tgt mainly on valuation, while CELG was downgraded to hold at Argus


· ANW +6%; announced a strategic and operational review, including “an evaluation of the company’s physical assets, existing footprint, and the capital efficiency of every business activity in which the company is engaged and each port in which it operates.”
· CARA +28%; enters licensing pact with Vifor Fresenius Medical Care Renal Pharma to commercialize its experimental Korsuva injection outside the U.S. for hemodialysis patients with pruritus
· CTRP +6%; results and guidance is mixed as was at the high end of guidance, but turned in the slowest topline growth since late-2008; though outlook for 2Q points to acceleration
· FOXA +1%; as CMCSA said it’s considering, and in advanced stages of preparing, an offer for the businesses that Fox has agreed to sell to DIS; the company says its offer would be all-cash, and at a premium to value of current all-share offer from Disney https://reut.rs/2J0AMQF
· LOW +9%; rises despite Q1 results missed estimates on EPS, sales and comparable sales, as its greater exposure to outdoor was hurt by weather (hired new CEO yesterday)
· RL +13%; Q4 EPS and sales topped views while comp sales fell a smaller-than-expected comp decline of (-1%) vs. est. (-2.3%)
· TIF +16%; record all-time highs after posted strong quarterly sales growth, raised its profit forecast for the year and announced a share buyback plan of $1 billion


· CMTA -15% after releases Palovarotene data
· CWH -9%; after reporting change in registered public accounting firm in filing last night
· HPE -9%; despite Q2 showing another solid beat on the quarter, as well as another conservative increase to annual EPS guidance
· RRGB -15%; after disappointing Q1 results led to Stifel downgrading shares to hold saying it was unable to continue the strong traffic out-performance
· TCS -11%; reported 4Q and FY earnings while one analyst said while underlying sales trends are accelerating the company remains in the early stages for many initiatives
· TGT -4%; after posting weaker-than-expected Q1 earnings (missed by 7c) and slowing comparable store sales growth, but held to its full year outlook
· XLNX -4%; after analyst day as details and messaging around the opportunity set were roughly in line with expectations, but lack of GM upside and the need for opex limits EBIT growth


· Ardelyx (ARDX) 12.5M share Secondary priced at $4.00
· BlackLine (BL) 3.5M share Spot Secondary priced at $40.35
· Coherus Biosciences (CHRS) 5.172M share Secondary priced at $14.50
· Cadence Bancorp (CADE) 18M share Secondary priced at $28.00
· EVO Payments (EVOP) 14M share IPO priced at $16.00
· FB Financial (FBK) 3.2M share Secondary priced at $41.25
· International Game (IGT) 18M share Secondary priced at $28.25
· MyoKardia (MYOK) 3.75M share Secondary priced at $49.00
· Pfenex (PFNX) 6.8M share Spot Secondary priced at $5.50
· TriState Capital (TSC) 2.2M share Spot Secondary priced at $25.90
· USA Technologies (USAT) 5.433M share Secondary priced at $11.00
· 2U (TWOU) 3.3M share Secondary priced at $90.00


Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P.  Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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