Mid-Morning Look: May 24, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Thursday, May 24, 2018

Equities moved lower shortly after the open after President Trump, in a letter, says meeting with North Korea leader won’t take place. Trump cited North Korea’s “tremendous anger and open hostility” in recent statements as part of his decision to call off the summit. U.S. stocks fell sharply on the news, while defensive and safe haven assets (bonds, gold) quickly advanced. The 10-year Treasury yield dropped back below the 3% level around 2.96% (off last week highs 3.11%). Economic data also weaker this morning (helping bonds) as Existing Home sales and weekly jobless claims missed estimates. Volumes are lighter than normal ahead of the long Memorial Day holiday weekend, so the headlines from Trump related to North Korea summit cancelled weighing on market sentiment early and overshadowing other earnings and related headlines. Other topics today include upcoming Fed speakers, auto related activity on tariff news (more below) and earnings in retail and tech space. The Dow Industrial Average falls over 200 points, the Russell pulls back further off record highs and the S&P 500 index approaches its 100-day moving average support of 2,710.

Treasuries, Currencies and Commodities

· In currency markets, dollar extends advance vs. Canadian dollar as oil extends its declines, USD/CAD trade above 1.29; but outside of Canadian dollar, the greenback down vs. most other currencies, especially the safe haven yen back around the 109 level; also falls vs. euro and yen; Bitcoin prices down another 1% at $7,500

· Gold prices jumped following headlines President Trump said meeting with North Korea leader won’t take place – saw spike in safe haven assets. Gold futures rise 1.25% or over 15-points to trade above $1,315 (was below $1,290 just a few days ago)

· Energy futures slide with “risk-off” mentality for markets, with WTI crude falling over 70c, or 1% to around $71 per barrel – prices coming off best levels since December 2014 this week

· Treasury market’s advance as yields slide to lows after news of the summit cancellation with North Korea as well as a surprise drop in existing home sales for April; the 10-year yield down around 2.96%, the 2-yr back under 2.5% and the 30-yr down at 3.12%

Economic Data

· Weekly Jobless claims rose 234K in early May to a seven-week high, topping the 220K estimate, while the prior week was slightly revised higher to 22K from 222K; the more stable 4-week moving average rose by 6,250 to 219,750; continuing claims rose 29K to 1.74M

· The 30-year fixed mortgage rate for week ended today rose to 4.66% from 4.61%, Freddie Mac said while the 15-year rate avg 4.15%, up from 4.08% a week earlier.

· Existing-home sales for April fell (-2.5%) to 5.46M from 5.6M prior and below the est. of 5.55M; there were 4.0 months’ supply in April vs. 3.5 in March and 3.8 months’ supply seasonally adjusted in April vs. 3.7 in March seasonally adjusted; inventory rose 9.8% to 1.8M homes

Sector Movers Today

· Auto sector; active as foreign auto makers (TM, NSANY, HMC) slip initially after the WSJ reported the Trump administration is using national-security laws to consider imposing new tariffs on vehicle and auto-parts imports, and is asking for new tariffs of as much as 25% on automobile imports https://on.wsj.com/2J2oeIn; in auto parts, CPRT reported a 3Q18 EPS beat driven by stronger sales performance as sales grew 28% y/y, ~9% above the Street, likely driven by strong volume and pricing (margins weak)

· Oil services & Equipment: RDC upgraded to outperform and OII upgraded to market perform at Wells Fargo as increasing offshore macro assumptions (spending, rig count, trees, etc.), increasing estimates, net asset values, and raising PTs for our large cap service; on earnings, BRS falls as reported mixed Q4 results as EPS beat but revs missed

· Power & Utility; PJM auction (NRG, EXC, PEG) – Payouts to U.S. power generators climb in annual PJM auction as capacity price for largest U.S. power grid $140/megawatt-day; BW shares rise on reports Steel Holdings proposes to buy company for $3.00-$3.50 per share https://bit.ly/2IHb0xo ; DQ tgt raised to $75 at Roth and reiterate buy on DQ’s mono-grade mix, leading cost structure, and attractive valuation

· Consumer Staples; CLX reports new $2B stock buyback plan; in protein space, SAFM falls after Q2 results fall short of estimates even as sales and net income improved from a year ago/positive factors were offset by weak food service demand and lower selling prices; in food, HRL Q2 EPS and sales came in just shy of consensus views while maintains year views; KR announced its intention to with Home Chef, the largest privately held meal kit company in the U.S https://on.mktw.net/2kjuopC


· BW +17%; on reports Steel Holdings proposes to buy Babcock & Wilcox (BW) for $3.00-$3.50 per share https://bit.ly/2IHb0xo

· CELG +2%; authorizes $3B buy back of additional stock

· GE +1%; partially rebounds after yesterday’s decline, getting a lift after CNBC’s David Faber said the company has no plans to cut dividend

· LB +2%; Q1 results were mostly in-line, but guided Q2 EPS below views and lowered its year earnings and comp sales view as concerns around the Victoria’s Secret and PINK brands remain

· LYB +1%; has valued Brazilian petrochemical company Braskem SA at 41.5 billion reais ($11.4B) in an offer to Brazilian conglomerate Odebrecht SA months ago, Reuters https://reut.rs/2IMOOlD

· NRG +3%; among beneficiaries of PJM rate auction overnight

· SMRT +10%; after earnings results

· WSM +11%; Q1 earnings beat, as the quarter’s strong comps of 5.5% were above 4.1% expected and helped to drive its expense leverage/raises FY18 EPS view to $4.15-$4.25 from $4.12-$4.22


· BBY -7%; shares fell despite Q1 comp sales beat of 7.1% vs. est. around 3% as spending increased and the company only maintained its year guidance despite Q1 beat

· BRS -23%; reported mixed Q4 results as EPS beat but revs missed

· DB -5%; after announcing that it will slash equities sales & trading business headcount by about 25%/ number of full-time equivalent positions to fall from just over 97K to below 90K

· PBR -13%; after several analyst downgrades as the company announced the decision to reduce domestic diesel prices by 10% and maintain them unchanged for the next 15 days

· REPH -52%; after the FDA rejects its new drug application for a non-opioid pain medicine as company receives complete response letter

· SAFM -4%; results fall short of estimates even as sales and net income improved from a year ago/positive factors were offset by weak food service demand and lower selling prices

· WHR -7%; after saying about 7.19M shares tendered in modified Dutch auction


· AGNC Investment (AGNC) 30M share Spot Secondary priced at $18.60

· CLPS Inc. (CLPS) 2M share IPO priced at $5.25

· Eiger BioPharmaceuticals (EIGR) 3.2M share Spot Secondary priced at $12.50

· Floor & Decor (FND) 10M share Spot Secondary priced at $45.00

· GreenSky (GSKY) 38M share IPO priced at $23.00

· Melinta Therapeutics (MLNT) 22M share Secondary priced at $5.00

· Kiniksa (KNSA) 8.5M share IPO priced at $18.00

· QuickLogic (QUIK) 13.5M share Spot Secondary priced at $1.15

· RealPage (RP) 7M share Secondary priced at $57.00

· SailPoint (SAIL) 17.808M share Secondary priced at $22.50

· Scholar Rock (SRRK) 5.36M share IPO priced at $14.00


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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