Morning Preview: May 29, 2018

Terrie AmengualDaily Market Report

Early Look

Tuesday, May 29, 2018

U.S. stock futures decline as investors return from the holiday weekend amid new drama in Europe, as Italian markets drag the EuroZone lower (and Italian markets plunge over 3%) as investors position themselves for the possibility that a new general election will be held in the eurozone’s third-largest economy. The move in Europe overshadows positive reports over the weekend that President Donald Trump appeared to confirm the summit with North Korean leader Kim Jong Un was back on, three days after it was abruptly called off. The selloff in Italian stocks (and bonds as the 10-yr yield climbed more than 45 bps to 3.1%) after Monday’s decision by Italian President Sergio Mattarella to block two antiestablishment parties from taking power by rejecting their euro skeptic candidate for economy minister. Mattarella then asked Carlo Cottarelli, a former International Monetary Fund official, to try to form a new government. In Italy, markets are down over -600 points (or -3%) amid the political turmoil.


Treasury markets extended its weekly rally, with the 10-year yield falling below 2.93% as fears of uncertainty with North Korea, and trade dispute fears with China and countries related to NAFTA all weighing on market sentiment this week that saw defensive assets rally. The 10-year Treasury note yield fell 4.9 bps to 2.931%, extending a weekly drop of 13.6 bps, the largest such decline since April 2017. The 2-year note yield fell -3.2 bps to 2.480%, and 6.8 bps on the week. However, given the turmoil in Italy, the 10-year yield has now fallen to lows of 2.85% (25 bps off recent highs).


U.S. stocks closed mostly lower on Friday following a selloff in energy shares as oil prices dropped over 4%…but all three main benchmarks posted weekly gains. For the week, the Dow Jones Industrial Average posted a 0.2% weekly gain, the S&P 500 index ended the week 0.3% higher and the Nasdaq Composite gained 1.1% over the week. Oil prices plunged on Friday to finish at their lowest levels in weeks, as reports said OPEC and Russia are considering lifting production by as much as 1 million barrels a day to meet the shortfall in supply from Iran and Venezuela.


In Asian markets, the Nikkei Index dipped -122 points to settle at 22,358, the Shanghai Index fell -14 points to end at 3,120 and the Hang Seng Index dropped -307 points to end at 30,484. In Europe, the German DAX is down over -170 points under 12,700, while the FTSE 100 is down roughly -100 points.

Market Closing Prices Yesterday

· The S&P 500 Index dropped -6.43 points, or 0.24%, to 2,721.33

· The Dow Jones Industrial Average fell -58.67 points, or 0.24%, to 24,753.09

· The Nasdaq Composite gained 9.42 points, or 0.13%, to 7,433.85

· The Russell 2000 Index dropped -1.29 points, or 0.08% to 1,626.93

Events Calendar for Today

· 12:00 AM EST Fed’s Bullard speaks in Tokyo

· 7:45 AM EST ICSC Weekly Retail Sales

· 8:55 AM EST Johnson/Redbook Weekly Sales

· 9:00 AM EST S&P CoreLogic Case Shiller 20 City index for March…est. 0.7%

· 10:00 AM EST Consumer Confidence for May…est. 128.0

· 10:30 AM EST Dallas Fed Manufacturing Activity for May…est. 24.5

Earnings Calendar:

· Earnings Before the Open: AMWD, BAH, WMS

· Earnings After the Close: CRM, CVCO, HEI, HPQ, SPTN

Other Key Events:

· Craig Hallum Institutional Investor Conference, 5/29-5/30 in Minnesota

· Deutsche Bank Financial Services Conference, 5/29-5/30, in New Yok

· Eurozone M3 money supply data for April

World News

· Italy’s president set the country on a path back to fresh elections, appointing a former International Monetary Fund official as interim prime minister with the task of planning for snap polls and to pass the next budget – Reuters

Sector News Breakdown

Consumer

· Dollar Tree (DLTR) positive mention in Barron’s ahead of earnings saying shares in particular looks interesting, and with the stock down more than 10% this year, even a little disappointment turns out to be good enough to send the shares higher

· Wyndham Worldwide (WYN) will replace Microsemi Corp. (MSCC) in the S&P MidCap 400 effective prior to the open of trading on Thursday, May 31

· Wyndham Hotels & Resorts Inc. (WH) will be added to the S&P MidCap 400 effective prior to the open of trading on Friday, June 1, replacing GameStop Inc. (GME)

· GameStop (GME) will replace Fred’s Inc. (FRED) in the S&P SmallCap 600 also effective prior to the open of trading on June 4.

· Digital Ally (DGLY) files $25M mixed securities shelf

· American Woodwork (AMWD) Q4 adjusted EPS $1.64 on revs $405.9M

Financials

· Legislation signed by President Donald Trump could provide another boost to bank investors by unleashing mergers, dividend increases and buybacks among small and midsize lenders, Barron’s said

· Lincoln National (LNC) files to sell 1.56M shares of common stock

Healthcare

· Smith’s Group PLC (SMIN.LN) confirmed that it has entered talks with ICU Medical Inc. (ICUI) over a potential merger of both companies’ healthcare operations. The U.K. engineering company said in a statement Sunday that it was in the “very early” stage of discussions over a potential combination with U.S.-based ICU Medical https://on.mktw.net/2IXycYr

· Genmab (GMXAY) shares fell after the company announced over the weekend that partner Janssen will stop studies of daratumumab in combination with Anti-PD-(L)1

· ABIOMED Inc. (ABMD) will replace Wyndham Worldwide Corp. (WYN) in the S&P 500, 5/31

· PRA Health Sciences Inc. (PRAH) will replace ABIOMED (ABMD) in the S&P MidCap 400 effective prior to the open of trading on Thursday, May 31

· GlaxoSmithKline PLC (GSK) said Tuesday that it has filed an application in Japan for its Trelegy Ellipta drug, which treats chronic obstructive pulmonary disease, or COPD

· OncoMed (OMED) files $150M mixed securities shelf

· Vital Therapies (VTL) files $200M mixed securities shelf

Industrials & Materials

· Booz Allen (BAH) Q4 EPS 52c/$1.64B vs. est. 46c/$1.68B; sees year EPS $2.35-$2.50 vs. est. $2.42

· Volkswagen AG (VLKAY) has stopped production of some of its diesel engine vehicles due to problems with the engine control lamp, the German car maker said over the weekend.

· Canadian Pacific Railway (CP) teamsters union serves strike notice to CP Rail and said that the earliest the Teamsters Canada Rail Conference and IBEW System Council could go on strike is May 29 at 10 pm ET if there isn’t a negotiated settlement between the parties

· Airbus (EADSY) welcomes a proposal from U.S. to discuss settlement of subsidies-related dispute, spokeswoman says by email. Says Airbus “happy” to start talks on a settlement with “everything on the table and without any preconditions”

Technology, Media & Telecom

· Verint Systems Inc. (VRNT) is in talks to buy NSO Group, an maker of cyber surveillance products, for about $1B, according to reports. NSO is known for selling military-grade technology including Pegasus spyware mainly to government security agencies. https://on.mktw.net/2L2rMrs

· Altice’s (ATUS) mentioned positively in Barron’s saying on June 8th, Altice will spin off its U.S. systems, with some shares of the Altice USA business trading here since last year, and arbitrage sales ahead of the spinoff pushing them down to levels that are cheap in comparison with other communications stocks – bulls see as much as 50% upside

· Chinese authorities are set to approve Qualcomm Inc.’s (QCOM) planned $44 billion acquisition of Netherlands-based NXP Semiconductors NV (NXPI) in the next few days, according to people familiar with the matter https://on.mktw.net/2kwR6eg

· Perspecta Inc. (PRSP/Wi) will replace Office Depot Inc. (ODP) in the S&P MidCap 400, and Office Depot will replace Roadrunner Transportation Systems Inc. (RRTS) in the S&P SmallCap 600 effective prior to the open of trading on Monday, June 4.

· Disney’s (DIS) “Solo: A Star Wars Story” opened with $83.325M for the three-day portion of the Memorial Day holiday weekend, ComScore said vs. the $101M expected for entire weekend; the movie also earned $65M internationally, for a total of $148.3M

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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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