Morning Preview: June 1, 2018

Terrie AmengualDaily Market Report

Early Look

Friday, June 1, 2018

U.S. stock futures pointing to a higher open, following European markets higher after receding fears in European politics, as Spanish Prime Minister Mariano Rajoy was ousted from power, and main opposition Socialist Party Pedro Sanchez will automatically become the new prime minister, while in Italy, populist parties the League and the 5 Star Movement struck a deal to form a coalition government. Attention now turns to the monthly jobs report at 8:30 AM EST, the final major economic data point ahead of the June FOMC meeting where a rate hike is widely anticipated. Stocks look to bounce back from Thursday’s declines as major averages felt pain after the Trump administration announced it would go ahead with tariffs on imports of steel and aluminum from the European Union, Canada and Mexico. The trade partners said they would retaliate. Despite the decline yesterday, May was still positive for equities, with the Dow booking a 1.1% monthly rise, the S&P 500 gaining 2.2% and the Nasdaq Composite advancing 5.3%. The small-cap Russell 2000 declined yesterday from record highs but still posted a 6.1% monthly rise. Nine of 11 S&P 500 industry groups traded lower Thursday, led by Industrials. Already this morning there was manufacturing PMI data in the Europe, which showed some weakening in national measures. Markit May manufacturing PMI for the U.S. is due at 9:45 a.m., with ISM manufacturing at 10:00 a.m. Auto-sales data for the U.S. comes out today

In Asian markets, The Nikkei Index dipped -30 points to settle at 22,171, the Shanghai Index fell -20 points to 3,075 and the Hang Seng Index rose 24 points to settle at 30,492. In Europe, the German DAX is up over 200 points at 12,720, while the FTSE 100 is higher by more than 50 points at 7,735. European markets take a sigh of relief after late yesterday Giovanni Tria was named the new Italian finance minister. Political change in Spain as Prime Minister Mariano Rajoy was ousted from power after he lost a no-confidence vote in parliament. The final vote, 180-169, was called by the main opposition Socialist Party, whose leader Pedro Sanchez will automatically become the new prime minister.

Market Closing Prices Yesterday

· The S&P 500 Index slumped -18.74 points, or 0.69%, to 2,705.27

· The Dow Jones Industrial Average fell -251.94 points, or 1.02%, to 24,415.84

· The Nasdaq Composite dropped -20.34 points, or 0.27%, to 7,442.12

· The Russell 2000 Index declined -14.32 points, or 0.87% to 1,633.67

Events Calendar for Today

· 8:30 AM EST Change in Nonfarm Payroll data for May…est. 190K

· 8:30 AM EST Change in Private Payrolls for May…est. 190K

· 8:30 AM EST Change in Manufacturing Payrolls for May…est. 20K

· 8:30 AM EST Unemployment Rate for May…est. 3.9%

· 8:30 AM EST Average Hourly Earnings for May…est. 0.2%

· 10:00 AM EST ISM Manufacturing for May…est. 58.2

· 10:00 AM EST Construction Spending for April…est. 0.8%

· 1:00 PM EST Baker Hughes Weekly Rig Count

· N/A Monthly auto sales for May released

World News

· U.K. May manufacturing PMI at 54.4 vs. 53.9 in April and vs. the 53.5 estimate

· Euro-area manufacturing lost momentum in May as the strength of export demand eased. IHS Markit said its manufacturing purchasing managers’ index was 55.5, the lowest in 15 months and unchanged from a flash estimate last week

Sector News Breakdown


· Big Lots (BIG) Q1 EPS 95c missed the $1.19 estimates as Q1 comps fall a greater (-3%) vs. est. (-0.7%); sees FY EPS view $4.50-$4.70 vs. est. $4.87 – report follows disappointing results from rival dollar stores DG and DLTR yesterday as shares of both declined

· Costco (COST) shares fell -2%; Q3 EPS $1.70/$32.36B vs. est. $1.69/$31.84B; Q3 total company comparable sales excluding fuel, in constant currency +7.0% vs. est. +5.4%; Q3 total company comparable sales including gas, currency +10.2% vs. est. 7.70%; Q3 membership fees $737M

· GameStop (GME) shares fell -3%; Q1 EPS 38c/$1.93B vs. est. 37c/$1.96B; backs FY18 sales and earnings in line with prior view; said they continue to expect annual sales and earnings results for fiscal 2018 to be in line with the guidance we provided last quarter; 1Q new hardware sales -7.9% and 1Q new software sales -10.3%; overall Q1 comp sales fell (-5.3%) vs. est. (-5%)

· Lululemon (LULU) shares rose 7%; Q1 EPS 55c/$649.7M vs. est. 46c/$617.7M; Q1 comp sales in constant currency +8%, vs. estimate +2.8%; sees FY net revenue $3.04B-$3.08B vs. est. $2.63B; Q1 gross margin +53.1% vs. estimate +51.4%; sees year EPS $3.10-$3.18 vs. est. $3.10

· Ulta Beauty (ULTA) shares fell -4%; Q1 EPS $2.70/$1.544B vs. est. $2.49/$1.52B; Q1 comparable sales increased 8.1% (vs. est. 6.9%) compared to an increase of 14.3% YoY, driven by 5.1% transaction growth and 3.0% growth in average ticket; sees Q2 EPS $2.35-$2.40 on revs $1.475B-$1.488B vs. est. $2.49/$1.49B and Q2 comp sales are expected to increase 6% to 7%

· Caleres (CAL) Q1 adjusted EPS 43c/$632.1M vs. est. 47c/$644.99M; Q1 Famous Footwear total sales of $363.4 M were down (-0.8%) vs. est. 2.2%, as were same-store-sales, and we operated 39 fewer doors year-over-year; backs FY18 revenue view of roughly $2.8B vs. est. $2.81B and backs FY18 Famous Footwear comp sales view up low-single digits

· Owens Corning (OC) files automatic mixed securities shelf

· Wal-Mart (WMT) holds its annual shareholder meeting today


· Deutsche Bank AG (DB) was downgraded by S&P Global Ratings citing concerns over the German lender’s restructuring plans. The ratings agency cut the long-term issuer credit rating to ‘BBB+’ from ‘A-‘on the bank and its core operating subsidiaries.

· Fulton Financial Corp. (FULT) reported that potentially fraudulent activities at an unnamed customer will result in an 18c hit to Q2 earnings

· Square (SQ) announced updates to its guidance to reflect the impact of its acquisition of Weebly, which closed today, and its recent issuance of $862.5M in aggregate principal amount of 0.50% convertible senior notes due 2023. Square raised its Q2 revenue view to $744M-$764M from $740M-$760M and adjusted revenue view to $362M-$367M from $355M-$360M. Consensus $360.2M. Square maintains a Q2 adjusted EPS view of 9c-11c, consensus 12c


· Note the main cancer conference ASCO takes place this week – many biotech and Pharma companies to report data: MRK, NKTR, RHHBY, BLUE, LOXO, CELG, LLY, TSRO among them

· Reata Pharma (RETA) said the EU’s European Commission has given orphan drug designation to bardoxolone methyl, or bardoxolone, for the treatment of Alport syndrome

· Regeneron Pharma (REGN) is shipping its investigational Ebola treatment, REGN-EB3, to Democratic Republic of the Congo for use in the current outbreak

· Endologix (ELGX) files $100M mixed securities shelf

· Progenics Pharmaceuticals (PGNX), Valeant Pharmaceuticals (VRX), Salix Pharmaceuticals, and Wyeth LLC entered into a settlement pact relating to two actions for patent infringement brought against Actavis

· Vericel (VCEL) 5M share Secondary priced at $13.00

Industrials & Materials

· International Paper (IP) upgraded to outperform at Wells Fargo

· LyondellBasell (LYB) announced that shareholders approved a new share repurchase program authorizing the company to repurchase up to 10% of the company’s shares over the next 18 months

Technology, Media & Telecom

· Workday (WDAY) shares fell -2%; Q1 EPS 33c/$618.6M vs. est. 26c/$609.7M; Q1 subscription rev. $522.1M and sees 2019 subscription revenue of $2.275B-$2.290B

· Marvell (MRVL) Q1 adjusted EPS 32c/$605M vs. est. 31c/$602.01M; sees Q2 adjusted EPS 32c-36c on revs $600M-$630M vs. est. 33c/$621.04M; Q2 GAAP and non-GAAP gross margins are expected to be approximately 63% to 64%

· Microchip (MCHP) sees Q1 EPS $1.41-$1.55 vs. est. $1.43 and sees Q1 consolidated non-GAAP net sales up 17%-24% sequentially

· VMware (VMW) Q1 EPS $1.26/$2.01B vs. est. $1.14/$1.96B; Q1 billings growth +17% and Q1 free cash flow $1.03B

· Yext (YEXT) Q1 EPS loss (11c)/$51.1M vs. est. loss (12c)/$49.46M; sees 2Q revenue $53.0M-$54M and year revs $225M-$227M

· Zuora (ZUO) Q1 adjusted EPS loss (32c)/$51.7M vs. est. loss (40c)/$48.97M; sees Q2 adjusted EPS loss (16c)-(15c) on revs $53.5M-$54.5M vs. est. loss (17c)/$51.33M

· DraftKings, Atlantic City’s Resorts Casino will sign a deal on Friday morning to offer sports betting in New Jersey, AP reported


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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