Mid-Morning Look: June 04, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, June 4, 2018

U.S. stocks extending last week’s gains, but have pulled back off earlier session higher. The benchmark S&P 500 index moving toward a three-month high with most sectors leading early (Healthcare space volatile given data from ASCO cancer conference this weekend). Tech space paced by gains in Dow component Apple ahead of its World Wide Developers conference this week. Small Caps still outperforming, with the Russell 2000 index touching fresh all-time highs today before reversing. Energy stocks give up early gains as WTI oil moves to lows of the session around $65 per barrel, extending last week’s declines. Treasury yields inch higher as bonds fall, while the dollar declines. Stocks jumped last Friday on a positive job numbers-based rally, while political concerns in Europe eased. While data has been solid, Europe macro issues appear on the “back-burner” for now, and rate hike expectations likely “built-in” to markets, the main focus remains the U.S. issues on trade with China and Nafta partners Canada, EU, Mexico after the U.S. imposed tariffs last week.


Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar index (DXY) slips back below the 94 level, led lower as the euro rebounds following political concerns easing last week amid Italy and Spain political issues (Populist parties the Italian 5 Star Movement and the League formed a coalition administration, while Spain also has a new government after a Socialist Party leader Pedro Sánchez was sworn-in as prime minister on Saturday); dollar little changed vs. euro, down vs. the Pound

· Precious metals little changed on the day, with gold prices holding most of the morning just below the $1,300 an ounce level; market expectations for rising rate hikes from the Fed sent gold lower last week (FOMC meets June 13th)

· Energy futures extend last week’s declines, with WTI crude falling to lows just above $65 per barrel. The move comes after WTI crude marked its lowest finish since April, and down nearly 3.1% for the week amid fears of growing U.S. production and the possibility that OPEC and its allies will boost output prompted U.S. benchmark prices to settle at their lowest level since April.

· Treasury markets slipping slightly, with the yield on the 10-year inching back around 2.92% (off last week lows of 2.76%), as rate hike expectations have risen following last Friday’s strong jobs report; rotation also out of safe-haven assets and back into riskier assets with stocks extending last week gains; 2-yr yield back around 2.5% and 30-yr above 3.06%


Economic Data

· Factory Goods Orders for April fall (-0.8%) vs. est. decline of (-0.5%), while Factory orders for March revised up to 1.7%; New orders ex-trans. for April rise 0.4% and new orders ex-defense for April fall 0.9% after rising 2.4% in March; capital goods non-defense ex aircraft new orders for April rise 1% after falling 1% in March

· Durables orders for April fall (-1.6%) after rising 2.7% in March; consumer goods shipments for April rise 0.6% after rising 0.8% in March and consumer goods new orders for April rise 0.5% after rising 0.9% in March


Sector Movers Today

· Retailers; sector outperforms, led by apparel, hardline, and department stores; ROST added to focus list and $98 tgt at JP Morgan noting management cited no change to the long-term double-digit earnings growth model with +5-6% unit growth; FOSL tgt raised at KeyBanc to $32 citing combination of expense reductions, focus on wearables, and a more favorable secular watch environment; strength early in WMT, UAA, TGT, HD, LOW

· Solar stocks weak (JKS, CSIQ, FSLR) after Roth Capital noted overnight, China’s NEA released its anticipated “Solar Management Plan.” While saying they had been expecting downside risk to China demand for months, the policy update is more severe than we expected with potentially negative consequences for traditional utility scale and DG demand in 2018. Additionally, the FY’18 FITs for utility scale projects and fully-connected to the grid DG projects were lowered by ~6-9%

· Refiners; PBF upgraded to Outperform at Raymond James saying with U.S. crude production outpacing our above-consensus model, they have increased their outlook for oil price differentials (Brent-WTI, Bakken diffs, heavy diffs, etc.) which they expect to provide a substantial boost for the refining group and PBF

· Insurance; Goldman Sachs upgraded PRU to buy from neutral saying while life insurers have underperformed this year, there are pockets of opportunity in firms with above-average cash flow or redeployed capital, good organic growth opportunities, and riskier businesses that are contained or could be transferred/firm also downgraded MET to neutral

· Airlines; LUV cuts its Q2 RASM view to down (-3%) YoY; said it now sees 2Q operating RASM at the lower end of the company’s previous guidance range of down 1%-3%, primarily driven by lower bookings largely due to reduced marketing efforts following the Flight 1380 incident; AAL warned airline passengers may face higher ticket prices if oil prices remain high, prompting carriers to remove seats from the market, according to Reuters; DAL said total system traffic up 2.9%, capacity up 3.5% YoY and load factor 86.3% vs. 86.7% a year ago

        Stock GAINERS

· AMD +2%; Bank America positive on NVDA and AMD after a review of graphics chip market trends, concluding that gaming is picking up slack for crypto/sees PC gaming market growing 27% annually through 2020, up from prior view 19%

· BLUE +3%; and its partner CELG announced updated results on bb2121, an investigational anti-B-cell maturation antigen CAR-T cell therapy/phase 1 clinical trial results for the CAR-T cell therapy bb2121 showing that median patients survived for 11.8 months without their cancer progressing

· GHDX +9%; said the TAILORx study provided definitive evidence that the Oncotype DX Breast Recurrence Score test identified 70% of early-stage breast cancer patients who receive no benefit from chemotherapy and can be effectively treated with endocrine therapy alone

· IMMU +10%; as results from the single arm Ph. II of sacituzumab govitecan were presented Sunday at ASCO. Key new data include median PFS of 6.8 months and median duration of response of 7.4 months. ORR of 31% was consistent with the abstract

· LOXO +1%; after the company announced interim clinical data from the LOXO-292 global Phase 1 LIBRETTO-001 dose escalation trial (shares down over 20-points from earlier highs)

· MRK +2%; after Keytruda extends lunch cancer survival in 2 trials

· PBF +3%; upgraded to outperform at Raymond James

· PBR +5%; rebounded after falling Friday on announcement CEO stepping down

· WHR +3%; upgraded to outperform at Credit Suisse noting there’s been an average 5% increase in appliance list prices, but channel checks show sell-through growth holding at 2-4%

· WWE +2%; KeyBanc raises tgt to $71 from $49 on likeliness of TV rights for Raw and Smackdown greatly exceeding prior expectations

Stock LAGGARDS

· BMY -4%; falling in reaction to combo treatments with NKTR and JNCE this weekend at ASCO

· JNCE -36%; following disappointing JTX-2011 data at ASCO

· NKTR -42%; after the company released early data from a phase 1/2 clinical trial testing the company’s NKTR-214 in combination with BMY’s cancer drug Opdivo/expectations were very high with shares of NKTR rising 11% on Friday into results (BMY falls in sympathy)

· PANW -3%; Q3 results topped consensus with record billings beat ($45M+ beat), license revenue ($20M+ beat), and total revenue beat – shares erased early gains to turn lower

· TCMD -9%; BTIG downgraded shares to neutral from buy, citing the stretched multiple

· ZYME -15%; after data from its novel bispecific antibody, ZW25, presented at ASCO

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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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