Tuesday, June 5, 2018
U.S equities struggling for direction, getting a quick boost following a stronger than expected ISM services reading, while technology and Small Caps advance. The Nasdaq Composite looks to add to its record settling close yesterday (tops prior intraday record highs of 7,637 on 3/13) and Small Caps look to extend their record setting run of late (Russell 2000 index), though the Dow little changed as financials and energy lag. Markets looking for fresh catalysts to keep the start-of-the-week gains going, as they regroup after recent market upheaval triggered by political stress in Italy, better jobs data last Friday and signs that the North Korea summit next week is on track. The main market concern remains trade, with the U.S. continuing to butt-heads with China as well as NAFTA partners Canada, Mexico and the EU, which could cause some turbulence if agreements aren’t ironed out. FAANG stocks once again pacing gains, with record highs for AAPL, AMZN, NFLX (FB and GOOGL not far from their highs).
Treasuries, Currencies and Commodities
· In currency markets, the U.S. dollar higher, extending early gains after the stronger services ISM, sending the euro to intraday lows and the buck up around 2-week highs vs. the Japanese yen; the Canadian dollar and Mexican peso both fall vs. the dollar as suggestion for the U.S. to pursue separate trade deals with Mexico and Canada is becoming a serious idea; the dollar index (DXY) up 0.25% at 94.25 (off earlier lows 93.88).
· Precious metals extend recent slide on improving economy and rising rate hike expectations; the rising dollar also weighing on commodity prices as gold remains below the $1,300 an ounce level.
· Energy futures slip, remains in downward momentum last few weeks (ahead of inventory data tonight and tomorrow) after reports the U.S. government has asked Saudi Arabia and other members of OPEC to increase oil output by around 1 million barrels a day to help cap rising oil prices, Bloomberg reported The request comes after President Donald Trump publicly complained about OPEC policy and rising oil prices on Twitter https://on.mktw.net/2Jtb33I . Crude oil futures fell yesterday, with U.S. WTI settling near a two-month low, as investors continue to sell in the face of growing U.S. production, possible global supply growth and trade war concerns.
· Treasury market’s advance slightly, as yields pullback after yesterday gains, as a fresh wave of selling in Italian bonds provide move to defensive assets. The 10-yr yield down a few bps to 2.926% with the 30-yr yield 3.075% and the 2-yr above 2.5%.
· ISM Non-Manufacturing index for May rises to 58.6 from 56.8 last month and topped the 57.6 estimate; backlog of orders rose to 60.5 from 52 and marked the highest level on record. Business activity rose to 61.3 vs 59.1 prior month while new orders rose to 60.5 vs 60.0 and employment rose to 54.1 vs 53.6; prices paid rose to 64.3 vs 61.8
· Markit May composite purchasing managers’ index rises to 56.6 from 54.9 in April (and compared to 55.7 flash reading) and vs. year ago 53.6; Employment rises to 54.7 vs 54.4 in April (highest reading since May 2015) while new Orders fall vs prior month (lowest since March)
· U.S. job openings rose to 6.698M in April from 6.633M in the prior month; April pace of hiring 3.8% vs 3.7% prior month; 3.351M people quit a job in April; layoffs and discharges at 1.2% in 2018 vs 1.0% in March; 1,710,000 people were fired or laid off in April vs 1,687,000 YoY
Sector Movers Today
· Heavy duty machinery/trucking; active space as NAV reported Q2 EBITDA ahead of expectations, while sales were slightly below and the company raised FY EBITDA guidance by slightly more than the 2Q EBITDA; monthly Class-8 truck data out as well (CMI, PCAR, NAV, ALSN leveraged to data) as preliminary net orders of heavy trucks (Class 8) in May at 35,600 units – up 110% y/y and YTD, orders booked at a record level. Lastly, in research, PCAR was upgraded at Macquarie saying its used-truck-value analysis shows PCAR-branded trucks continue to increase in value
· Software & Hardware; video game maker TTWO was downgraded to market perform at BMO Capital on concerns that Red Dead Redemption 2 could fall short of lofty expectations; COUP posted Q1 beat and 10% revenue upside and FY19 guidance was raised; SMAR key financial metrics showed upside, Q1 revenue grew 63% YoY, and guidance for Q2 was solidly ahead of expectations – a solid first quarter out of the gate
· Internet; TWTR replacing MON in the S&P 500 index after deal with Bayer closes; NFLX replacing MON in the S&P 100 index; SFLY tgt raised to $111 at SunTrust to reflect sustained improvement in core Consumer segment, LT accretion from Lifetouch and tweaks to our model; SABR 16M share secondary offering priced at $24.55; NFLX, AMZN, GRUB, BABA record highs
· Retailers; ASNA shares posts same-store sales and revenue declines/Maurice’s and Dressbarn, reported a 5% decline and a 14% decline respectively; GIII rises as full-year guidance also came in ahead of expectations after the improvement shown in FQ1 as sees FY18 revs of $2.97B vs. $2.96B consensus and EPS of $2.27-$2.37 vs. est. $2.07; NKE, ADDYY, UAA shares strong recently amid momentum into World Cup jersey sales; FRAN falls as Q1 EPS loss (11c) in-line on lighter sales, but Q2 EPS below consensus; GCOposted narrower Q1 EPS loss on better sales of $645M, though comp sales posted an unexpected comp decline (-1%)
· AAPL +1%; extends gains to fresh record highs amid ongoing worldwide developers conference
· COUP +7%; posted Q1 beat and 10% revenue upside and FY19 guidance was raised
· DISH +3%; rises after Co-founder Ergen buys 100K shares according to filing
· GIII +13%; as full-year guidance also came in ahead of expectations after the improvement shown in FQ1 as sees FY18 revs of $2.97B vs. $2.96B consensus and EPS of $2.27-$2.37 vs. est. $2.07
· MYL +7%; as received FDA approval of a drug biosimilar to AMGN’s Neulasta; Mylan’s version, called Fulphila, is approved to treat chemotherapy patients with low white-blood-cell counts
· SMAR +19%; key financial metrics showed upside, Q1 revenue grew 63% YoY, and guidance for Q2 was solidly ahead of expectations – a solid first quarter out of the gate
· TWTR +5%; replacing MON in the S&P 500 index after deal with Bayer closes
· VSTM +6%; after establishing an exclusive licensing agreement with Japan’s Yakult Honsha to develop and commercialize duvelisib for the treatment, prevention or diagnosis of all oncology indications in Japan
· AMGN -1%; as MYL receives FDA approval for biosimilar to its Neulasta
· ANW -68%; disclosed that approximately $200MM of accounts receivable owed to Aegean will need to be written off
· ASNA -1%; following both same-store sales and revenue declines/Maurice’s and Dressbarn, reported a 5% decline and a 14% decline respectively
· CCL -3%; as Morgan Stanley notes concern about a possible slowdown in the cruises sector in 4Q18 amid hurricane worries in the Caribbean, higher fuel prices and a risk of overcapacity
· FRAN -13%; Q1 EPS loss (11c) in-line on lighter sales, but Q2 EPS below consensus
· FSLR -2%; downgraded to neutral from buy at Bank America and tgt cut to $63 from $83 in the face of margin deterioration risk from China’s policy shift
· GCO -10%; posted narrower Q1 EPS loss on better sales of $645M, though comp sales posted an unexpected comp decline (-1%)
· SBUX -1%; after surprise announcement that CEO Howard Schultz will be stepping down as exec. Chairman, effective June 26, 2018/Mike Ullman next chair and Mellody Hobson vice-chair