Mid-Morning Look: June 07, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Thursday, June 7, 2018

Equities mixed with sector rotation ongoing this morning as financials outperform for a second straight session, along with gains in energy and retail related shares, while the technology space takes a breather after its record run. The Nasdaq Composite falls to lows, down -0.5% amid profit taking in Internet names, with NFLX, FB, AMZN, GOOGL, BABA all dropping from all-time or near record levels this week. The S&P 500 looking to extend its rally to five days, while the Dow builds on its gains after topping the 25K level yesterday. Trade remains center-stage for markets ahead of the G7 meeting this weekend and after Commerce Secretary Wilbur Ross said China-based telecom giant ZTE would pay a $1 billion fine to the U.S. on CNBC this morning. ZTE had been banned from buying U.S.-made components, due to violations of U.S. sanctions against North Korea. Oil prices rebounding from multi-week lows, with WTI crude up over 1%, leading energy stocks higher after recent selling pressure (attention turns to OPEC meeting at months end). Bonds are little changed while the dollar slips. In Europe, Brexit negotiations grabbing headlines as the U.K. government on Thursday published a paper outlining a “backstop” plan for trade with the European Union after Brexit. The plan lays out temporary arrangements to match EU trade tariffs, aimed at keeping the Irish border open after the withdrawal in March 2019.


Treasuries, Currencies and Commodities

· In currency markets, the dollar index slips, as the euro extends gains back above the 1.18 level as ECB officials (ECB Chief Economist Peter Praet and ECB policy maker Jens Weidmann) confirmed yesterday they’re ready to ramp up discussions on ending the central bank’s massive bond-buying program when they meet next week (June 14). The Brazilian real reaches its weakest since March 2016, prompting more intervention from the country’s central bank.

· Precious metals little changed, as gold prices holding above the $1,300 an ounce level. Energy futures. Energy prices rebound with WTI crude rising more than 1% as approaches $66 per barrel, after falling more than 3% last week

· Treasury markets are unchanged, as the yield on the 10-year steady at 2.972%, after rising 6 bps yesterday; all eyes on central banks next week where the FOMC is expected to hike by 25 bps, while the ECB has confirmed they will discuss possibility of ending its QE program; 2-yr yield 2.52% and 30-yr slips to 3.12%


Economic Data

· Weekly jobless claims dipped by 1,000 to 222,000 in the latest week, slightly above the 222,000 estimate, while the more stable 4-week average of new claims rose by 2,750 to 225,50; continuing claims increased by 21,000 to 1.75 million


Sector Movers Today

· Solar sector; group has been pressured over the last three days on recent policy developments in China that are likely to put pressure on margins past 2019 according to various analysts that have downgraded the sector (FSLR cut at Goldman today, following two other analyst cuts the last two-days). This morning a few defenses as Cowen defended FSLR, SEDG, ENPH saying China’s solar policy shift is a “transitional decision” as government shifts toward auctions, something China has already done for its “top-runner” program. Also, CSIQ was upgraded at JPMorgan

· Consumer Staples; food stocks fall after SJM posted a Q4 EPS and revenue quarterly miss on weaker margins while also guiding the year lower ($8.40-$8.65 vs. est. $9.16); UNFI also a drag on space despite a beat on both the top and bottom line and higher guidance as one analyst noted margins remain under pressure and free cash flow contracted meaningfully as working capital demands intensify (watch CPB, MDLZ, GIS)

· Casino, Lodging & Leisure; RV/Motorhome sector weak after THO reported Q3 EPS and gross margin that missed estimates citing late start to spring and inflationary price increases/also showed retail inventory growth accelerating, backlog declining – shares of peers WGO and CWH also active on report as well as suppliers LCII and SPAR

· Optical stocks rally (ACIA, AAOI, LITE, OCLR) after Commerce Secretary Wilbur Ross said China-based telecom giant ZTE would pay a $1 billion fine to the U.S. ZTE had been banned from buying U.S.-made components, due to violations of U.S. sanctions against North Korea. Optical space gets a large portion of revenues from ZTE Corp.

       Stock GAINERS

· ABM +11%; after quarterly results and guidance

· AGN +3%; on reports Carl Icahn has acquired a small stake in the company at a time when the drugmaker is under pressure from other activist shareholder https://reut.rs/2JwOsDn

· AVHI +28%; to be acquired by TMHC for $21.50 per share in a deal valued at about $963M, including outstanding AV Homes debt https://yhoo.it/2LxK18K

· BLNK +4%; as announces plans for a joint venture with South Korean firm DSPOne to expand their respective EV charging infrastructure market share worldwide

· CONN +13%; Q1 EPS and revenue topped consensus while comps sales fell -3.5%), less than the (-4.3%) estimate and guided Q2 comps higher

· FIVE +19%; Q1 results topped estimates, but Q2 guidance for “flat” comparable-store sales was better than views after tough comps last year of up 9.3%/also raised guidance for FY18

· ZS +26%; after its quarterly report sine IPO easily topped estimates, as billings up 73% YoY and margins up 920 bps YoY

Stock LAGGARDS

· CLDR -7%; as top-line metrics were better than expected with slight upside to billings and revenue although full year (FY19) was unchanged at ~20% revenue growth

· LRCX -6%; shares fell after Evercore ISI said memory push-outs could weigh on Lam’s near-term shipment forecasts

· MDXG -20%; said it would restate financial statements for fiscal years 2012 through 2016, and interim periods of 2017 related to revenue recognition and is withdrawing all prior financial forecasts issued for 2018/CEO departs as well

· PTI -36%; downgraded at RBC Capital citing mixed data for CF corrector ‘801; says while there were signs of activity in the phase II, given a lack of clear FEV1 benefit they believe more work will need to be done to more fully de-risk the asset

· REVG -21%; following the company’s significant earnings miss and reduction in fiscal 2018 guidance (downgraded at SunTrust on report)

· SJM -4%; posted a Q4 EPS and revenue quarterly miss on weaker margins while also guiding the year lower ($8.40-$8.65 vs. est. $9.16)

· THO -1%; reported Q3 EPS and gross margin that missed estimates


Syndicate

· Altair (ALTR) 5.6M share Secondary priced at $35.00

· Carolina Financial (CARO) 1.596M share Spot Secondary priced at $43.00

· Deciphera (DCPH) 4.3M share Secondary priced at $40.00

· Entergy (ETR) 13.289M share Spot Secondary priced at $75.25

· First Internet Bancorp (INBK) 1.505M share Spot Secondary priced at $33.25

· ImmunoGen (IMGN) 13.7M share Secondary priced at $11.00

· M17 Entertainment (YQ) 7.511M share IPO priced at $8.00

· Madrigal Pharmaceuticals (MDGL) 1.347M share Secondary priced at $305.00

· Mirati Therapeutics (MRTX) 2.75M share Spot Secondary priced at $38.85

· Optinose (OPTN) 5M share Secondary priced at $22.25

· Rise Education (REDU) 7M share Secondary priced at $14.75

· Viking Therapeutics (VKTX) 7.5M share Spot Secondary priced at $9.00

· Zymeworks (ZYME) 5.4M share Spot Secondary priced at $15.75

 

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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