Friday, June 8, 2018
Equity Market Recap
· U.S. stocks opened the day lower, but finished higher amid optimism into this weekend’s G7 conference of political leaders in Quebec, that the U.S. and trading partners Canada, Mexico and the EU can resolve differences on tariffs. Oil prices end the day lower, booking its 3rd straight weekly decline as attention turns to the OPEC meeting at months’ end. After falling from record highs yesterday, and opening the day weaker, the tech heavy Nasdaq Composite finished near its best levels of the day. Heavy dose of central banks next week, with the FOMC results Wednesday afternoon and the markets expecting a rate hike, the ECB on Thursday as markets watch for commentary related to ending its massive QE program and the Bank of Japan Thursday night. Recently beaten up Consumer Staples (food, beverage, tobacco, etc.) were among the leaders in the S&P 500 today while energy resumes its slide along with a pullback in retailers after its strong run the last 2-weeks and financials on yields weakness. The dollar ended mixed, gold prices were flat on the day and week and bonds were steady into the meetings next week.
· Oil prices settled lower, with WTI crude sliding 21c to settle at $65.74 per barrel (high $66.24 and low $65.15); WTI crude also ends the week down marginally, falling (-0.1%). Prices have pulled back from 3 ½ year highs just three-weeks ago, as markets await the OPEC meeting on June 22 to discuss the outlook for their deal to cut supplies, with a report earlier this week that the U.S. has requested that the oil cartel lift production by 1 million barrels. Keeping prices stable remains supply concerns in Venezuela due to the economic crisis curtailing the country’s oil production, while the planned reinstatement of U.S. sanctions against Iran is expected to hit production for the OPEC producer. Iran’s OPEC governor predicts members will reject an unofficial U.S. request that Saudi Arabia and others pump more oil to cover a drop in Iranian and Venezuelan exports at the cartel’s June 22 policy meeting in Vienna.
· Gold prices were little changed, slipping 30c to settle at $1,302.70 an ounce as the dollar bounced but concerns about global trade tensions limited losses; for the week, gold prices managed a slight 0.3% gain as markets await the FOMC rate decision next week (also central bank decisions from the ECB and BOJ next week as well)
· The U.S. dollar ends Friday mixed, with the dollar index up slightly above 93.50 (off last week highs above 95), helped as the euro pulled back from weekly highs, though the greenback slips vs. the Japanese yen ahead of the G7 meeting this weekend that will focus on trade. The Argentine peso the most recent emerging market currency to hit lows, falling to record decline vs. US dollar (follows drops in Brazilian Realm Mexican Peso, and Turkish Lira outside South America). Currency moves were fueled by a Twitter feud between U.S. President Donald Trump and long-standing American allies Canada and the European Union.
· After two days of extreme volatility, Treasury markets were little changed as markets await several upcoming potential market moving catalysts. Yields spiked on Wednesday with the 10-yr rising from 2.91% to 2.97%…but fell yesterday to lows below 2.87% after touching highs of 2.99% early morning, before leveling off at 2.93% (where it held most of today). Between trade concerns ahead of the G7 meeting in Quebec City today and tomorrow and the upcoming FOMC, ECB and BOJ central bank meetings, markets held steady today. G-7 leaders began a summit meeting Friday that’s expected to be dominated by the reaction to U.S. tariffs on steel and aluminum imports produced by the European Union, Canada and Mexico.
Sector News Breakdown
· Retailers; it was a tremendous week for retailers, with many names posting 52-week highs (TJX, M, ROST, PVH, COST, FL) after the group rallied back off many disappointing earnings results this quarter, particularly in discount stores (DG, DLTR, BIG) and sporting goods; hopes for improved sales due to the World Cup lifting apparel names (NKE, UAA); LULU 10M share block trade priced at $121.75; ZUMZ shares rise after better-than-expected quarterly results, including the highest comparable store sales gain three years (May comps rose 7.5% vs. 3.8% est.)
· Auto movers; TSLA tgt raised to $450 at Nomura as they are more positive on Model 3 gross margins/believe Model 3 ASP’s are coming in above forecast due to stronger-than-expected demand for all-wheel-drive and performance configurations
· Consumer Staples; IFF was downgraded to hold at Argus as believe that the company is overpaying for its recently announced acquisition of Frutarom, a $7.1B purchase; MNST shares active after management issues a positive outlook at the company’s annual meeting yesterday saying U.S. business is showing strong momentum and that there is some room to take prices higher later this year; PM boosted its dividend to $1.14 from $1.07 for quarter
· Housing & Building Products; HOME mixed Q1 results as EPS beat by 4c and reaffirmed forecast for year comps and overall sales, but Q1 comps rose 0.9%, missing the 2% estimate
· Casino, Lodging & Leisure; LVS boosted its share buyback program to $2.5B from $1.56B; also in gaming space, PENN was upgraded to overweight at JPMorgan with $40 tgt; bounce in casinos after a rough week of losses after softer Macau numbers last month and fears the World Cup will take away from numbers over the next month (WYNN, MLCO)
· Energy stocks lagged on the week but were mixed today; Baker Hughes (BHGE) weekly total rig count rose 2 to 1,062, while oil rigs up 1 to 862 and gas rigs up 1 to 198; the U.S. Rig Count is up 145 rigs from last year’s count of 916, with oil rigs up 129 and gas rigs up 16.
· Solar posts tough week; FSLR weak having fallen 7-straight days coming into Friday and 11 of the last 12 days – solar space smacked this week after several analysts expressed caution on recent policy developments in China that are likely to put pressure on margins past 2019 – analysts expect the decline in Chinese demand and expanded supply to depress prices globally, and result in a surplus of Chinese imports into the US market – shares of SEDG, SPWR, JKS, CSIQ all lower this week (FSLR down 23.5% over 8-day losing streak)
· Oil services; Wells Fargo said given the current pace of activity and delays in pipeline capacity coming online, they believe that Permian completion activity may need to decline by at least 10-12% from 2Q18 levels by the end of 2018 and possibly more (an underappreciated risk) – they adjust rankings as like BHGE, SLB and WFT move up along with land drillers HP and NBR; while completion services names HAL, LBRT and FRAC move down
· E&P sector; CXO downgraded to Market Perform at Bernstein and cut tgt to $130 from $180 suggesting investors wait until Q2 results for a potentially better entry point, noting Permian names are being punished due to congestion in the play which means some companies will have attractive routes out and others will not (upgraded COP to outperform)
· Other movers; SU says Q2 production to date has averaged 636K bbl/day, reflecting the significant planned turnarounds in the quarter, and exited May at ~800K bbl/day/SU says planned turnaround work is now complete at Syncrude and its four refineries following some delays
· Large Cap banks/top stories; DB Chairman Paul Achleitner is considering a merger with rival Commerzbank AG and is speaking with top investors and government officials about the potential tie-up, Bloomberg reported late Thursday. ; overall, banks rebounded off lows mid-afternoon ahead of FOMC expected rate hike next week after underperforming major averages the majority of the week on bond volatility
· Consumer finance and lending; PYPL added to best ideas list at Wedbush as believe ongoing/recent monetization efforts, V/MA/banking partnerships, as well as post-EBAY separation potential opportunities, could potentially accelerate top-line growth/margins; AXP shares fall after Susquehanna said they could face a 6.6% decline in EPS, a 1.9% drop in revenue, and volume down 2.7% if the Supreme Court decides that AXP can’t prohibit merchants from directing customers to cheaper payment options
· Biotech and Pharma; EGRX rallied late Friday after a court ruled they should get orphan-drug exclusivity for Bendeka, without requiring proof of clinical superiority, for a period of seven years from the date on which Bendeka was approved for marketing; ALNY’supdated Phase 1/2 data on Lumasiran in primary hyperoxaluria type 1 (PH1)/note DRNA’s RNAi candidate for primary hyperoxaluria is Phase 1-stage DCR-PHXC; SVRA rises after bullish call from Evercore ISI as initiates with an outperform and $40 tgt as sees over 250% upside in the stock; ACOR shares jump after an appeals court hearing yesterday on its Ampyra patent; strength in generic and specialty pharma names today (TEVA, VRX, MNK) early
· Healthcare suppliers and services; The Justice department announced it does not plan to defend against a 20 state lawsuit seeking to remove the key tenets of the ACA, given the removal of the tax mandate (which was key to the prior Supreme Court decision relative to the ACA). COO Q2 sales topped consensus by $4.7M, with EPS coming in 2 pennies better as beat was driven largely by FX, however, CVI growth slowed by 130bps vs. 1Q; HIIQ said employment agreement of Michael Kosloske, HIIQ’s founder and chief of product innovation has been terminated
· Medical devices and equipment; EDAP shares soar in response to the FDA’s 510(k) clearance for its Focal One high intensity focused ultrasound (HIFU) device for ablating prostate tissue; DGX was upgraded to outperform at William Blair; DXCM was upgraded to overweight at JPMorgan and tgt upped to $115 from $80 as glucose measurement is becoming an essential tool for patients and DexCom, with the launch of the G6, is the “clear market leader” from a technological standpoint
Industrials & Materials
· Industrial & Machinery; GE authorizes regular dividend of 12c (there had been fear of possible cut); Deutsche Post AG lowered its 2018 guidance in logistics space as sees 2018 Ebitda about 3.2 billion euros ($3.78 billion) compared with an earlier estimate of EUR4.15 billion; BDRBF lowered its year revenue outlook to $16.5B-$17B from prior view $17B-$17.5B mainly reflecting de-consolidation of C Series results for the remainder of 2018/FY consolidated FCF guidance reaffirmed
Technology, Media & Telecom
· Apple (AAPL) and supply chain; the Nikkei that Apple (AAPL) has warned its supply chain of a drop of around 20% in new iPhone component orders debuting in the latter part of this year; report had European based iPhone suppliers lower and US based names
· Semiconductors; AAPL supply chain (AVGO, SWKS, CRUS, QRVO, SYNA, KN) active on report the iPhone maker warned its supply chain of a drop of around 20% in new iPhone component orders; AVGO posted unsurprising Q2 earnings report and Q3 outlook given the company’s April 30 pre-announcement; in equipment space, LRCX pressured a second day following cautious analyst comments as Cowen said lowering NT estimates with demand recovering by late CY18E; MPWR management reiterated its growth and margin formulas at analyst day yesterday as several analysts boost tgt price following meeting (DBAB to $150, Stifel to $147); midday SYNAshares active after Bloomberg reported Dialog Semiconductor Plc is in discussions with touch-pad technology maker Synaptics Inc. about a potential deal with them
· Video gamers; big week coming up for sector (ATVI, EA, TTWO), as E3, the video-game industry’s big trade show coming up, but analysts note the year-old free global hit Fortnite is likely to be the talk of the convention in Los Angeles next week. It’s attracted 45 million players worldwide and is generating hundreds of millions of dollars a month in sales from fans buying virtual avatars and accessories. That’s as much as paid hits like Call of Duty
· Software movers; DOCU shares strong after posting better quarterly results in first as public company since IPO as reported upside to revenue and billings with a wealth of sustainable drivers helping performance and raises guidance; overall software sector held steady after profit taking ensued yesterday for several stocks at or near 52-week highs (CRM, NOW, CSOD, ZUO)
· Media & Telecom movers; VZ CEO McAdam stepping down for retirement as company announces Hans Vestberg chief executive officer, who is the current head of Verizon’s new network and technology unit