Mid-Morning Look: June 18, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, June 18, 2018

U.S. stocks decline to start the week, led by large caps as the Dow Industrial Average is on track for its 5th straight session decline as trade tensions between the U.S. and China escalated while political risks resurfaced in Europe. Traders are also watching an OPEC meeting scheduled this week to gauge the prospect for energy shares (energy sector outperforms early). Health-care, technology, consumer discretionary, financial and industrial stocks are leading declines. Gold and Treasuries only modest gains despite the broad pullback in U.S. equities. China’s retaliatory action late last week against tariffs imposed by the U.S. reignited fears of a possible trade war. Markets are also continuing to assess the impact of tightening monetary policy by central banks after the U.S. Federal Reserve raised interest rate last week and the European Central Bank said it planned to end its bond-purchase program at year-end. No major economic data today or quarterly earnings results to impact markets.


Treasuries, Currencies and Commodities

· In currency markets, the dollar index (DXY) was up slightly, trading as high as 95.04 earlier before paring gains, as the greenback extends its recent gains; trading flattish vs. major market currencies (euro, yen, pound) but rising again vs. emerging markets as well on trade concerns and rising rates (Canada, Mexico, Argentina)

· Energy futures with small bounce early following several comments out of OPEC members ahead of actual meeting later this week; OPEC members discussing modest production increase to bridge gap between Russia and Iran, ahead of ministerial meeting Friday. Bloomberg noted some members discussing accord to add 300k-600k b/d over next few months between OPEC and its allies – note Iran wants no increase, and said on Sunday that Iran, Venezuela and Iraq would veto a Saudi-proposed boost; WTI rude holding above $65 per barrel

· Treasury markets up slightly, with the benchmark 10-year yield down a little more than 1 bps to 2.91% as global trade concerns weight on market sentiment, giving a boost to safe-haven assets early with gold and Treasuries edging higher. Gold prices up a few dollars above $1.280 an ounce after last week’s sharp declines given the surge in the dollar and rising rate hike expectations


Sector Movers Today

· Energy stocks getting a boost after sector underperformance last week, so playing catch-up today, with broad gains in the integrated, driller, E&P, refiner and equipment stocks

· REITs and Real Estate; Goldman downgraded online real estate stocks ZG (to neutral) and RDFN (to sell) amid expectations for continued tightness in housing and mortgage availability/also cites likely seasonal underperformance, signs of increasing competition in online real estate, ZG’s significant outperformance YTD, RDN’s rising cost of operation; in deal news, WPC agreed to merge with Corporate Property Associates 17 Global Inc. (CPA), a publicly-held but non-traded REIT, in an all-stock deal valued at about $6 billion https://on.mktw.net/2ykLyNr

· Tanker sector; Wells Fargo upgraded DHT, FRO & TNK to outperform as they believe the Tanker group is uniquely positioned to benefit from both a likely OPEC production increase (June 22-23) and potentially significant IMO 2020 tailwinds. Wells said they believe the potential for IMO 2020-driven ton-mile and floating storage catalysts could create a thematic bid for the sector, with near-trough level NAVs helping to limit downside risks (raises targets for EURN, DHT, FRO, TNK, ASC and TNP)

· Utilities; the sector was raised to overweight at Morgan Stanley as 10-year Treasury yields appear close enough to a top for investors to start moving in a defensive direction; said yields may try to make another high at some point this summer,” above a recent high of 3.12%, even though equity markets are beginning to trade as if the top is already in; in other research, UBS downgraded targets on several utility stocks (AWR, AWK, NEE, XEL, PNM, WEC, ES, ETR)


Stock GAINERS

· CBPO +21%; has received a $110 per share cash bid from shareholder CITIC Capital Holdings that values the company at $3.65B https://yhoo.it/2t5nx7V

· JD +2%; GOOGL investing $550 million in the Chinese e-commerce retailer in a partnership that will help both companies expand their retailing presence in Southeast Asia, the U.S. and Europe https://on.mktw.net/2JV9KHz

· PTCT +33%; after the company and Roche (RHHBY) presented an update from the Firefish trial with risdiplam in type 1 muscular atrophy babies ages 1-7 months; over 90% of SMA babies treated with risdiplam achieved more than a four-point increase in a test of motor skills

· QTNT +15%; reports concordance data for the initial MosaiQ blood grouping microarray generated in its European field trial, which exceeded the targeted criteria for submission for CE marking

· RCII +23%; to be taken private by Vintage Capital in deal valued at about $1.4 billion, with shareholders to receive $15 per share https://on.mktw.net/2tgsZo0

· SLDB +4%; after the FDA lifted its clinical hold on SGT-001, the company’s treatment for Duchenne muscular dystrophy, allowing a Phase 1/11 trial to resume

· VSTM +18%; as its duvelisib shows significant treatment effect in CLL study


Stock LAGGARDS

· BIIB -5% and IONS shares decline in response to positive rival drug data from PTCT

· CBIO -55%; suspended dosing for Cohort 6 of the Phase I/II study of CB 2679d for treatment of Factor IX deficient hemophilia B patients

· DIS -1%; cut to sell at Pivotal as the stock’s recent run-up fails to reflect that a higher price paid for Fox’s Entertainment assets would reduce the value

· INTC -4%; after Northland downgraded to underperform as expect server growth to slow in Q3

· PPC -6%; after Stephens warned on some near-term challenges on Pilgrim’s Pride, while keeping a positive view on the long-term potential for the poultry stock/lower today on tariff anxiety

· VRX -5%; as the FDA issued a complete response letter regarding its marketing application for topical plaque psoriasis med DUOBRII lotion

· ZIOP -13%; as the FDA has instituted a clinical hold on a Phase 1 clinical trial assessing CAR-T cells manufactured with its Sleeping Beauty technology in patients with treatment-resistant CD19+ leukemia’s and lymphomas

 

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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