Mid-Morning Look: June 19, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Tuesday, June 19, 2018

U.S. equities sharply lower, following the broad weakness out of Asia overnight (China index fell below 3,000 for the first time since 2016 and Hang Seng fell over -800 points) after President Donald Trump threatened to slap tariffs on another $200 billion in Chinese import. Late Monday, President Trump announced plans for an additional $200 billion that will face an additional 10% in tariffs on Chinese imports, and threatening another $200 billion in tariffs on top of that. The new tariffs are in response to China’s retaliatory tariffs announced after the $50 billion in tariffs that the U.S. put into effect Friday. The increasing tension having a broad effect on stock averages. The Dow Industrials come into today’s action with a 5-day losing streak (6-days would be longest streak since March 2017), and falls around -400 points early. Sectors that have been pressured over the last month due to trade wars and impact of tariffs include the auto sector (GM), defense (BA), food related (PPC), housing (LEN), solar (FSLR), and agriculture (DE), to name a few. China stocks CMCM, BIDU, BABA, JD, and NTES all trading lower as well amid the increased tensions between US and China.

Treasuries, Currencies and Commodities

· In currency markets, the dollar index (DXY) back above 95 level – touches fresh 2018 highs of 95.296 earlier before paring gains; dollar’s advance pressures G-10 and EM counterparts as China threatens retaliation against any additional U.S. tariffs; EUR/USD slides to lows down -0.65% to 1.1545 (lows 1.1531) – note May lows were just above 1.15 (hasn’t breached below 1.15 since July of last year) while the Pound falls below 1.3200 vs. the dollar

· Precious metals failing to bounce with broader market declines, as the trade concerns with China hitting the broader commodity space, including safe-haven gold assets; gold futures drop back under $1,280, down over $3. Energy futures lower with broader commodity prices, ahead of the OPEC meeting in Vienna later this week

· Treasury markets extend recent gains as the 10-year yield drops below 2.88% with markets rotation back into safe-haven plays amid the ongoing trade dispute news between the U.S. and China; rotation into defensive assets continues, with the 10-year yield down from highs around 3% last week after the FOMC raised rates by 25 bps and boosted its outlook on rate hikes.

Economic Data

· Housing Starts for May rose to 1,350K from 1,286K prior month and above the 1,311K estimate; starts rose 5.0% in May after falling 3.1% the prior month; single family starts rose to 936K; multifamily starts rose to 414K in May

· Building permits for May fell to 1,301K vs. the 1,364K in April and below the 1,350K estimate; permits fell 4.6% in May after falling 0.9% the prior month; completions rose to 1,291k in May, from 1,267k the prior month

Sector Movers Today

· Optical sector/components; shares of ACIA, AAOI, FNSR, LITE, OCLR among casualties due to ongoing trade war concerns with China as the U.S. government said they may impose tariffs on another $200 billion in Chinese imports, prompting a vow of retaliation from China. The group also with negative news overnight after a provision in the Senate defense bill will reimpose penalties on China’s ZTE Corp. (optical companies get lots of revs from ZTE)

· Homebuilders; Citigroup upgrades BECN and MAS to Buy and upgrade PHM and KBH to neutral from sell, while cutting FPH to Neutral from Buy as firm said they think LEN underperformance is overdone, and the stock screens well from a valuation perspective; MTH has favorable geographic exposure, and is a good takeout candidate; HHC continues to ramp up NOI through its development pipeline, MAS provides investor’s exposure to R&R spending and BECN appears to be pushing price to offset input costs – builder industry has been punished on tariff concerns

· Metals & Mining; one of the weakest sectors today, with declines in iron ore, copper, steel, zinc and aluminum tumbling, as the escalating trade conflict between the U.S. and China directly affects the group through trade pacts as well as those hit by the risks of an economic slowdown; CMC was downgraded to underperform at Bank America in light of growing concern over rebar price weakness into Q4, as they prefer NUE and STLD

· European banks active, with Bank America making a few changes, downgrading BCS to neutral after outperforming so far this year and as they trim longer term IB revenue growth forecasts, while reiterate our Buy ratings on both UBS and CS and neutral on DB as 1) revenues are unlikely to recover near term but 2) as a near term capital raise seems unlikely – notes group has sold off on concerns of a slower ECB rate hike cycle, greater political risks in the region and trade war fear


· COTV +10%; to be acquired by Verscend Technologies Inc., a portfolio company of private-equity firm Veritas Capital, $44.75 per share in cash, in a $4.9B deal https://on.mktw.net/2yql3q0

· FBNK +20%; as PBCT agreed to acquire FBNK in a deal valued at about $544M as FBNK holders to get 1.725 shares of PBCT for each share held, valued at $32.33 https://yhoo.it/2yolG3h

· FMI +28%; as Roche Holding AG (RHHBY) agreed to buy the rest of the company it didn’t already own for $2.4B, paying $137 per share in cash https://on.mktw.net/2JPxOQ3

· NEPT +22%; as announced multiyear agreement with Canopy Growth to supplement its extraction, refinement and extract formulation capacity

· NFLX +1%; several analysts raise tgt prices today ($500 the highest from GBH Insight; Piper raised to $420 and raised to $460 from $375 at Monness Crespi )

· SLDB +12%; in response to SRPT DMD preliminary results

· VZ +1%; upgraded to buy at Deutsche Bank


· ACIA -4%; after a provision in the Senate defense bill will reimpose penalties on China’s ZTE Corp. (optical companies get lots of revs from ZTE)

· FCX -5%; as materials and metals stocks among the biggest decliners on China, US trade wars

· GM -3%; as auto sector pressured by China auto tariffs

· MAT -5%; downgraded to neutral at UBS on valuation after outperformance in shares

· MOS -5%; as agriculture and chemical names fall on China tariff concerns

· SNAP -9%; reiterated underperform at Cowen and cut ests for 2Q18, FY18-23


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.

Live Trading

Open an Account

Paper Trading