Mid-Morning Look: June 20, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, June 20, 2018

U.S. equities are mixed, with the technology sector outperforming as shares of momentum stocks FB, NFLX setting new all-time highs, while the broader S&P sector is little changed and the Dow slumps for a 7th straight day as fears about the growing trade dispute between the U.S. and China continue to pull shares of industrials and materials lower. Media space active after Disney boosted its offer for FOX assets to $38 per share ($71B) topping its prior offer as well as CMCSA’s $65B offer last week ($35 per share). GE will be removed from the Dow Jones Industrial average, replaced by WBA. The Russell 2000 index of smaller-company stocks added to record gains, as they are more leveraged domestically, and less impacted from trade concerns and a surging dollar. Stocks dropped yesterday as President Donald Trump threatened to put new tariffs on as much as $400 billion in imports from China and China threatened to retaliate. There are a handful of movers on earnings this morning, with ORCL, FDX and SBUX slumping on guidance/results overnight, while markets await chipmaker MU earnings tonight. All eyes on OPEC meeting later this week, as oil prices edge off recent lows. The dollar is mixed and Treasuries little changed after mixed economic data.


Treasuries, Currencies and Commodities

· In currency markets, the British pound outperforms vs. the dollar, topping 1.32 after earlier lows around 1.315, while the greenback is little changed vs. the yen and euro as currency markets continue to digest the trade situation with China and the recent hawkish commentary by both the FOMC (raising outlook and rates) and ECB last week; the dollar index holding just off 2018 highs

· Precious metals no bounce, holding at 2018 lows around the $1,275 an ounce level, pressured by the strong US dollar (holding at 2018 highs) and concerns related to impact of China consumption of commodities amid trade dispute with the U.S.

· Energy futures bouncing ahead of the OPEC meeting this week (several oil ministers commenting ahead of official meeting the last few days), while weekly inventory data also giving a lift to futures early, with WTI crude up over 1% early (larger than expected weekly drawdowns)

· Treasury markets remain steady, with the yield on the 10-year at 2.90%; trade war concerns have boosted investment in bonds the last few days, overshadowing the stronger outlook on rates and the economy from the Fed last week


Economic Data

· Current-account deficit for Q1 rose 6.9% mostly because of a wider trade gap in goods, as the deficit increased to (-$124.1 billion) from a revised (-$116.1 billion in Q4), and came in narrower than the estimated loss of (-$124.1B)

· Existing-home sales for May fell (-0.4%) to 5.43M, below the expected 1.1% rise to 5.52M; April was revised to 5.45M from 5.46M; there was 4.1 months’ supply in May vs. 4.0 in April and 3.8 months’ supply seasonally adjusted in May vs. 3.8 in April seasonally adjusted; median home price rose 4.9% from last year to $264,800, a record high price


Sector Movers Today

· Internet; SNAP estimates cut for a second straight day as Needham slashed its forecast for 2Q revenue by 15% saying user projections and channel checks suggest a dramatic slowdown of spending by brands on SNAP vs 1Q (Cowen made similar call Tuesday); NFLX rises to fresh all-time highs after topping $400 for the first time yesterday; FB shares new record highs topping $200 level for the first time today

· Software movers; ORCL shares slump as Q4 top and bottom line beat but analysts noted the elimination of cloud disclosures combined with FQ1 guidance below consensus (due to currency translation headwinds) likely weakened shares; APPN downgraded to hold at SunTrust noting shares have outperformed every one of our 19 coverage stocks, returning an impressive 52% versus median stock in our group up 26%; ANSS upgraded at Goldman Sachs citing a more positive secular outlook, helped by new price points to improve penetration and PTC partnership

· Energy top stories; RDS/A agreed to sell oil and gas assets in Norway and Malaysia for over $1.3 billion, bringing it closer to a target of $30 billion in disposals by year-end/sold its interests in two oil fields offshore Norway to OKEA for ~$556M and completed the sale of its 15% holding in Petronas-operated Malaysia LNG Tiga for $750M; HES and XOM said offshore Guyana Longtail-1 well encountered approximately 256 feet of high-quality, oil-bearing sandstone

· Consumer finance and payments; PYPL agreed to acquire financial-technology company Hyperwallet Systems Inc. for about $400 million https://on.wsj.com/2M9sJPx ; SQ tgt raised to $73 from $64 at Evercore/ISI following a discussion with CFO Sarah Friar as the meeting indicated that positive trends should continue

· Utilities; Morgan Stanley said sees ‘significant’ chance PCG not in violation for Tubbs fire After looking in further depth into the largest of the Northern California wildfires, the Tubbs; DUK upgraded to buy and tgt raised to $84 at Bank America citing recent share underperformance and resolved regulatory overhangs; XEL downgraded to neutral at Bank America saying sees positive catalysts as largely played out


Stock GAINERS

· ATU +5%; Q3 EPS and sales topped consensus on better Q4 and FY guidance

· FB +1%; shares new record highs topping $200 level for the first time today

· FOXA +6%; as DIS has agreed to pay $38 per FOXA share for the same assets under the original agreement, with bid around $71B, topping the original $28 offer and $3 above the $35 CMCSA offer for the assets https://bloom.bg/2K2oSTB

· I +14%; was upgraded to outperform at RBC Capital as firm expects the FCC to take up the proposal to monetize C-band spectrum put forward by Intelsat and SES
NFLX +1%; as trades to new all-time high amid rebound in technology sector

· STAA +9%; after resolving an FDA warning letter, removing a four-year-plus overhang,

· SYNA +11%; Dialog Semiconductor PLC confirmed its in discussions with SYNA saying its board is performing due diligence on an acquisition of Synaptics https://on.mktw.net/2ljxWZy

· WBA +3%; replacing GE in the Dow Jones Industrial Average next week

· WGO +10%; quarterly results topped estimates ($1.02/$562.3M vs. est. 91c/$539.2M)


Stock LAGGARDS

· ANIK -32%; said while CINGAL achieved greater pain reduction numerically at every time point in the study, the difference at 26-weeks did not reach statistical significance

· FDX -2%; reported Q4 results which were essentially in line on a core basis, with sizeable EPS beat

· GE ; is being removed from the Dow Jones Industrial Average/replaced by WBA

· LZB -4%; mixed quarterly results as EPS beat helped by tax benefit while sales missed estimates

· ORCL -3%; Q4 top and bottom line beat but analysts noted the elimination of cloud disclosures combined with FQ1 guidance below consensus (due to FX headwinds) likely weakened shares

· SBUX –5% guided global 3Q18 (Jun) comps to 1% below the Street at 3%, including China comps at flat to negative, and FY18 EPS down 10c to $2.39-2.43 from $2.48-2.53


Syndicate

· Apollo Endosurgery (APEN) 3.747M share Spot Secondary priced at $5.50

· Catabasis Pharmaceuticals (CATB) 42M share Secondary priced at $1.00

· Eidos (EIDX) 6.25M share IPO priced at $17.00

· Galmed (GLMD) 5M share Secondary priced at $15.00

· Kindred Biosciences (KIN) 4.632M share Spot Secondary priced at $9.50

· ObsEva (OBSV) 4.75M share Secondary priced at $15.39

 

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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