Mid-Morning Look: June 21, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Thursday, June 21, 2018

U.S. equities are now broadly lower, with the Dow Industrials on track for its 8th straight losing session, while the Nasdaq Composite and Russell 2000 index fall from record highs on Wednesday. Economic data weaker today as the Philly Fed manufacturing index slows to 19-month low in June, sharp contrast from the strong NY manufacturing data last week. European markets lower as Italy’s political issues resurfaces, while Germany was hit after Daimler becomes the first prominent company to blame tariffs with U.S. and China for its softer outlook. Bonds rallying as yields fall, though commodity price mostly lower, with gold falling to lowest levels of the year. Oil prices drop (but pare losses) as an increased production outlook appearing more likely at tomorrow OPEC meeting. Central Banks in the news as the Bank of England keeps rates unchanged, but its chief economist Haldane unexpectedly threw his support behind an immediate interest-rate increase, raising chances of a summer hike (Pound rises on news). The Swiss National Bank kept its key policy rate in deeply negative territory despite signs of healthy economic activity while Norway’s central bank kept its key policy rate at a record low of 0.5% but said this would probably go up in September. Brazil’s central bank held its benchmark interest rate steady.

Treasuries, Currencies and Commodities

· In currency markets, the British Pound rises more than 0.5% to highs 1.3259 (off earlier lows 1.3102) as the Bank of England kept interest rates unchanged but chief economist Andy Haldane joined two other hawks on the Monetary Policy Committee in dissenting, putting the central bank’s vote to 6-3 in favor of keeping rates unchanged, and adding a hawkish tilt. Overall, the dollar index little changed as extends gains vs. emerging markets, but euro bounces.

· Precious metals extend recent weakness as gold prices have fallen to a new six-month low as the dollar climbed on interest rate hike concerns (prices down below $1,270 an ounce, well below its April highs above $1,365 an ounce)

· Energy futures decline in the early going as it appears OPEC is on the verge of reaching an agreement to increase production. After initial resistance from some OPEC members including Iran and Venezuela, a consensus on raising output now seems likely. WTI crude slumped as low as $64.34 before bouncing more than $1 off those lows ahead of official Vienna meeting start

· Treasury market’s rise as yields decline amid the ongoing trade war fear concerns. Both FOMC Chair Jerome Powell and ECB President Mario Draghi said Wednesday a trade war would hurt the global economic outlook on a central banking panel in Sintra Portugal; the 10-yr yield down below 2.91% with the 2-yr holding 2.54% and the 30-yr around 3.05%

Economic Data

· Weekly jobless claims fell 3K to 218K, slightly below the 220K estimate, while prior week upwardly revised to 221K from 218K; the 4-week moving average dropped by 4,000 last week to 221,000, settling just slightly above a 45-year low; continuing claims rose 22k to 1.723m in the week ending June 9

· The Philadelphia Fed’s manufacturing index slowed sharply to a reading of 19.9 in June from 34.4 in May and came in below the 29.0 economist estimate; the new orders index fell sharply by almost 23 points to 17.9, while shipments index rose 2.9 points to 25.8; expectations for activity in the next six months fell for the third straight month to 34.8 vs 38.7

Sector Movers Today

· Consumer finance and lending; SQ tgt raised to a Street high of $82 from $65 by Nomura saying there’s at least 30% potential upside to adjusted revenue with the launch of Square for Restaurants (KeyBanc and Evercore ISI raised tgts to $70 and $73, respectively this week); PYPL was upgraded to overweight at Atlantic Securities saying secular cash to card trends continue to underpin the success of many payments companies but online capabilities are increasingly important as ecommerce drives an increasing share of volume growth; ELLI was downgraded to neutral at JPMorgan following its recent rally in shares

· Medical devices and equipment; JPMorgan downgraded GKOS and NUVA to neutral citing greater competitive headwinds limiting any more near-term out-performance and on challenging spine end-market dynamics, while they upgraded BDX to overweight and $275 tgt as sees upside to Street estimates in the latter half of the year; ARAY shares active after AERB approval for sale/supply of Radixact X9 system in India

· Telco movers; Goldman Sachs upgraded VZ to buy and raise tgt to $56 while upgrade CHTR to buy and up tgt to $361 from $315 as believe that broad underperformance across the sector has been driven by a few key factors, including concerns about fundamental headwinds, M&A uncertainty and rising interest rates. Firm says while they appreciate these concerns, they believe that the key success factors have not changed materially from prior. Goldman also downgraded DISH to neutral and cut tgt to $39 from $63 to reflect limited near-term opportunity to unlock spectrum value and cut SIRI to sell with $6 tgt; GLOB 5.815M share Secondary priced at $52.00

· Industrial & Machinery; TEX was upgraded to buy at Jefferies noting shares have materially underperformed peers YTD owing to fears about a cycle peak in AWPs, despite improving backlog, visibility into ’19 and internal margin oppty; MEI reports Q2 beat, but downside guidance for FY19 guidance has revenue from $950M-$970M vs. est. $974.85M and EPS of $2.81-$2.96 below consensus: $3.09; KMT and PH both downgraded to market perform at Wells Fargo and reducing estimates for both as see definitive signs of likely growth moderation in both N. American and international short-cycle industrial products end markets; Siemens to merge industrial divisions at the engineering group to boost efficiency

· Internet; NFLX new all-time highs again, as two analysts raise tgts further, with Raymond James to $465 and Pivotal raising tgt to $500 as observe continued momentum internationally and increased relevance to U.S. households; SHOP announced Shopify Ping, a free iOS app which lets merchants manage tasks through messaging on their phones; WEB to be acquired by Siris Capital in deal valued at about $2B, w/holders to receive $25 per share https://on.mktw.net/2MK94GM ; SPOT initiated outperform and street high $225 tgt at Macquarie; AMZN, EBAY, ETSY, W, RH, OSTK shares slide as Supreme Court rules States can require Internet tax collection


· BNED +20%; on strong Q4 results, with the outperformance in the quarter coming from the MBS segment

· CASI +17%; as entered manufacturing agreement with a unit of Shijiazhuang Yiling Pharmaceutical Co. Ltd. for the manufacture of entecavir and cilostazol

· DRI +10%; new record highs after comparable sales of 2.2% topped the 1.2% estimate (both better Olive Garden and LongHorn comps) while quarterly revs of $2.13B was in-line and better earnings; guided year EPS $5.40-$5.56 vs estimate $5.41

· HRTX +28%; after the company announced positive developments for its treatments for postoperative pain as it received Breakthrough Therapy designation from the FDA for HTX-011

· KR +11%; 1Q results that beat estimates while also boosted its year identical-store sales ex-fuel view to up 2%-2.5% from up 1.5% to 2% and raised the low end of its year forecast range

· MU +1%; on better earnings and as better-than-expected Q4 forecast shows sustained demand trends for its memory chips and a healthy pricing environment

· PDCO +10%; after earnings/guidance (shares came into earnings down 38% YTD)

· WEB +8%; to be acquired by Siris Capital in cash deal valued at about $2B, with holders to receive $25 per share in cash https://on.mktw.net/2MK94GM


· ALKS -9%; downgraded to underweight at Morgan Stanley and tgt cut to $42 from $67 on Vivitrol and pipeline news flow concerns

· AMZN -1%; AMZN, ETSY, W, RH, OSTK shares slide as Supreme Court rules States can require Internet tax collection

· AOBC -5%; posted solid FQ4 results but weaker FY19 guidance and mgmt said on its call that the gun market is weakening, and it sees some market contraction

· BKS -6%; reported a Q4 comp sales decline of (-4.1%) as Nook sales fell -21.6% to $25M and margins declined

· GM -2%; falls in sympathy with other autos after Daimler said its full-year earnings excluding some items will be slightly lower than last year due to US tariffs on China

· INTC -1%; CEO Krzanich resigns and named Bob Swan as interim CEO while says Q2 revenue and non GAAP EPS to exceed prior guidance (guides Q2 EPS 99c/$$16.9B vs. est. 86c/$16.3B)

· MEI -5%; reports Q2 beat, but downside guidance for FY19 guidance has revenue from $950M-$970M vs. est. $974.85M and EPS of $2.81-$2.96 below consensus: $3.09

· PCRX -14%; after positive results from HRTX on pain treatment (direct competitor)

· PH -4%; downgraded along with KMT at Wells Fargo as see definitive signs of likely growth moderation in both N. American and international short-cycle industrial products end markets


· Aptinyx (APTX) 6.4M share IPO priced at $16.00

· AvroBio (AVRO) 5.25M share IPO priced at $19.00

· Canada Goose (GOOS) 10M share Spot Secondary priced at $63.00

· Essential Properties Realty Trust (EPRT) 32.5M share IPO priced at $14.00

· Globant (GLOB) 5.815M share Secondary priced at $52.00

· i3 Verticals (IIIV) 6.65M share IPO priced at $13.00

· InVivo Therapeutics (NVIV) 3.25M share Secondary priced at $2.00

· Kezar Life Sciences (KZR) 5M share IPO priced at $15.00

· Limoneira (LMNR) 2.7M share Secondary priced at $22.00

· Magenta Therapeutics (MGTA) 6.667M share IPO priced at $15.00

· Rhythm Pharmaceuticals (RYTM) 5.732M share Secondary priced at $26.42

· Trupanion (TRUP) 1.818M share Spot Secondary priced at $33.00

· Veritone (VERI) 1.7M share Spot Secondary priced at $18.00

· Xeris Pharmaceuticals (XERS) 5.7M share IPO priced at $15.00


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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