Mid-Morning Look: June 22, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Friday, June 22, 2018

Equities are mixed as Industrials, Energy (on OPEC lower than expected output and oil rise) and Financials (all 35 banks passed stress tests) leading markets higher, keeping the Dow Industrial Average on track to snap its 8-day losing streak (if fell a 9th straight day, would mark longest losing streak since 1978). Technology slips led by declines in the Software sector after weaker RHT revenue outlook. Trade has remained the main topic all week after the U.S. slapped additional $200B in tariffs on China (takes effects first week of July) and China countering with its own tariffs on the U.S. This morning, new pressures after President Trump in a tweet said “Based on the Tariffs and Trade Barriers long placed on the U.S. and it great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S.” News sent European auto makers FCAU, DDAIF, VLKAY) quickly lower. Economic data was fairly quiet this week, but stronger PMI manufacturing data in the U.S. and Europe out overnight.

Treasuries, Currencies and Commodities

· In currency markets, the dollar index (DXY) slips -0.2%, falling against the euro and Pound, but rising slightly vs. the yen and Canadian dollar; the Canadian dollar slips after weaker-than-expected data out of Canada this morning as data showing that the country’s inflation rate has been running well behind forecasts

· Precious metals are basically unchanged above the $1,270 an ounce level, but on track to hold near 8-month lows, down on the week amid a bounce in the dollar and a decline in broader commodity prices given the trade tariff spat ongoing between the US and China

· Energy futures advanced, with WTI crude rising back above $67 per barrel to its best levels in three-weeks after reports OPEC agreed in principle for a 600K barrel per day increase, less than the rumored +700K to 1Ml bpd talked about during the week. Agreement in principle for nominal 1m b/d oil-production increase, meaning a 600k b/d increase in real terms, a delegate says. Deal would mean return to 100% compliance with production quota said a delegate

· Treasury markets up slightly, as the yield on the benchmark 10-year holding around the 2.90% level most of the week (lows around 2.88% and highs 2.93%), as investors contemplate impact from the trade war situation between the U.S. and other countries. Yields have failed to lift meaningfully despite the ECB and FOMC getting more hawkish last week on rates

· Bitcoin prices dropped more 9% to new 7-month lows, down about $600 at $6,100, with broad weakness in crypto space (Ethereum, Litecoin, and Ripple) after the Japanese Financial Services Agency ordered six exchanges to improve business practices after a series of inspections over the past few months.

Economic Data

· The IHS Markit PMI manufacturing index slipped to a seven-month low of 54.6 from 56.5. The services barometer dropped to a two-month low of 56.5 from 56.8.

Sector Movers Today

· Large Cap banks a focus last night ahead of Fed Bank stress tests…but all 35 of the banks tested by the Federal Reserve met the regulatory minimums for capital after being tested for the impact of a severe recession. The Fed said banks met the minimums after a “severely adverse” stress test that would cause $578 billion in losses for 35 lenders. The Fed said the aggregate common equity tier 1 capital ratio would fall from an actual level of 12.3% in the fourth quarter of 2017 to 7.9% under the stress-test scenario

· Retailers; DG was upgraded to strong buy at Raymond James calling it one of the most attractive ”all weather” investments in hardline retail as the company can deliver 8% to 9% annual revenue growth; in hardline retail, OLLI and HZN both downgraded to underperform at Bank America saying valuations have gotten frothy for some of their hardline retail names; in auto retail, KMX shares rise after the used-car dealer’s 1Q EPS, revenue and same store sales topped analysts’ estimates (LAD, ABG, AN, GPI, PAG, SAH move in sympathy); NKE downgraded at Buckingham, but raise tgt to $80 ahead of earnings, saying view risk/reward more balanced

· Software sector; rough week for software with RHT falling after lower Q2 guidance as sees Q2 revs $822M-$830M below the $855M estimate; lowers year revenue outlook to $3.38B-$3.41B from prior $3.43B-$3.46B (est. $3.45B); group slipped earlier in week after ORCL results and slowing cloud related revenues (shares of WDAY, SPLK, DATA, CRM weaker today)

· Telecom & Media movers; media space has been active lately amid the bidding war for FOX assets between DIS and CMCSA, with DIS going into the week with the higher $71B bid; in telco, regulatory filing showed U.S. Satellite Company SATS has built up a 3% stake in its British rival IMASY, following a rejected preliminary takeover approach https://reut.rs/2yyI1LB


· HAIN +3%; after the NY Post reported PPC is bidding for Hain Celestial’s protein business, which sells to Chipotle and Panera Bread https://nyp.st/2tjV2n6

· KMX +12%; 1Q EPS, revenue and same store sales topped analysts’ estimates

· MRO +8%; among top gainers in a very strong energy complex, as the sector jumps across the board following the smaller OPEC output increase than feared and subsequent oil price spike

· TNDM +11%; as the FDA approves Tandem’s t:slim X2 insulin pump with hypoglycemia management feature

· WSC +19%; said it has reached an agreement to acquire Modular Space Holdings Inc. in a deal with an enterprise value of about $1.1 billion https://on.mktw.net/2tlgwA0


· BB -9%; posted Q1 EPS and revenue that topped consensus, but shares reversed earlier gains

· KLAC -3%; downgraded at Needham saying recent checks indicate a heightened risk for slower foundry investments in the second half of 2018

· PTIE -19%; as its prescription drug for severe pain will face questions on whether it can deter abuse, FDA staff says in report ahead of next week’s committee meeting

· RHT -11%; after lower Q2 guidance as sees Q2 revs $822M-$830M below the $855M estimate; lowers year revenue outlook to $3.38B-$3.41B from prior $3.43B-$3.46B (est. $3.45B)

· SGH -9%; as revenue pull-in in the Brazil Mobile Memory business drove upside to F3Q results, but the expected reversal in F4Q leads to a guidance that is below expectations


· Autolus Therapeutics (AUTL) 8.824M share IPO priced at $17.00

· ElectroCore (ECOR) 5.2M share IPO priced at $15.00

· Green Brick (GRBK) 7.1M share Secondary priced at $9.50

· New Residential (NRZ) 3.694M share Spot Secondary priced at $18.30

· PagSeguro Digital (PAGS) 33M share Secondary priced at $29.25

· The Stars Group (TSG) 25M share Secondary priced at $38.00

· Yatra (YTRA) 9M share Secondary priced at $5.50


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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