Mid-Morning Look: June 25, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, June 25, 2018

U.S. equities adding to last week losses, with the tech heavy NASDAQ underperforming, down as much as -1.7% while the Dow Industrials declined more than -300 points as the continued escalation in the trade spat between the US and China intensified over the weekend. Semiconductors leading the Nasdaq Composite lower after reports that President Donald Trump hopes to announce further restrictions on Chinese investment in U.S. tech companies. Weakness was broad based, with declines in consumer discretionary and commodity stocks as well as, while the Dow Industrials fell for the 9th day in ten. Software and Internet stocks also sharply lower in conjunction with the semi weakness. Note deadlines on tariffs and other trade barriers are coming in the next few weeks, and negotiations to this point have worsened…not improved. China based stocks such as BABA, BIDA, JD, IQ, and HUYA down on the reports of limited Chinese investments as well. Last week, the Dow snapped an eight-day losing streak on Friday, but it marked its biggest weekly decline since March 23, with a loss of 2%. The S&P 500 and Nasdaq Composite Index fell 0.9% and 0.3%, respectively. The Nasdaq ended a streak of weekly gains at four straight, while the Russell 2000 Index rose for an 8th straight week – stocks though not looking better to start the new week. Markets in Europe and Asia down as well. Note major averages approaching some key technical level support, with the S&P 500 cash level 50-day at 2,716 (has held above the level since early May). Meanwhile, safe-haven bonds are rising, with yields lower.

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar index (DXY) dips, back below 94.50, and roughly down a point off last week’s highs around 95.50 as global trade concerns weighing on currency markets

· Precious metals not reacting favorable to the recent downturn in the US dollar, not the fears of trade dispute between the US and China; no safe haven buying for precious metals

· Energy futures are mixed with WTI crude edging higher after falling 5% last week on OPEC news, while Brent crude drops over 1% to around $74 per barrel after the Opec oil cartel agreed this weekend to ramp up oil production by as much as 1m barrels a day

· Treasury markets higher as yields drop ahead of a busy week of auctions: the Treasury will be selling over $200B in bills and coupons including an up-sized $34B in 2-year notes (Tuesday), $36B in 5-year notes and $16B in 2-year FRNs (both Wednesday), and $30B in 7-year notes (Thursday)

Economic Data

· New Home sales ran at a seasonally adjusted annual 689,000 rate in May, topping the 667,000 estimate, though the prior month was downwardly revised to 646K from 662K; The median sales price in May was $313,000, 3.3% lower than a year ago

Sector Movers Today

· Railroads; sector mentioned positively by several analysts as Citigroup upgraded NSC to buy with $176 tgt, while CSX (tgt upped to $75 from $67) remains top pick followed by UNP as expects a “re-rating” for the U.S. rails, which are called a “must own sub-sector,” as valuations can drift higher over time thanks to capex being sustainable at current levels. Bernstein raised estimates on the rail sector as fundamental data points should continue to read positively, and is most bullish on UNP given supportive cash flow-based valuations

· Paper & Forest sector; GPK and WRK shares were active after KeyBanc noted Pulp & Paper Week reported greater coated recycled boxboard (CRB) prices, citing extended backlogs and tight supply and demand/RISI recognized a substantial $40/ton of the announced $50/ton June CRB (coated recycled paperboard) price increase (representing a 5% increase), with the publication pointing out “greatly extended backlogs”

· Medical devices and equipment; DGX upgraded to overweight at Barclays and raise price target to $130 from $120 as feel Quest has a very favorable risk reward profile at current levels; ALGN tgt raised to Street-high $420 at Bank America as expect it to maintain a dominant position in the clear aligner market; GKOS said it has received premarket approval from the U.S. FDA for the iStent inject Trabecular Micro-Bypass System; ILMN tgt raised to $330 at Citigroup as the Nova cycle is on track, the full portfolio is driving demand & the company looks to be opening doors on several large TAM opportunities; VLRX announced positive results in a study of its V-Go wearable insulin delivery device in type 2 Diabetes patients who switched from insulin pens and syringes.

· Auto sector; group remains pressured given the tariff news between the U.S., China and the EU; late last week, European auto names fell (DDAIF, FCUA) the most after U.S. President Trump said in a tweet “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.”; today, BWA was upgraded to buy at Goldman Sachs, while in auto retail KMX cut at Guggenheim


· AXP +1%; as Supreme Court on Monday ruled that they did not violate federal antitrust law by prohibiting merchants from discouraging customers from using their Amex card

· CPB +5%; after the NY Post reported late Friday that KHC is very interested in buying CPB after the soup and snack company announced last month it was reviewing all aspects of its strategic plans and portfolio composition https://nyp.st/2K1HEyx

· CRUS +8%; Susquehanna said Cirrus gets ANC in the AirPods2- Cirrus ANC coming for 2019 AirPods2. Just $50M top line (+4%), but a more serious $0.50 (15%) EPS impact

· GTN +10%; said it reached a deal to buy media company Raycom Media Inc. in a deal valued at $3.65 billion, including $100 million of Raycom cash https://on.mktw.net/2IppWiM

· XRM +101%; after agreeing to be acquired by Andritz AG for $13.50 per share, more than double Friday’s $6.61 closing price, or ~$833M including debt https://yhoo.it/2IpwKwI

· ZFGN +7%; as its ZGN-1061 phase 2 met primary endpoints


· CCL -8%; as Q2 profit beat expectations, but cut its full-year outlook; cut its adjusted EPS guidance range to $4.15-$4.25 from $4.20-$4.40 (vs. est. $4.36)

· EL -4%; downgraded to equal-weight at Morgan Stanley on valuation

· HOG -4%; said it plans to shift some production of its motorcycles out of the U.S. in response to European Union tariffs

· HUYA -8%; amid weakness in China related stocks amid US/China trade tensions

· MACK -34%; after halting development of its MM-141 as CARRIE Phase 2 study in patients with previously untreated metastatic pancreatic cancer did not meet primary or secondary efficacy endpoints

· NFLX -4%; general tech weakness, as shares now about 40 points off its record highs above $423 on 6/21

· SPHS -42%; as halts its dosing schedule for its Phase IIb prostate cancer study due to a patient dying shortly after receiving a second dose


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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