Mid-Morning Look: June 27, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, June 27, 2018

Strong rally underway on Wall Street, with the Dow Industrials up more than 250 points, and solid gains for both the S&P 500 index and Nasdaq Composite (back above 7,600) after President Trump decided against the harshest measures on Chinese investments in the U.S., opting to take a less confrontational approach. The easing trade tensions (for the moment), has “breathed” life back into technology, materials and industrial sectors. Energy however leading the charge with WTI crude rising about 5% over the last two days to $72 per barrel on bullish inventory data and late day reports the US wants to cut Iran oil imports to zero. Economic data was favorable again with a smaller drop in durable goods orders while the trade deficit narrowed. Bonds gains as yields fall, while the dollar resumes its upward push. Earlier reports that the Trump administration plans to use Committee on Foreign Investment in the U.S., or CFIUS, to protect U.S. technology, administration officials said is providing the bump in stocks this morning (and helping Europe turn around as well). With today’s push, the Dow Industrials now back well above its 200-day MA (24,304) and the S&P 500 bouncing further off its 50-day (2,716).

Treasuries, Currencies and Commodities

· In currency markets, the dollar extends yesterday’s advance, as the dollar index (DXY) rises back to the 95 level (off last week’s 2018 high of 95.52) on the back of shrinking trade tensions and news President Trump is expected to make a decision on Chinese investment in the US later in the day. US Durable Goods Orders also contracted less than expected in May. The euro moves back down to the 1.16 level (off overnight highs 1.1672), while rising vs. Pound and yen

· Precious metals still inching lower, with gold down a few bucks under $1,260 an ounce as the dollar resumes its upward push; gold also lower on rising rate hike expectations

· Energy futures surging again, up another 2.5% as trades above the $72 per barrel mark following bullish inventory reports out of the API and EIA. Both reported weekly drawdowns in crude of around -10M barrels, more than the estimated, with Cushing stockpiles falling -2.7M according to the EIA. The move in WTI comes after topping $70 per barrel yesterday for the first time in 3-weeks after late day reports the US wants to cut Iran oil imports to zero

· Treasury market’s rise, pushing yields lower, as markets continue to struggle to make sense of President Donald Trump’s trade policy. Bonds jumped after European and Asian markets sunk overnight, with the 30-yr back down at 3% and 2-yr 2.52% while the 10-yr falls under 2.85%.

Economic Data

· Durable goods orders for May fell (-0.6%) vs. the est. down (-1%) while Durable goods new orders revised up to (-1%) for April from (-1.6%). The biggest drop in new orders for cars and trucks since 2015 spurred the second straight decline in demand for durable goods. Orders for autos and parts shrank 4.2% in May, while new orders ex-trans. fell 0.3% in May after 1.9% rise

· The trade deficit in goods narrowed 3.7% to (-$64.8B) in May, well below the (-$69.0B) estimate, while the government’s advanced report on wholesale inventories showed a 0.5% gain in May and advanced retail inventories rose 0.4%. Both imports and exports rose in May but exports rose at a faster pace.

· Pending Home Sales for May fell (-0.5%) MoM, missing the expected 0.5% increase by economists; the Northeast up 2%; April unchanged…Midwest up 2.9%; April fell 3.2%…South fell 3.5%; April fell 1%…West up 0.6%; April fell 0.7%

Sector Movers Today

· Energy complex extended its rally following the sharp spike in oil prices (WTI moved back above $70 yesterday for first time in 3-weeks) on bullish inventory data overnight and reports late yesterday that the US wants to cut Iran oil imports to zero; shares of BHGE, HP, CXO, HES, FTI, PXD, EOG, NOV all up over 3% in the S&P

· Medical devices and equipment; Lab companies DGX and LH downgraded to hold from buy at Deutsche Bank saying buy thesis that rested in part on strong organic growth driven by M&A for hospital labs has weakened; DGX, LH have not been able to snap up more lab targets as exposure to Medicare cuts wasn’t as great as expected and hasn’t increased targets’ willingness to sell. Bank America upgraded CSII to buy and tgt to $40 as think the upcoming analyst day may help convince investors in a more sustainable growth outlook; the firm downgraded NUVA and GMED to underperform as they have less conviction in the outlook for these names

· Large Cap banks trying to bounce as the Financial sector ETF XLF came into the day riding a 12-day losing streak ahead of round two of Fed stress tests tomorrow night; Bernstein upgraded STI and MTB to outperform as they think the recent pullbacks have created attractive entry points for both and regard both banks as quality franchises with solid management teams that are trading at discounts to history and fit the broader themes of rising rates, a strong US economy, and an improving regulatory backdrop for smaller banks.

· Telecom services industry view upgraded to in-line from cautious at Morgan Stanley as stock valuations hit their lowest in more than 10 years, and as the competitive and regulatory outlook becomes more balanced; resumes AT&T (T) at overweight, PT $37 and top picks: communication infrastructure assets that benefit from network investments to support more data traffic, like tower stocks (CCI, AMT, SBAC), data centers (DLR, CONE), fiber companies (ZAYO, CTL); for more defensive investors, recommends T, VZ, TU. Shares of Intelsat (I) gained after Kerrisdale Capital turned bullish saying “We are long shares of Intelsat and SES, two large satellite operators with significant and underappreciated 5G spectrum assets”


· AVAV +5%; reported Q4 results above expectations but its FY revenue guidance of $290M-$310M came in below the $336.8M estimate (several analysts defended stocks after stronger quarter

· CARA +34%; said 1.0 mcg/kg dose of IV CR845 showed statistically significant reductions in pain intensity over 24-hour span in patients undergoing abdominal surgery

· CXO +3%; amid broad extended rally in energy complex following the sharp spike in oil prices (WTI moved back above $70 yesterday for first time in 3-weeks) on bullish inventory data

· GE +4%; adds to yesterday 8% gains following news of spin-off of healthcare division

· I +11%; after Kerrisdale Capital turned bullish saying “We are long shares of Intelsat and SES, two large satellite operators with significant and underappreciated 5G spectrum assets”

· MRVL +3%; Evercore initiated outperform and $27 tgt as see the emergence of the third wave of compute led by AI/Big Data/Storage making data worth a lot more today, while Deutsche Bank upgraded to buy

· WWE +5%; tgts raised by several analysts (Guggenheim to $82) after announcing bigger-than-anticipated TV rights deals for its Raw and Smackdown programs with USA Networks and Fox


· AQXP -83%; said Rosiptor (AQX-1125) failed to show a benefit over placebo in its Phase 3 study in interstitial cystitis/bladder pain syndrome

· GBT -4%; after the company reported results for a late-stage trial of sickle cell disease therapy, and said that it met with the U.S. FDA in June about a potential accelerated approval

· PF -3%; to be acquired by CAG in $10.9 billion cash and stock deal with PF holders will receive $43.11 per share in cash and 0.6494 shares of CAG common stock for each share of Pinnacle Foods held for a total price of $68. https://on.mktw.net/2Kmclup

· PTIE -73%; as a joint FDA panel has voted against approval for its Remoxy ER treatment as the two committees voted 14-3 against approval of the drug (oxycodone extended-release CII)

· SMMT -79%; as PhaseOut DMD Phase 2 has not met primary or secondary endpoints after 48 weeks of treatment of ezutromid in patients with DMD

· SONC -6%; after Q3 sales missed estimates and lower implied EPS guidance below consensus


· CNX Midstream Partners (CNXM) 6.5M share Spot Secondary priced at $18.30

· Fortune Brands (FBHS) 1.7M share Block Trade priced at $54.25

· Lovesac (LOVE) 3.3M share IPO priced at $16.00

· Mammoth Energy (TUSK) 4M share Spot Secondary priced at $38.20

· Neon Therapeutics (NTGN) 6.25M share IPO priced at $16.00

· Star Bulk Carriers (SBLK) 5M share Spot Secondary priced at $13.10

· Uxin (UXIN) 25M share IPO priced at $9.00


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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