Mid-Morning Look: July 02, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, July 02, 2018

U.S. equities advanced on Friday, led by gains in banking stocks after many of the big banks and card companies said they would return capital to shareholders after passing the Federal Reserve’s stress tests, providing a boost for a sector that has lagged the last two-weeks. Another spike in oil prices, with WTI crude topping $74 barrels to fresh 4 ½ year highs, is lifting the energy complex this morning as well. The main benchmarks were still on track for weekly losses, however. Friday also marks the end of the month, quarter and the first half of the year, with benchmarks putting mixed performances over these period. More news out of Washington today moving markets early: First it was Axios reporting early this morning that reported President Donald Trump has repeatedly told top White House officials he wants to withdraw the U.S. from WTO. Later, a WTO spokesman told Bloomberg “we have not heard anyone express this to us at any level of the U.S. government.” “We won’t speculate on anything we don’t know anything about.” Lastly, Secretary Treasury Mnuchin said the Axios story on Trump considering WTO withdrawal isn’t right, calls it “exaggeration.” Trump “has concerns about the WTO, he thinks there’s aspects of it that aren’t fair.” Stocks have since bounced since the mixed message headlines. Markets also please after China reportedly eased restrictions on foreign investment in sectors such as agriculture and banking overnight, while EU leaders reached a deal over the crisis of migration as well. Better earnings results from Dow component Nike also helping the index (shares up over 10%).

Treasuries, Currencies and Commodities

· In currency markets, the dollar index (DXY) slides back under the 95 level, as the euro gets a boost after the European Union reached a deal over the divisive issue of refugees, removing some political risk and after some economic data; dollar rises vs. yen and pound; Bitcoin prices drop over 2.5% to $5,880 to lowest levels since November

· Precious metals remain little changed, with virtually no bounce over the last few weeks, as prices edge slightly higher in an attempt to halt the latest slide at four straight sessions; gold prices on track for a 6% decline for the quarter as prices hold near lowest levels since December

· Energy futures extend their weekly gains, with WTI crude topping the $74 per barrel level, back to fresh 2014 highs on what has been a week of positive catalysts including: bullish inventory data from the EIA and API, uncertainty of Libyan oil supplies intensifying after military conflict this week and reports the U.S. wants to cut Iran oil imports to zero also contributed to oil’s price gains

· Treasury markets unchanged as 10-year yield holds at 2.84%, the 30-yr yield 2.96% and the 2-yr yield little changed at 2.52%

Economic Data

· Personal Income for May rose 0.4%, in-line with economist views while personal consumption rose 0.2%, missing the 0.4% estimate; real personal spending was unchanged vs. est. up 0.2%, while core inflation rose 0.2%, matching estimate and up 2.0% Y/y vs. est. up 1.9%; PCE prices rose 0.2%, also matching estimate; savings rate at 3.2% in May vs. 3.0% the prior month

· Chicago PMI data rose to 64.1, topping the 60 estimate reading and above the 62.7 the prior month; Prices paid, new orders, employment all rose at a faster pace, signaling expansion, while inventories, production rose at a slower pace; business activity has been positive for 12 months over the past year

· June Final Michigan Sentiment rose to 98.2 from 98 last month vs. est. 99 (it was 99.3 in the preliminary reading; the expectations index fell to 86.3 vs. 89.1 last month, while the current economic conditions index rose to 116.5 vs. 111.8 last month. Expected change in median prices during the next year rose to 3.0% vs. 2.8% last month.

Sector Movers Today

· Large cap banks: JPM boosts dividend to 80c from 56c and to buy back up to $20.7B, in stock; BAC quarterly dividend up by 25% to 15c a share and buy back up to $20.6B in shares; C raised dividend to 45c and buy back up to $17.6B in shares; DB failed CCAR stress tests due to “widespread and critical deficiencies” in the bank’s capital planning controls; WFCraised quarterly dividend to 43c from 39c a share and buy back up to $24.5B in stock

· Regional banks: FITB raised its quarterly dividend to 22c from 18c a share, and said it would buy back up to $1.65B in shares; HBAN raises quarterly dividend 25% to 14c a share and announced up to $1.07B in buybacks; KEY boosted its quarterly dividend 42% to 17c a share and announced up to $1.23B in buybacks; PNC hikes quarterly dividend by 27% to 95c a share and buy back up to $2B in stock; RF raises dividend to 14c a share and buy back up to $2.03B in shares

· Consumer finance; Janney upgraded ALLY and SC to buy from neutral noting the Fed did not object to the capital plans for either SC or ALLY, both of which included a material increase in capital distributions in the form of repurchases and dividends; AXP quarterly dividend 11% to 39c share and buy back up to $3.4B in shares (AXP also upgraded to buy at Buckingham); COF maintained its quarterly dividend at 40c and said it would buy back up to $1.2B in shares; SC boosts dividend to 20c and to buy back $200M in shares; ALLY raises dividend to 15c from 13c and includes $1B share repurchase

· Oil equipment; Wells Fargo downgraded CJ, FTSI, FRAC, and SLCA to Market Perform from Outperform and in an effort to further tilt towards offshore/ international leverage, upgraded NBR to Outperform saying with multiple factors pointing to downside risk in Lower 48 D&C spending and completions in 2H18/1H19 and recent data points suggesting that the pressure pumping market is already weakening, they are lowering Lower 48 D&C spending, completions and rig count forecast and cutting EBITDA estimates for our NAM (North America) services

· Coal sector; JPMorgan raised its tgt on BTU to $53 from $48 citing improved outlook for the seaborne coking and thermal coal prices after taking into account the reduced share count, due to share buybacks; they cut ARCH tgt to $85 from $94 as also benefits from the better metallurgical prices but with its Q1 results announced lower production targets for its PRB operations and that it was struggling with rail and port logistics for its export met coal and cut ARLP tgt to $23 from $26

· Healthcare services; shares of WBA, ESRX, MCK, CVS among those names active yesterday and today after the announcement of AMZN’s purchase of PillPack as the deal presents a large overhang for the retail pharmacy sector (WBA downgraded at Jefferies and Baird on news); hospital provider THC downgraded to at Jefferies saying the stock’s valuation at 7.5x FY19 EBITDA adequately reflects THC’s growth prospects; CYH falls a 3rd straight day as hospitals remain weak


· ACAD +7%; after the FDA approved a new capsule dose formulation and new tablet strength of Nuplazid (pimavanserin) for treatment of patients experiencing hallucinations and delusions associated with Parkinson’s disease psychosis

· DERM +3%; after its excessive-sweating drug won FDA approval/investor focus turning towards Phase IIb data for lebrikizumab in atopic dermatitis, due in 1H19

· GBX +8%; reported Q3 EPS beat of 15c though revs missed estimates and reaffirms year

· GEMP +96%; as phase 2b trial for gemcabene, a treatment for severe hypertriglyceridemia (SHTG), achieved the primary endpoint

· KBH +7%; as the strong earnings results in homebuilder space continues this week, with KBH positive results following those of LEN mid-week

· NKE +11%; posted robust 4Q18 beat and raised outlook which marks the return of the company to global growth and is demonstrative of its winning strategy

· VRTX +12%; as disappointing trial results revealed by GLPG for a cystic fibrosis treatment removes a competitive overhang according to some analysts

· WFC +4%; big winner in Fed stress test round two as will increase its quarterly dividend to 43c from 39c a share and buy back up to $24.5 billion in stock

· XLRN +43%; CELG and partner XLRN announced positive results from the phase III MEDALIST trial of luspatercept in low-to intermediate risk MDS (XLRN upgraded at Goldman Sachs)


· CAH -1%; as shares of WBA, ESRX, MCK, CVS among those active after AMZN’s purchase of PillPack as the deal presents a large overhang for the retail pharmacy sector

· GLPG -5%; after weak FEV-1 results in a Phase 2 study called the future of its cystic fibrosis program into question, and showed it will likely be non-competitive with peer VRTX; also, partner ABBV said it was pulling out of plans for a potential cystic fibrosis drug after results

· SNX -4%; said it would buy CVG in a $2.43B cash-and-stock deal, paying $26.50 per share offer, as deal includes $13.25 per share in cash and 0.1193 SYNNEX common shares https://reut.rs/2lFrY5p (shares of SNX dipped on Q3 guidance as well)

· STZ -7%; as Q1 EPS missed by 23c on slightly better sales of $2.05B, amid weaker gross margins of 50.8%, while affirms year outlooks


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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