Mid-Morning Look: July 05, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Thursday, July 5, 2018

U.S. equities rise early, led by gains in the auto sector after news reports the U.S. had proposed zero tariffs on auto imports and exports between the U.S. and the European Union. The rally also comes ahead of the release of the Federal Reserve minutes later today and the monthly non-farm payrolls on Friday. Markets have been paring gains since the open ahead of the imposition of tariffs on $34Bb worth of Chinese goods staring tomorrow, while China is expected to counter with corresponding tariffs on U.S. imports. Semiconductor stocks rebound after Micron said that it only sees a 1% revenue hit on quarterly revenue from China ban announced on Tuesday. Jobs data was slightly weaker with ADP private payroll data showing 177K added jobs vs. the 190K estimate while weekly jobless claims inched higher to 231K (highest in 6-weeks but continuing claims remain at decade lows). Bonds prices are little changed, while the dollar slides.

Treasuries, Currencies and Commodities

· In currency markets, the dollar slides overnight, but has been paring losses, with the dollar index (DXY) off earlier lows of 94.17 (and off recent 2018 highs of 95.53 on 6/28); the euro bounces above the 1.17 level vs. the dollar, though the greenback modestly rises vs. the Japanese yen; Bank of England governor Mark Carney said he is increasingly confident that the UK economy can bounce back after a slow start to 2018, sending the pound higher…the British Pound later pared its gains after touching highs of $1.3275 overnight; Bitcoin prices slid 1% to $6,630. The decline in the dollar comes ahead of the FOMC minutes later today and non-farm payroll report Friday

· Commodity prices little changed to mixed ahead of late week inventory data from the EIA on crude oil and natural gas (delayed due to July 4th holiday), while gold prices bounce off 7-month lows, holding above the $1,250 an ounce level after mixed economic data

· Treasury markets are steady, with the yield on the 10-year yield slipping off earlier highs above 2.85%, back to little changed of around 2.83% ahead of the FOMC Minutes later this afternoon and following mixed jobs data earlier this morning

Economic Data

· Weekly Jobless Claims rose 3K to 231K (a 6-week high), slightly above the 225K estimate, while the 4-week moving avg. rose 2,250 to 224.5K in the latest week ending June 30; prior week claims revised up to 228K from 227K; continuing claims rose 32K to 1.739M in the week ending June 23 but still remains near lowest level in decades

· ADP said private-sector employment remained solid in June, as employers added 177K jobs, though came in below the 190K estimate by economists. May’s gain was upwardly revised to show 189,000 growth instead of a previously estimated 178,000.

· June ISM Non-Manufacturing rises to 59.1 vs. 58.6 last month and above the 58.3 estimate; business activity rose to 63.9 vs 61.3 prior month, while new orders rose to 63.2 vs 60.5; employment fell to 53.6 vs 54.1 and prices paid fell to 60.7 vs 64.3; backlog of orders fell to 56.5 vs 61; imports fell to 51.5 vs 54.0

· Challenger, Gray & Christmas announced 37,202 job cuts in June; 245,179 year to date; said employers have announced 245,179 cuts through June, 8% more than the 227,000 cuts announced through June of last year

· The 30-year fixed mortgage rate for week ended today fell to 4.52% from 4.55%, Freddie Mac said in statement; 15-year rate avg 3.99%, down from 4.04% a week earlier

Sector Movers Today

· Auto sector; shares of U.S. and European auto makers rise after a U.S. official said it would be prepared to back off stiff tariffs on cars imported from the EU if the trading bloc eliminates duties on U.S. cars. The news was reported by German daily Handelsblatt, citing unnamed sources; shares of GM, F, as well as auto suppliers BWA, LEA, AXL, and DLPH were higher early. European autos also rising handily, also helped after FCAU and DDAIF were upgraded at Jefferies

· Industrial and Machinery; heavy duty truckers (CMI, PCAR, NAV, ALSN) with positive news as ACT Research for Class 8 trucks in June showed truck orders were 42,200 units (vs. estimates 30K-33K), up 133% YoY. This was one of the best months ever, despite the fact that June is typically a seasonally weak period. ACT Research believes that backlog could reach the highest levels in 20 years, once full industry data is released later this month. Class 5-7 orders were up 23% YoY.

· Aerospace & Defense; ERJ and BA have signed a preliminary agreement to form a joint venture consisting of the latter’s commercial aircraft and services business and the U.S. planemaker’s commercial development, production, marketing and lifecycle services operations. The deal values Embraer’s commercial aircraft operations at $4.75B, while Boeing’s 80% ownership stake in the JV will be valued at $3.8B; HXL upgraded to buy from hold and increasing price target from $70 to $80 as believe HXL represents favorable exposure to the commercial OE cycle (~71% of sales, with greater content on the newer programs), is seeing an acceleration in its 2018-2019 top-line growth, is poised for steady margin and FCF improvement

· Semiconductors; MU rebounds after the company said that it only sees a 1% revenue hit on quarterly revenue from China ban/noted two Chinese subsidiaries of the company were notified of a preliminary injunction against those entities in patent infringement cases filed by UMC and Fujian Jinhua Integrated Circuit/reaffirmed its year rev outlook; ZTE Corp. has named a slate of new top executives, including a new chief executive; QRVO was upgraded at KeyBanc saying quarterly Asia supply-chain findings left them incrementally more positive on fundamentals at AVGO, CY, IDTI(increasing price target to $39), MLNX, MPWR, MU, ON, QRVO (upgrading to Overweight and $95 price target), SIMO(increasing our price target to $60), TXN, and XLNX


· AU +3%; forecasted a 25% increase in FY 2018 production to ~300K oz. at its Sunrise Dam gold mine in Australia, citing improved recoveries

· FB +1%; after BTIG raised its price target to $275 from $175 as firm particularly upbeat about Instagram, which recently launched a new YouTube-like product called IGTV

· FCAU +5%; after European officials are considering holding talks on a tariff-cutting deal between the world’s largest car exporters to prevent an all-out trade war; also upgraded to buy at Jefferies

· GLNCY +3%; as announces plan to buy back up to $1 billion in shares

· ISCA +4%; after earnings results beat by a penny on higher revs and in-line guidance

· MU +1%; company said that it only sees a 1% revenue hit on quarterly revenue from China ban/noted two Chinese subsidiaries of the company were notified of a preliminary injunction against those entities in patent infringement cases filed by UMC and Fujian Jinhua

· NAV +2%; as ACT Research for Class 8 trucks in June showed truck orders were 42,200 units (vs. estimates 30K-33K), up 133% YoY

· XPLR +47%; to be acquired by ZBRA for $6.00 per share, with total consideration, including some debt, expected to be less than or equal to $90M https://on.mktw.net/2MONhgk


· CLNE -15%; after downgrade at Raymond James in clean energy sector

· HFC -3%; as refiners broadly lower, with declines in DK, MPC, ANDV as Goldman Sachs said gasoline margins by U.S. refiners have come in below expectations so far this summer

· TIVO -3%; said CEO Enrique Rodriguez has resigned, after less than a year in the role, leaving to assume a position of CTO at LBTYA

· TSLA -2%; breaking below 50-day MA 310.66 and 100 day 311.50, adding to Tuesday 7% declines; shares fell after late day reports that CEO Elon Musk asked engineers to remove a standard brake and roll test from the tasks completed as Model 3 cars were finished to speed up production and make the company’s goal of making 5,000 of the cars in a week

· ZYNE -8%; as its ZYN001 THC-prodrug patch Phase 1 study top line results show the target blood levels of 5 to 15 ng/ml THC were not achieved


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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