Mid-Morning Look: July 06, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Friday, July 6, 2018

U.S. stocks are higher, led by an extended rally in the technology space as the Nasdaq Composite outperforms amid a stronger than expected monthly jobs reading for June. The data helped offset the trade war concerns between the U.S. and China. Overnight, the U.S. imposed tariffs on $34 billion of Chinese imports Friday, while China began to levy 25% retaliatory tariff on 545 categories of US goods, ranging from agricultural products to automobiles. Particularly, the tariff covers a total of $16.6B of US agricultural exports to China. The tariff news had been expected as no compromise was noted over the last week. The longer the tariffs remain in place, the greater the impact it may have on U.S. food, agriculture, industrial and tech stocks. Just ahead of the tariff action, U.S. President Donald Trump threatened to escalate the trade tensions by imposing further duties on more than $500 billion in Chinese imports, which is not helping sentiment. Back to the jobs report, the headline job additions were positive for this month and prior revisions, though the unemployment rate ticked back up to 4% while wage increases of 0.2% missed the 0.3% estimate, causing the dollar slide and bond rally.

Treasuries, Currencies and Commodities

· In currency markets, The euro holding near best levels of the day against the dollar, up 0.6% at 1.176 (off overnight lows of 1.168); the yen also gains ground against the dollar as the greenback falls broadly vs. counterparts despite the stronger jobs report reading (though unemployment rate ticked higher and wages missed estimates)

· Precious metals slide around -$2.00 an ounce, but holding above $1,250 an ounce, as the precious metals has bounced this week off 7-month lows

· Energy futures spiked after reports the Syncrude oil sands project could be offline longer than expected, potentially until the end of August, providing a boost for Canadian crude oil prices. One firm noted based on their ‘‘boots on the ground’ contacts, they believe the timeline to ramp back to full capacity is now likely September, which would add continued support (and potentially upside) to current oil prices

· Treasury market’s rise as yields fall, with the benchmark 10-year yield down over 2 bps to 2.81%; the shorter-term 2-yr yields also dipped 2 bps to 2.54% despite the bullish jobs report reinforcing expectations for the Fed to remain on track for its 4-rate hikes this year. The German 10-year bond yield dropped to its lowest in over 5-weeks at 0.281%, tracking US yields

Economic Data

· Nonfarm payrolls for June rose 213K, topping the 195K estimate while the government raised the number of new jobs created in May and April by a combined 37K (244K new jobs were created in May instead of 223K and April’s increase was raised to 175K from 159K). The unemployment rose to 4% from 3.8% (3.8% was also the estimate), as the participation rate rises to 62.9% from 62.7%. Hourly wages rose 5c, or 0.2%, to $26.98, slightly below the expected 0.3% increase

· U.S. trade deficit for May narrowed to (-$43.1B) from ($46.1B) in the prior month and below the (-$43.6B) estimate; imports rose 0.4% in May to $258.38B from $257.32B in April, while exports rose 1.9% in May to $215.33B from $211.24B in April

Sector Movers Today

· Auto’s; TSLA shares fell early after Barclay’s said they think fundraising is in the works as it seems that Tesla has been much more aggressive in its push to communicate positive data points. After a good day for autos (FCAU, GM) and suppliers (BWA, LEA) as the U.S. 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, group giving back some gains as tariffs between China and U.S. kick in today; German luxury automaker BMW said that it will be unable to “completely absorb” a new Chinese 25% tariff on imported U.S.-made models and will have to raise prices on the vehicles it makes

· Oil services; Guggenheim downgraded CJ, CVIA, HCLP (and removing as our Best Idea), PTEN and SLCA to neutral from buy and no longer assigning a price target, to reflect weakening fundamentals in U.S. completions. Firm said although they have cut their 2018/19 EBITDA estimates for HAL, FTSI, and FRAC as well, they believe they already discount the revision risk, and that they are well positioned to benefit from a 1Q-4Q19 re-acceleration in U.S. onshore activity – lowered PTs for FRAC, FTSI, HAL, WFT to $21, $20, $55, $6 (from $24, $32, $65, $7)

· Consumer finance and lending/payments; SQ was reiterated sell at BTIG saying the company’s withdrawal from applying for an industrial loan company charger with the FDIC highlights its dependence on credit to generate growth; Morgan Stanley on SQ, says its withdrawal of its ILC application does not indicate a reduced commitment to obtaining a bank charter, but refiling with a more robust application, along with improved Balance Sheet post recent debt raise could increase the odds of success


· ACIU +34%; benefits from BIIB positive Phase 2 data on early Alzheimer’s candidate BAN2401, as one of its Alzheimer’s candidates is crenezumab, in Phase 3 development by licensee Genentech

· BBOX +63%; after company was awarded $10M data center project

· BIIB +15%; and Eisai Co. have announced that their experimental Alzheimer’s drug successfully passed a mid-stage clinical trial; the two companies said the highest dose of the drug, codenamed BAN2401, significantly slowed progression of the memory-robbing disease after 18 months of treatment, compared to a placebo

· CVEO +7%; after awarded contracts for Coastal GasLink pipeline project

· LULU +2%; positive mentions after analyst meeting as KeyBanc said company remains on track to reach its 202 goals

· MANT +8%; after being upgraded to buy at SunTrust based on superior positioning to further accelerate market share gains and capitalize on federal budget increases


· ERJ -4%; extends losses after falling 10% yesterday on announced joint venture deal with Boeing

· GCI -7%; downgraded to underweight at JPMorgan given ongoing concerns regarding print circulation and ad trends

· LKSD -10%; cut to underweight at JPMorgan following a strong recent rally and amid ongoing concerns about the health of the core business

· PSMT -10%; shares slumped as quarterly earnings missed by 2c on revenue beat

· RGLS -45%; after announcing a strategic update and restructuring that will see it cutting about 60% of its head count

· SIMO -5%; after earlier guiding Q2 revenue near the midpoint of $134.3M-$140.8M prior view (below est. of $138.24M)


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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