Monday, July 9, 2018
U.S. equities extend last week’s gains following a bullish jobs report on Friday, as the blue chip Dow Industrial Average outperforms rising 1% to 24,700 led by gains in financials (JPM, GS) and industrials (CAT), while the S&P 500 and Nasdaq Composite also add to recent rallies. Markets are looking for a third-straight day of gains, as stocks appear to be putting the trade concerns between the U.S. and trading partners China, Canada and the EU aside and turning their attention to fundamentals, as quarterly earnings gets underway later this week. Friction in the UK today, sending the Pound lower (off earlier gains) as Boris Johnson resigned from the U.K. government, just hours after Brexit Secretary David Davis quit in protest over May’s efforts to keep Britain closely bound to the EU after the split, due in March. A massive bounce in China stocks (Shanghai rose 2.5% for its largest gain in over two years) and another gain for Europe markets (even with Theresa May’s new Brexit crisis) added to the positive sentiment in the U.S. No major economic data today, with U.S. stocks broadly higher.
Treasuries, Currencies and Commodities
· In currency markets, the British pound active after announcements in UK government, with the Pound falling off overnight highs of 1.3363 to now trade lower at 1.3275 following the resignation of Brexit official David Davis and as Boris Johnson resigned from the U.K. government, tipping Prime Minister Theresa May deeper into crisis. The dollar index bounces back above the 94 level as it rallies vs. the Pound, while little changed vs. the euro
· Precious metals extending last week late bounce off 7-month lows, with gold price topping $1,260 an ounce as the dollar is mixed.
· Energy futures are mixed, as WTI crude slips 10c to $73.70, while Brent prices rebound back above $77.80; concerns of possible disruptions in Libya, Canada, Iran, and Venezuela, a fear that maybe things are going to get tight, has rallied oil to recent 4 year highs…but concerns that Saudi Arabia was pumping more oil led prices lower -0.5% last week.
· Treasury markets weakened, pushing up yields, as the 10-yr moved back above the 2.85% level; markets appear to be putting the trade concerns to the “back-burner” as attention turns to quarterly earnings kicking off next week
Sector Movers Today
· Financials extending gains, among top gaining sector ahead of quarterly earnings from large cap banks JPM, C, WFC, PNC later this week and as bond yields rebound off multi-week lows; financials have underperformed broader markets over the last month
· Casino, Lodging & Leisure; in parks, Wells Fargo downgraded shares of SEAS and SIX valuation, negative seasonal trading patterns and incremental FX related UK/Brazilian headwinds, despite ongoing favorable consumer fundamentals and the key Q3 just starting; in cruise lines, RCL with positive mention in Barron’s saying cruise industry concerns seem overdone; in gaming/casino space, group looks to rally (WYNN, MLCO) after soft Macau June numbers last week as Morgan Stanley issued a Q2 forecast for gross gaming revenue of $9.2B (+17% Y/Y, -6% Q/Q)
· Metals & Mining; in the steel sector, Deutsche Bank downgraded AKS and RYI shares noting preference remains for mini-mills over integrated/says the steel sector is underappreciated and ~15% too cheap as an overall group, however the recent up-cycle won’t be sustainable; CDE boosts full-year production guidance due to higher grades at its Palmarejo operation as boosts silver production guidance to 13.2M-14.6M ounces from 12.2M-13.8M ounces and also raises gold production guidance; ABX unveils a strategic cooperation plan with China’s Shandong Gold, including potentially working together on acquisitions; copper futures bounce off year lows
· Managed care stocks (UNH, AET, CI, HUM, AMTM) shares active after the Trump administration halted billions of dollars in payments to health insurers under the Obamacare healthcare law, saying that a recent federal court ruling prevents the money from being disbursed. The Centers for Medicare and Medicaid Services, which administers programs under the Affordable Care Act, said the action affects $10.4B in risk adjustment payments
· COF +3%; upgraded to outperform at Oppenheimer
· DE +3%; and CAT, two agricultural stocks leading gainers in the S&P 500 early
· DLPH +5%; amid rebound in auto space after tariff fears last week dragged the industry lower; Morgan Stanley also upgraded shares to overweight
· FEYE +3%; upgraded to overweight at Piper and raised tgt to $20 saying channel checks showed a significant improvement in demand trends for the company
· GRPN +4%; shares rallied after a report over the weekend from recode that the discount-selling website is actively seeking a buyer
· HELE +13%; jumped after Q1 sales and adjusted EPS beat estimates this morning
· AMT -2%; downgraded at Raymond James on valuation, FX trends, Tata and other headwinds
· CTIC -20%; after its NHL treatment fails in phase III trial
· DOVA -16%; downgraded to Market Perform from Outperform at Leerink
· PG -1%; downgraded to hold at Jefferies and tgt cut to $79 citing slowing market growth, volatility in emerging markets, U.S. retail difficulties, and FX
· TTWO -2%; weakness in early in video game sector (EA as well)
· TWTR -7%; suspends over 70M suspicious accounts in May-June in an attempt to crack down on phony accounts