Thursday, July 12, 2018
U.S. equities recovering nicely after having their 4-day win streaks snapped yesterday, led by broad sector gains. U.S. stocks advance as the prospect for trade talks between the U.S. and China brightened, as reports indicate they are open to resolving their differences, which has helped to refresh some appetite for assets perceived as risky. Meanwhile, June inflation (CPI) rose less than forecast (0.1% vs. est. 0.2%), affirming the Federal Reserve’s interest rate outlook, though its YoY figure of 2.9% increase was the highest level in 6-years. Semiconductors recovering from early weakness, with the index trading higher despite shares of AVGO plunging following its $18B deal to acquire for CA (AVGO downgraded by several analysts following the deal). Transports bouncing after yesterday’s drop on AAL lower guidance sinking airline stocks (DAL mixed results today as EPS beat but lowered its profit outlook). Oil prices little changed, failing to recover after WTI crude plunged 5% yesterday (and Brent dropped 7%). Earnings season officially gets underway tomorrow, with big banks JPM, C, WFC all expected to report. President Donald Trump reaffirming the U.S.’s commitment to NATO this morning also helping sentiment.
Treasuries, Currencies and Commodities
· In currency markets, the U.S. dollar little changed after yesterday’s broad outperformance on trade tensions and a pick-up in PPI inflation – today however, the CPI MoM was lighter than forecasts, though the YoY figure of 2.9% was the highest level in 6-years; the dollar jumps to near 2018 highs vs. the Japanese yen, topping 112.50, while trades flat vs. the euro, down vs. the GBP; Bitcoin prices extend losses, down another 2% trading under $6,200.
· Precious metals inch higher as gold prices rebound from near 1-year lows yesterday as the ongoing China and US trade dispute took its toll on commodity prices. Energy futures failing to rally meaningfully after yesterday 5% drop in WTI crude.
· Treasury markets are down slightly, with the yield on the 10-year benchmark holding around the 2.84% level following slightly “hotter” inflation data the last two days, with PPI topping views yesterday and headline CPI YoY touching its highest level in 6-years of 2.9%; the 2-yr yield up at 2.59% while the 30-yr yield remains below 3%.
· Consumer prices (CPI) for June rose 0.1%, smaller than the 0.2% estimate, a contrast to yesterday’s “hotter” PPI reading that topped views. Core CPI rose 0.2%, in-line with economist forecasts, while YoY, core CPI rose 2.3% (also in-line). Headline CPI for a 12-month pace of 2.9% from 2.8%, marking the highest level in more than six years, the government said
· Weekly Jobless claims fell 18K to 214K, well below the 225K estimate, back down near the 49-year lows; the 4-week moving average slipped by 1,750 to 223,000; prior week claims revised up to 232k from 231k; continuing claims fell 3K to 1.739M in the week ending June 30
· The 30-year fixed mortgage rate for week ended today rose to 4.53% from 4.52%, Freddie Mac said; 15-year rate avg 4.02%, up from 3.99% a week earlier; 5/1-year ARM rate avg 3.86%, up from 3.74% a week earlier.
Sector Movers Today
· Semiconductors; AVGO shares plunged as news that it would acquire CA for $44.50 per share, in a deal valued at $18.9B was not well received by Wall Street, with several analysts downgrading the stocks following the news; NXPI shares active after CNBC’s David Faber said the QCOM/NXPI deal is likely to be terminated if there is no Chinese approval by July 25 date, unlikely that it will be extended; overall semi index (SOX) bounces off early lows, as strength in several names (TXN, AMD, MU) helping offset the declines in AVGO
· Airlines active after DAL with mixed Q2 results as EPS beat by 5c, but sales slightly missed and also cut its year EPS forecast to $5.35-$5.70, from $6.35-$6.70 in March (est. $5.77) citing an extra $2 billion in costs from higher fuel prices this year. Recall that airlines sunk on Wednesday after lower CASM, TRASM guidance from AAL; JBLU June traffic rose 7.8%, capacity up 5.9%, load factor was 87%, up 1.5 points YoY/sees 2Q RASM down about 1.2%; SAVE rises on positive outlook
· Metals & Mining; commodities are rebounding after a selloff yesterday that was triggered by renewed concerns about the U.S.-China trade conflict. Nickel and copper are outperforming their peers, while aluminum is down slightly; gold miner ABX reiterated 2018 gold production (4.5-5.0 mn oz) and cash cost ($540-575/oz) guidance and continues to expect higher production and lower costs in the 2H18
· Oil services and equipment; Morgan Stanley shifts rating in favor of land drillers as upgrades NBR and PDS to overweight from equal weight as sees both companies continuing to realize strong pricing and activity levels in their U.S. businesses; reduces completions exposure, though not entirely with downgrades of CJ and SLCA to equal-weight, SPN to underweight
· Asset managers; VRTS preliminary total assets under management rises to $91.6B as of June 30, 2018 from $89.1B at the end of March; IVZ preliminary month-end assets under management (AUM) of $963.3 billion, a decrease of 1.4% month over month; AB preliminary assets under management decreased to $540 billion during June 2018 from $541 billion at the end of May; APAM assets under management as of June 30, 2018 totaled $114.2 billion; TROW June Preliminary AUM $1.04 trillion
· CA +18%; to be acquired by AVGO in deal valued at $44.50 per share
· COST +1%; reported June comp sales ex: fuel up 7.7%, topping the 6.2% estimate while also guided 2019 EPS to $8.08, above the $7.75 estimate
· FPI +19%; defended itself against short-seller call yesterday, while also defended at both B Riley (upgraded shares to buy) and Baird (named as “fresh pick”
· GLMD +14%; after Cantor initiated coverage with an overweight and $59 tgt calling it an undervalued player in NASH field
· PZZA +11%; announced founder John Schnatter resigned as the company’s chairman on Wednesday night after fallout over his use of the n-word during a conference call
· ZGNX +17%; as its drug to treat a rare form of epilepsy reduced convulsive seizures associated with the disease in a late stage trial
· AVGO -16%; after announced to acquire CA for $44.50 per share, in a deal valued at $18.9B (downgraded by several analysts after the deal)
· CATO -12%; as June comp sales were flat vs. estimate of up 4%
· LB -8%; reported Victoria’s Secret June comp sales down (-1%) vs. est. up 2.9%, while total L Brand comps rose 3% vs. est. 2.9%, helped by Bath & Body Works comps gain of 10%
· NFLX -1%; downgraded to neutral at UBS following rally in shares
· OZRK -7%; reported in-line Q2 EPS, but lower net interest margin (NIM) of 4.66% vs. Bloomberg est. 4.69% weighed on shares
· PRGO -1%; downgraded to sell at Goldman Sachs as sees no meaningful risk to estimates but expects the business to drift due to a lack of meaningful new launches in the pipeline
· VMI -7%; lowered its 2018 profit outlook (to $7.55-$7.65 from $8.00-$8.10) and said continued low net-farm income levels and uncertainty around impacts of tariffs and trade policies are causing farmers to delay irrigation purchase decision
· ZUMZ -11%; missed comp the estimate by 120bps and was the first monthly comp miss (2.7% vs. 3.9%) for this brand since March of 2017
· AcelRx (ACRX) 7.273 share Spot Secondary priced at $2.75
· Assembly Biosciences (ASMB) 4M share Secondary priced at $36.00
· Cactus (WHD) 10M share Secondary priced at $33.25
· Natera (NTRA) 4.5M share Secondary priced at $20.00
· Sellas Life Sciences (SLS) 11.52M share Secondary priced at $2.10