Mid-Morning Look: July 16, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, July 16, 2018


U.S. stocks remain little changed, failing to rally following strong month retail sales data, as investors closely watch the meeting between President Donald Trump and his Russian counterpart, Vladimir Putin as the two leaders are expected to discuss arms control, alleged Russian meddling in the U.S. 2016 election and Ukraine among other topics. Markets holding near 5-month highs for the S&P 500 index ahead of a very busy month of corporate earnings. Bank America reported better results in the banking sector today, leading to outperformance in financials, and bouncing after Wells and Citi disappointed markets on Friday. Still a busy week for bank earnings with MS, GS, USB and SCHW due this week. In tech, all eyes on NFLX ahead of earnings tonight (+105% YTD). Energy stocks a drag on major averages early as WTI crude drops over 3% below the $69 per barrel level (tacking on to last week losses). The IMF said it sees slower-than-expected growth for euro area, Japan and UK saying global expansion has plateaued and is under threat from trade disputes (showing the trade war fears have not left the market place). Overall US equity markets appear to be in “wait-and-see” mode.


Treasuries, Currencies and Commodities

· In currency markets, the dollar falls vs. most currencies after 1% gains last week vs. major counterparts; dollar falls vs. euro and yen early; Bitcoin prices jump around 7% above $6,600; the dollar small gains early vs. the British Pound

· Precious metals are little changed early, with gold prices holding around 1-year lows around $1,240 an ounce, falling last week on the resurgent dollar

· Energy futures decline over 3%, with WTI crude moving below $69 per barrel (after falling -3.8% last week) on reports Saudi Arabia was said to offer extra crude to some customers, and the U.S. was said to consider tapping emergency supplies (news out late Friday). Bloomberg also reported Iran demanded its fellow OPEC members stick to crude production ceilings and defied the threats of Donald Trump

· Treasury markets trading lower to start the week, with the yield on the 10-year rising to above last week highs, moving to 2.87%, while the 2-yr tops 2.6% and the 30-yr approaches 3% (2.975%) last after mostly better economic data


Economic Data

· The Empire State manufacturing index fell -2.4 points in July to a reading of 22.6, down from the June reading of 25 (which was an eight-month high), but came in above estimates for a 21.0 reading; July prices paid fell to 42.7 from 52.7, new orders fell to 18.2 vs 21.3 and the number of employees fell to 17.2 vs 19.0; six-month general business conditions fell to 31.1 vs 38.9; shipments index fell 8.9 points to 14.6. Indexes for unfilled orders and inventories also declined

· Retail sales for June rose 0.5%, in-line with consensus views while retail sales less autos rose 0.4% in June, vs. est. 0.3%; The increase last month followed an even bigger burst of spending in May, when sales grew a revised 1.3% instead of previously reported 0.8%. Retail sales have increased 6.6% over the past 12 months.

· Business Inventories for May rose 0.4% MoM, in-line with consensus estimates as business sales rose 1.4% in May after rising 0.6% the prior month; April business inventories rose 0.3% m/m, unrevised; retailers sales rose 1.1% m/m in May after rising 0.4% prior month; Inventory/sales ratio at 1.34 in May vs 1.39 a year ago; lowest since Dec. 2014


Sector Movers Today

· Monthly Master Trust credit card data: 1) AXP June write-off rate 2.0% vs. 2.2% last month and reports June 30 days past due loans 1.3% vs. 1.3% last month;2) JPM June Credit-Card Charge-Offs 2.39% vs 2.56% Mom, while June delinquencies 1.11%; 3) SYF June charge off rate 4.73% vs. 5.26% last month and June 30-plus day delinquencies 2.72% vs. 2.73% last month; 4) ADS June net charge offs 6.6% vs. 6.4% last month and June delinquency rate 5.5% vs. 5.4% last month; 5) DFS June charge-off rate 3.4% vs. 3.4% last month and delinquency rate 2.2% vs. 2.2% last month

· Transports; truckers active after JBHT Q2 results topped analysts’ expectations on revs $2.14B vs. est. $2.06B (shares of HUBG, WERN, KNX, CHRW among movers in sympathy); KNX was also upgraded to overweight at Barclays saying Trucking fundamentals remain robust and plenty of company specific opportunities lie ahead for Knight

· In freight and package delivery, UBS downgraded FDX to neutral from buy saying with a large global Express business representing 55% of revenue and about 13% of revenue linked to Asia, FedEx is exposed to risk from tariffs and potentially slower trade activity. UBS upgraded UPS to buy from neutral and raise tgt to $125 saying the combination of cost and productivity improvements, coupled with a constructive” revenue backdrop, provide potential for improved Domestic Package margin performance and stronger operating income growth in 2019 for UPS

· Packaging sector; Bank America notes the sector has been beaten down YTD and recommends buying, particularly if stocks have growth or “some controversy.” Preferred companies include CCK, BLL, BERY, GPX, WRK and PKG saying based on its strategy team’s analysis, thinks that market likely in a cycle where a potential late-summer buy signal could lift stocks (firm upgraded LPX to buy while downgraded GEF to underperform)

       Stock GAINERS

· AMD +4%; tgt raised to $21 from $17 at Stifel citing data showing the Zen-based CPU line tracking in-line to slightly above guidance

· ARNC +10%; has received takeover interest from private-equity firms, including APO the Wall Street Journal report, citing people familiar with the matter. A deal for the aerospace parts maker could be worth over $10B https://on.wsj.com/2Lje58l

· BAC +2%; quarterly profit jumped 33%, topping estimates on slightly better revs helped by tax cuts and a boost in trading as Fixed-income trading rose 2% and equities surged 17%

· CSCO +2%; rebounds after analysts defend shares, recovering after last week reports of possible entry by AMZN into the switching space, which hurt shares of ANET, JNPR as well

· DB +7%; sees Q2 net income of about 400 million euros ($468 million) and income before income taxes of about 700 million euros, “considerably” above estimates

· VFC +3%; upgraded to overweight and tgt raised to $105 at JPMorgan as sees an attractive risk/reward profile at current share levels given the company’s multi-year inflection

Stock LAGGARDS

· ADS -6%; as June net charge offs 6.6% vs. 6.4% last month and June delinquency rate 5.5% vs. 5.4% last month

· BLK -1%; slightly better EPS and revs but noted that investors pulled $22.4 billion from its equity products in the second quarter/inflows into its iShares products totaled $17.8 billion, the lowest since the second quarter of 2016

· HAS -2%; downgraded to market perform at BMO citing valuation, but is also concerned that the Toys “R” US liquidation may have a larger impact than expected

· JBHT -2%; reverses gains of as much as 6.7% after better earnings; the reversal lower taking its toll on the transport industry

· OSUR -10%; after Stephens downgraded to equal-weight as feels the molecular collection business and long-term prospects for microbiome are largely reflected in current levels

· SBH -5%; downgraded to underperform at Bank America and cut tgt to $15 from $17 given challenges to sales and margin expansion

· WAT -3%; downgraded to underperform at Bank America and tgt cut to $190 from $200 as see continued softer performance and think 2018 targets (4-6% organic sales growth) may be too ambitious

 

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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