Mid-Morning Look: July 24, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Tuesday, July 24, 2018

Equities are broadly higher, joining a global rally after China unveiled policies to strengthen domestic demand (which is boosting commodity prices early). The Nasdaq Composite trades to a new all-time record high, getting a lift after stronger-than-expected earnings results from Internet giant GOOGL (GOOGL, FB, MSFT new record highs). Metals & Mining industry strong on earnings (STLD) and as China unveiled new measures to increase infrastructure spending to bolster growth, lifting copper, aluminum, iron ore stocks. In the S&P 500, utilities and real-estate are weak as yields remain elevated, which is helping lift financials for a third straight session. Earnings results for Dow components mixed as: VZ posted Q2 earnings beat and saying total monthly subscribers including for phones, tablets and watches grew by 531K in Q2, topping the Bloomberg est. 436K; UTX mixed results as Q2 EPS and sales beat along with full-year outlook above consensus as 2Q margins at its Otis business missed expectations and MMM reported record sales for Q2, but downgraded its outlook for 2018 for the second time this year. Quiet early related to trade and macro topics, as markets focus on the earnings onslaught.

Treasuries, Currencies and Commodities

· In currency markets, the dollar index (DXY) slides early, paring some of yesterday gains; the Pound rises to highs of 1.3159 following comments by UK PM May related to Brexit; the dollar extends early drop pushing the Canadian and Aussie dollar higher; the euro back above the 1.17 level vs. the buck; recent Bitcoin surge continues, as prices rise more than 6%, topping the $8,100 level (first time above 8K since May) and now up over 35% from its June lows of $5,791; after the Turkish Central Bank unexpectedly kept interest rates unchanged, the lira plunging

· Commodity prices higher. Precious metals post a small bounce, now up around $20 off 1-year lows of $1,210 last week, getting a lift early as the dollar slides. Energy prices rising ahead of weekly inventory data tonight (API) and tomorrow (DOE) while also supported by a slide in the dollar. Reports out of China as they unveiled new measures to increase infrastructure spending to bolster growth is bolstering commodity prices early.

· Treasury markets are taking a break after back—to-back days of selling pressure, seeing yields jump to their highest levels in over a month as the economy strengthens and boosts expectations the FOMC will get more aggressive with rate hikes to stave off inflation; the 10-yr yield holds at 2.96% (after rising 7 bps yesterday), while the 30-yr holds at 3.09% (up about 15 bps in last 2-days); the 2-yr yield up at 2.635%, back near decade highs ahead of GDP data on Friday

Economic Data

· U.S. FHFA home price index rose 0.2% to 263.3 in May, after rising 0.2% to 262.6 in April (revised form 262.5). The index is up 6.4% y/y compared to last year. Seven of the nine regions surveyed posted gains on the month,

· IHS Markit flash U.S. services PMI drops to 56.2 in July from 56.5

· IHS Markit flash U.S. manufacturing PMI rises to 55.5 in July from 55.4

· Richmond Fed’s July Manufacturing survey at 20, topping the est. 18 while shipments fell to 16 after 17 the prior month and new order volume were unchanged at 22 after 22 the prior month

Sector Movers Today

· Aerospace & Defense; LMT posted stronger Q2 results and raised its year guidance, but shares slipped early as Sikorsky sales drop in second quarter on Black Hawk; note shares of NOC and GD due to report tomorrow morning; aerospace suppliers active (ARNC, CRS, HAYN) after ATI earnings beat by 8c as results in High Performance Materials and Components (HPMC) segment improved at a faster pace than expected; HXL reported in-line Q2 EPS of 7c on slightly better revs, upped its dividend and guides year EPS $2.96-$3.10 vs. est. $3.02

· Chemicals; AVY among top S&P gainers early following its earnings results; in coatings, SHW Q2 EPS and sales topped consensus primarily to the addition of Valspar sales, higher paint sales volume in The Americas Group and selling price increases while raised its year guidance; MOS double upgraded to buy from underperform at Bank America on potential for multi-year recovery in phosphate as global utilization rates bottoms in 2018

· Banks; UBS reported a stronger than expected 12% rise in pre-tax Q2 profits boosted by its investment bank, but its core wealth management operations; SNV agreed to buy FCB in all-stock transaction valued at about $58.15 per share, or about $2.9B, and reported better-than-expected Q2 EPS; ZION slips as Q2 EPS missed by 3c due mainly to higher expenses and a larger provision, while its loan growth came in a bit light due to fairly material CRE headwinds (did post better NIM); CIT Q2 EPS and revenue beat estimates on lower operating expenses, higher non-interest income and lower effective tax rate offset a decline in net finance revenue and a higher provision for credit losses; HTLF was downgraded at Raymond James given premium valuation levels, which we think are reflective of the company’s ability to post improving profitability levels

· Consumer lending and finance; V and MGI announced a strategic agreement that will modernize and digitize the process of sending and receiving money overseas; SQ expands business-lending program through EBAYpartnership as sellers will be able to apply for $500 to $100,000 to help grow various aspects of their businesses, eBay said

· Metals & Mining; industry strong on earnings and as China unveiled new measures to increase infrastructure spending to bolster growth; VALE was raised to investment grade by Moody’s; steel stocks active as STLD Q2 EPS beat by 5c and topped prior guidance while Ebitda topped views driven by an 8% q/q increase in Steel shipments (vs. our flattish view), and stronger Fabrication profitability against weaker Recycling; NUE was upgraded to Overweight at KeyBanc with an increase to our “normalized” 2019 EPS power view to $5.40 (from $4.68) given better appreciation of self-help growth initiatives in Fabrication and Raw Materials; CLF extends recent gains after its better earnings results late last week (prompting analyst tgt hikes); in aluminum, KALU Q2 EPS and sales beat (following recently lowered outlook from AA in space)

       Stock GAINERS

· ATI +9%; after earnings beat by 8c as results in High Performance Materials and Components (HPMC) segment improved at a faster pace than expected

· BIIB +4%; beats Q2 estimates on Spinraza sales (also a positive for IONS), raises forecast for the year/also announced a deal with AliveGen for the rights to Phase 1-stage ALG-801 (now BIIB110) and preclinical-stage ALG-802

· EOG +3%; initiated at buy at Mizuho with $173 target, while overall E&P space trading higher as oil prices rebound along with broader commodities

· GOOGL +4%; after 2Q results were led by another strong quarter of topline growth from Google Properties (Search, YouTube), growing 26% y/y, as well as continued momentum in Cloud

· IQV +8%; record highs after Q2 results and raised its year outlook

· MOS +3%; double upgraded to buy from underperform at Bank America on potential for multi-year recovery in phosphate as global utilization rates bottoms in 2018

· PVAC +4%; announced that its Board of Directors intends to evaluate a range of strategic alternatives to enhance shareholder value, including without limitation, a corporate sale, merger or other business combination

Stock LAGGARDS

· ACC -4%; 2Q FFO was in-line with estimates with modest comp NOI growth (0.1%) as expected, while it cut its ’18 FFO guidance 7c/sh (2c below St), lowering ’18 SS revenues

· COTY -3%; Bloomberg reported data show that Coty and Revlon lost a combined 240bps of U.S. in-store cosmetics market share in the 13-weeks ended July 15, 215bps of which went to L’Oreal

· DGX -6%; after the lab company Q2 results trailed estimates and lowered the high end of its forecast for 2018 earnings

· KMB -2%; cut its year EPS view to $6.60-$6.80 from $6.90-$7.20 to reflect significantly higher commodity costs and a worse currency outlook

· NEO -14%; after cutting its 2018 EPS view to 12c-17c from 16c-20c to reflect a preferred stock redemption in June

· SNV -8%; agreed to buy FCB in all-stock transaction valued at about $58.15 per share, or about $2.9B, and reported better-than-expected Q2 EPS

· WHR -13%; after quarter was disappointing across most dimensions of the business including NA, EMEA and LA with substantially reduced 2018 guidance

· ZION -2%; as Q2 EPS missed by 3c due mainly to higher expenses and a larger provision, while its loan growth came in a bit light due to fairly material CRE headwinds

Syndicate

· Beasley Broadcast (BBGI) 3.126M share Secondary priced at $7.50

· Materialise (MTLS) 3M share Secondary priced at $13.00

· Redwood Trust (RWT) 6.25M share Spot Secondary priced at $16.50

· Teladoc (TDOC) 5.264M share Spot Secondary priced at $67.00

 

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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