Mid-Morning Look: July 30, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, July 30, 2018

U.S. stocks start the day similar to how they ended last week, with the tech heavy Nasdaq Composite underperforming, led by weakness in high-beta sectors like Internet (FB, NFLX, TWTR), while the large cap names are holding steady. Industrials get a solid earnings beat from Dow component CAT (and raised guidance), lifting one of the top performing sectors of the month (along with financials). Energy names also outperforming as oil prices back above $70 per barrel. President Trump said on Twitter yesterday that he would be willing to ‘shut down’ the government if Democrats do not support funding plans for his wall along the border with Mexico (weighing on the dollar). Meanwhile focus this week, outside of the earnings barrage once again, will be on trade and central banks, with the Bank of Japan and FOMC both expected to announce policy changes this week. Coming into today, with 2-days left, the S&P was up 3.7% for the month to date, representing its largest such rise since January, while the Dow and NASDAQ are higher by 4.9% and 3%, respectively.

Treasuries, Currencies and Commodities

· In currency markets, the dollar starts the week in defensive posture, falling vs. most counterparts after President Trump said on Twitter this weekend he would be willing to ‘shut down’ the government if Democrats do not support funding plans for his wall along the border with Mexico; the euro moves back above the 1.17 level vs. the greenback, while the dollar falls below 1.30 against the Canadian dollar; dollar dips vs. the yen ahead of the Bank of Japan monetary policy meeting tomorrow, as they are expected to hold rates unchanged, but there is increasing speculation that it may change its policy on equity purchases. Pound rises vs. buck as well.

· Commodity prices higher, getting a boost from the fall in the dollar; oil prices with a big jump as WTI crude moves back above $70 per barrel with some reports of speculation that a Canadian oil-sands facility that supplies U.S. refineries won’t return to full production as quickly as expected. Meanwhile focus remains on Saudi oil shipments as well

· Treasury markets edge lower, with the 10-year yield topping the 2.98% early on (up a few bps) while the 2-yr steady at 2.67%. Central bank news this week with the BOJ tomorrow and the FOMC on Wednesday (no changes expected for either) – possibly moving markets

Economic Data

· Pending Home Sales for June rises 0.9% MoM, above the 0.1% estimate with gains in the Northeast up 1.4%, Midwest up 0.5%, South up 1.1% and West up 0.7%; unadjusted pending homes fell 4% y/y after falling 2.8% y/y in May

· U.S. July Dallas Fed Manufacturing at 32.3, above est. 31.0 but below 36.5 in the prior month; the six-month outlook at 36.2 vs 35.9 prior month

Sector Movers Today

· Consumer Staples; protein stocks slide after TSN cuts year adjusted earnings forecast on uncertainty in trade policies and increased tariffs negatively affecting domestic and export prices and increased volatility in commodity markets/sees year adjusted EPS $5.70-$6.00, down from prior view of $6.55-$6.70, est. $6.56 (SAFM, PPC also active on guidance); food space weak after USFD Q2 EPS and sales both fell short of consensus and announced deal to acquire SGA Food Group for $1.8B; CL downgraded to neutral at Macquarie as does not expect growth to accelerate over the next several quarters

· Restaurants; HABT upgraded to outperform at Wedbush and raise tgt to $15 from $10 as Q2 checks suggest SSS growth above expectations and believe 2H:18 comp sales growth expectations could prove conservative; BLMN mixed Q2 as EPS beats while comp and total sales just below views but raises year comp sales view to 1.5%-2.5% from 1%-2% and reaffirms EPS

· Casino, Lodging & Leisure; in gaming; British betting group GVC Holdings Plc, which owns the Coral, Ladbrokes and Sporting bet brands, said it was in advanced talks about a joint venture with U.S. hotel and casino operator MGM https://reut.rs/2NSP9oY ; CZR announces that it will introduce sports betting into its Atlantic City, Gulf Coast and Tunica properties in July and August

· MLP movers; WMB and KKR agree to form a joint venture to acquire DJ Basin oil and gas services provider Discovery Midstream from privately-held TPG Growth for ~$1.17B; EQM downgraded to market perform at Wells Fargo to reflect simplification risk, uncertainty on the in-service date of the Mountain Valley Pipeline; AMID falls after SXE terminates its merger with the company due to AMID’s failure to achieve conditions required under the merger agreement

· Consumer finance; SYF downgraded to equal-weight and removing from Top Pick at Barclay’s asWMT was the first of five major contracts up for renewal over the next five years for SYF; ALLY was upgraded to buy at Bank America as think the estimated 20% EPS growth will increasingly attract investors into ALLY, thus driving attractive upside in the stock

· Telecom movers; AT&T (T) upgraded to buy at Bank America, positive on AT&T’s 20-year low P/E multiple, Timer Warner merger benefits of earnings accretion and expanding cash, favorable emerging wireless business; tower stocks (AMT, CCI, SBAC) mentioned positively at Morgan Stanley after 75% of survey of 20 private tower owners surveyed say they’ve seen an increase in leasing activity in recent months, including ~25% who have seen a significant increase

· Internet; broad weakness in Internet space as selling pressure continues after quarterly results, guidance from NFLX, FB and TWTR continue to add fears in the group (though AMZN and GOOGLresults have been better); SPOT tgt raised to $230 at Bank America

       Stock GAINERS

· AMD +5%; as Cowen reiterates an Outperform rating and raises target to $25, citing the strong Q2 results, de-risked 2H18 outlook, and a meeting with CEO Lisa Su

· AMG +5%; after mixed quarterly results as EPS beat but revs missed

· CAT ; erased gains; reported strong 2Q results and raised outlook citing continued strength in many end markets, but also flagged high material costs and supply chain challenges

· DO +4%; as Q2 loss comes in lighter than expected, but missing expectations for revenues, which fell by a third from the prior-year quarter.

· HP +4%; upgraded to overweight at Stephens saying given robust commodity environment, believe the divergence in business fundamentals vs. stock performance provides an opportunity

· NOK +2%; signed a multi-year 5G agreement with TMUS that’s valued at $3.5 billion/Nokia will provide T-Mobile with access to its 5G technology, software, and services

Stock LAGGARDS

· AMID -6%; after SXE terminates its merger with the company due to AMID’s failure to achieve conditions required under the merger agreement

· CBS -4%; extended losses from last week as the board of CBS Corp. will discuss the future CEO Moonves during a regularly scheduled board meeting Monday, who was accused of sexual harassment by six women in a New Yorker article released Friday

· CRCM -17%; on Q2 report, mixed and narrowed guides

· EXP -6%; in building products, EXP reported Q1 EPS miss by 18c, while revs of $393.8M missed the $403M estimates

· NFLX -4%; on Internet weakness as well as reports over the weekend that WMT is exploring a subscription video streaming service that would seek to challenge the company and AMZN

· SNCR –21%; downgraded to sell at Stifel saying liquidity issues loom and the turnaround required to keep SNCR from another fundraising event is stacked against them

· STX -1%; after saying that CFO David H. Morton will leave for a senior finance role at another company; said sees higher Q1 operating costs

· TSN -5%; after slashing its full-year EPS forecast due to current market volatility in meat prices and increased tariffs negatively affecting domestic and export prices

· USFD -14%; Q2 EPS and sales both fell short of consensus and announced deal to acquire SGA Food Group for $1.8B

 

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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