Mid-Morning Look: July 31, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Tuesday, July 31, 2018

U.S. equities rise on reports that the U.S. and China are trying to resume talks to defuse trade tensions, according to Bloomberg. The headline pushed major averages to new highs, led by gains in industrials and metals. Tech making a nice comeback today as the Nasdaq Composite comes in posting three consecutive daily losses of more than 1% amid weakness in FAANG stocks, but getting a lift today from semiconductors after better results (KLAC, IDTI) and as markets prepare for earnings out of Apple tonight. U.S. markets also await details of the Federal Reserve, which is kicking off its two-day policy meeting tonight (Bank of Japan kept easing policy last night while Bank of England results later this week). Disappointing data overnight (weak PMIs in China, GDP missed the mark in the Eurozone and fell to a 2-year low), was a factor overseas, but data in the U.S. tops expectations (see below). Dow Transports a standout to the upside, with the index up nearly 200 points, as all 20-components trade higher, led by FDX and UPS in package delivery and airlines DAL, AAL. Treasuries and the dollar little changed ahead of the FOMC, while commodity prices slip early on the final day of trading in July.


Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar with modest gains early as markets await the start of 2-day FOMC meeting (kicks off today, concludes tomorrow, but no rate hike is expected); the dollar also little higher vs. the yen after the Bank of Japan kept its ultra-easy monetary policy in place in a bid to stimulate inflation, which the central bank acknowledged will likely fall short of its 2% goal until at least 2021; the British pound slides vs. the dollar; bitcoin prices down 5% to $7,750

· Commodity prices slip as gold edges down a few bucks to around $1,230 an ounce, while energy futures slide with Brent crude global oil prices have taken a leg lower as they head toward their biggest monthly drop in two years. WTI crude falls 2%, dropping under $69 per barrel ahead of inventory data tonight and tomorrow morning


Economic Data

· Personal Income and consumption for June both rose 0.4%, which was in-line with expectations on both counts; real personal spending rose 0.3% vs. est. 0.4%. Core inflation MoM rose 0.1% (also in-line) and rose 1.9% Y/y. PCE prices rose 0.1% (in-line w/ests.) and rose 2.2% Y/y; the compensation at 0.3% in June vs 0.3% the prior month while the savings rate at 6.8% in June vs 6.8% the prior month

· Chicago PMI rose 1.4 points to 65.5 in July, the highest reading in six months and above the 62 estimate, as the new-orders and production indexes also hit six-month highs, while the prices paid index reached a 10-year high, with MNI saying there’s anecdotal evidence of tariffs impacting operation

· Consumer Confidence for July rose to 127.4, topping the 127.1 reading last month and above the 126.0 estimate; the Present situation confidence rose to 165.9 vs. 161.7 last month and the consumer confidence expectations fell to 101.7 vs. 104.0 last month.

· S&P CoreLogic Case-Shiller National Home Price index rose 6.38% y/y in May after rising 6.39% in prior month; S&P/Case-Shiller 20-city NSA index at 211.94 after 210.43 in April; the 20-city SA index rose 0.2% m/m in May after rising 0.16% the prior month; National home price index rose 0.4% m/m in May after rising 0.33% the prior month


Sector Movers Today

· Semiconductors; QCOM begins modified Dutch Auction for up to $10B of shares; IPGP shares drop as misses Q2 estimates for EPS and revenue, with downside Q3 guidance has revenue from $360M-$390M and EPS $1.80-$2.05, below $424.9M/$2.30); IDTI Q2 results and guidance slightly above estimates on ramping WC wins outside of smartphones, continued Purley ramp and better than expected strength in their Communication’s business; in semi-equipment, KLAC shares jump as posted a F4Q revenue and EPS beat, and offered F1Q guidance above consensus at midpoint

· Software movers; CSLT shares dropped after announcing that Walmart will not renew its contract at year-end, overshadowing 2Q results that were slightly better than expectations; VRNS shares drop as reported an in-line quarter and guide as EMEA performed well, but reported a deceleration in 2Q sales growth driven by execution issues on the West Coast; INST shares downgraded at Oppenheimer noting decent 2Q results yesterday, but the magnitude of revenue beats keeps moderating and operating profitability is challenging to pinpoint

· REITs; FCE/A agreed to be acquired by BAM in a deal valued at $11.4B, with holders getting $25.35 in cash for each share held https://on.mktw.net/2mWQBuX ; in earnings, AVB reported a 2Q beat, and raised 2018 core FFO guidance by 0.4% at the midpoint due in part to better core growth expectations; BRX posted steady 2Q results that included a beat, an improvement in SSNOI growth, and continued execution on both the balance sheet and investments; EPR’s posted in-line 2Q18 FFO as adjusted and maintained the midpoint of the investment spend guidance; TCO reported in-line 2Q results while raised the FY forecast for comp center NOI by 100 bps to a new range of 3-4%; UDR reported a 2Q18 adjusted FFO beat and management increased 2018 FFO guidance by 0.8% at the midpoint

· E&P sector; PXD said 2Q average realized price for oil, including the effects of commodity price derivatives, was $59.92, about 13.5% below the price excluding derivatives of $61.20; RRCreported a positive quarter, benefiting from an improved mix as oil volumes beat and costs were lower than expected; PXD agrees to sell all of its assets in the West Panhandle field in Texas to an undisclosed buyer for $201M; NOG to buy 10,600 net acres in Williston Basin from Crestview Partners portfolio company W Energy Partners for $100m in cash and 56.37m NOG shares.

       Stock GAINERS

· CGNX +16%; as earnings and guidance both were solid

· CHTR +5%; as the cable provider beat on top and bottom lines with upsides in broadband subscriptions in its Q2 earnings/residential video subscriptions saw net losses of 73,000 and voice losses of 45,000, while Internet saw net adds of 218,000 subscribers

· FCE/A +8%; agreed to be acquired by BAM in a deal valued at $11.4B, with holders getting $25.35 in cash for each share held https://on.mktw.net/2mWQBuX

· ILMN +7%; beat-and-raise quarter as 2Q revenues grew 25% y/y (vs. 19% est.) and EPS grew 75% y/y (better than expected top line, margins, and lower tax rate) and raised its 2018 guidance

· KLAC +11%; posted a F4Q revenue and EPS beat, and offered F1Q guidance above consensus at midpoint, leading the semi-index higher

· NAKD +36%; after it said its subsidiary, Bendon Limited, has partnered with CVS to bring Heidi Klum Intimates Solutions line to more than 4,000 U.S. locations

· SPWR +3%; earnings results beat as Q2 results beat expectations and ’18 EBITDA guide narrowed to top-end of prior range

· XYL +9%; after Q2 EPS and revs topped views with 8% increase in organic revenue and orders, and strong double-digit growth in 2nd quarter 2018 earnings

Stock LAGGARDS

· ACHC -9%; cut its full-year outlook amid modest volume growth and margins that fell across the board for lower exchange rate

· AKS -12%; after 2Q adjusted Ebitda of $148.4M missed an estimate of $161.1M citing $11.5M of costs associated with operational events

· CMG -7%; shut down a restaurant in Powell, Ohio following multiple reports of sickness by customers, Bloomberg reported, citing comments by the company spokesperson

· CSLT -18%: after announcing that Walmart will not renew its contract at year-end, overshadowing 2Q results that were slightly better than expectations

· INST -18%; downgraded at Oppenheimer noting decent 2Q results yesterday, but the magnitude of revenue beats keeps moderating and operating profitability is challenging to pinpoint

· IPGP -26%; as misses Q2 estimates for EPS and revenue, with downside Q3 guidance has revenue from $360M-$390M and EPS $1.80-$2.05, below $424.9M/$2.30

· LL -19%; following an unexpected 2Q loss of (5c) vs. est. for profit of 24c, though posted strong comp sales beat +4.7% vs est. +2.8%

· TXRH -5%; as margins disappoint on softer-than-expected comp sales growth of 5.7%, while EPS of 62c missed by 5c

· VRNS -20%; reported an in-line quarter and guide as EMEA performed well, but reported a deceleration in 2Q sales growth driven by execution issues on the West Coast

 

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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