Mid-Morning Look: August 01, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, August 1, 2018

U.S. stocks start August off on a positive note, led by shares of Dow component and tech giant Apple after the iPhone maker hit a record high following quarterly earnings and guidance that topped estimates. High dividend-yielding sectors such as utilities and real estate fell as the 10-year Treasury yield pushed through 3% on better monthly ADP private payroll data and ahead of today’s Federal Reserve rate decision at 2:00 PM EST (no change to rates expected). Financials among top performers given the rally in Treasury yields. Regarding trade, global stock markets dipped overnight on reports that some advisers are urging President Donald Trump to hike planned tariffs on $200 billion in Chinese imports to 25%, from the 10% originally proposed. Oil prices extend losses after weekly bearish inventory data from both the API and EIA, while several E&P stocks fall on earnings results as well. Economic data mixed as payroll data from ADP strong, but construction spending and manufacturing data points miss the mark.

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar with modest gains, rising after better ADP private payrolls data earlier today, though monthly construction and manufacturing data points both fell short of consensus views; all eyes on trade (US/China) and FOMC decision later today

· Precious metals decline ahead of the FOMC rate decision and outlook later this afternoon. Expectations for no rate hike but confirm two additional rate hikes coming this year (as anticipated by markets); gold prices slide $6 as the dollar hold steady

· Energy futures fall after inventory data; Brent crude oil dropped 2% as private industry report from API pointed to an unexpected rise in US oil stockpiles in the latest week (rose by 5.6M barrels for the week ended July 27); the EIA also with bearish data as weekly inventory build rises 3.8M vs. the expected drawdown of -3M barrels

· Treasury markets fell, as yields jumped, following a stronger than expected ADP private payrolls jobs report ahead of the FOMC meeting later today. The yield on the 10-year topped 3% for the first time since June 13th. Also, bonds dropped overnight amid a selloff in Japanese bonds in Asian hours — the biggest in about two years. The Japanese 10-year note surged to 0.126% from 0.044% late Tuesday in New York, marking the biggest yield jump in 2 years, a day after the biggest yield drop in the same period. The moves in so-called JGBs, may have been exacerbated by the unwind of bearish JGB bets, according to Bloomberg.

Economic Data

· ADP reported private payrolls increased 219K in July, topping the 186K economist estimates and above the 181K May gain (revised up from 177K). Small businesses created 52,000 jobs in July, ADP estimated. Medium-sized firms added 119,000 and large corporations’ filled 48,000 positions. Employment in the goods producing sector rose 42K, manufacturing was up 23K and construction increased 17K

· ISM Manufacturing for July falls to 58.1 from 60.2 last month and was below the 59.4 estimate; new orders fell to 60.2 vs 63.5 (lowest level since May 2017), while employment rose to 56.5 vs 56.0; inventories rose to 53.3 vs 50.8; prices paid fell to 73.2 vs 76.8 and backlog of orders fell to 54.7 vs 60.1

· June Construction Spending fell (-1.1%) vs. expected rise of 0.3%; the May reading was revised to 1.3% increase from 0.4% gain, and April revised to 1.7% increase from 0.9% gain; Private construction fell 0.4% in June and Private residential construction fell 0.5%

· U.S. July Manufacturing PMI 55.3 vs. Flash Reading 55.5; the index falls to 55.3 from 55.4 in June; Year ago 53.3; suppliers’ delivery times fall to 39.5 vs 39.6 in June

Sector Movers Today

· Auto’s; monthly auto sales data for July released: 1) Ford (F) US light vehicle sales down (-3.3%) to 194,026 vs. est. (-2.5%); 2) FCAU July U.S. auto sales up 5.9% to 170,970, above the 2.4% estimate; 3) HMC July U.S. auto sales fell (-8.2%) vs. est. (-5.6%); 4) TM July U.S. auto sales fell (-6%) vs. est. (-7.8%); 5) NSANY July U.S. auto sales fall (-15.2%) vs. est. (-6.7%)

· E&P sector lower; APC reported Q2 EPS 54c, slightly under consensus primarily on higher non cash exploration offset by higher oil realizations/capex ex WES capex of~$1.5B was at the high end of $1.3B-$1.5B guidance; NFX reported a strong 2Q with EPS of $1.87 beating by 9c as production of 195 MBOED exceeded estimates by 6% and FY guidance was raised by 3%; WLL shares fell after Q2 earnings miss and update; DVN shares fell on results as capital budget was maintained at $2.2-$2.4Bn of upstream spend, indicating continued capital constraint, and US oil production beat the top end of guidance; CHK missed production estimates even as spending on new wells exceeded expectations as pumped the equivalent of 530,000 barrels of oil a day

· Frac sand sector weak after EMES cut its 2018 Ebitda guidance to $110M from $120M given a construction delay at San Antonio facility and says frac sand demand remains “healthy”, though EMES experienced a “minor slowdown” to finish 2Q, partially continued into early 3Q (shares of HCLP, SLCA also active)

· Software movers; ULTI tgt raised by several analysts after solid 2Q18 print, headlined by record quarterly bookings activity in the enterprise and mid-market/strategic segments; GLUU reported a better than expected Q2 performance, with better than expected Q3 and year guide; KEYW plunges after the Q2 loss of 23c topped the 20c loss estimate on higher expenses; DATA was upgraded to buy from hold at Deutsche Bank on signs of overall demand strength; MB mixed results that reflect an in-line Q2 but a modest pullback in guidance for the balance of 2018; PAYC jumps to 52-week highs after solid quarterly beat

· Healthcare providers and facilities; psychiatric care providers UHS and ACHC downgraded at BMO Capital saying they are facing pressures from managed care organizations on using services in the U.S., as well as a shortage of workers and increasing labor costs; CSU downgraded at Bank America after earnings given the risk to estimates from the continued pricing, labor cost pressures and high leverage

· Casino, Lodging & Leisure; in casinos/gaming (WYNN, LVS, MGM), Bernstein noted Macau July GGR was MOP 25.33bn (~US$3.13bn), +10.3% y/y, below Bloomberg consensus of 12% and was at lower end of their estimate (10%-12%). Average daily revenue (ADR) for July was MOP 817mm (+9% vs. June, -1% vs. May); GLPI trimmed its year guidance for revenue, adjusted EBITDA, and net income

       Stock GAINERS

· AAPL +5%; posts beat + raise quarter driven by upside in iPhone ASPs and Services growth, while Sep-qtr guide looks strong into an upcoming iPhone refresh

· CPB +3%; after the Wall Street Journal reported last night that Third Point has a stake of at least $300M in the company

· GDS +3%; after falling -37% yesterday after Blue Orca Capital published short report, several analysts defend shares of GDS, with Credit Suisse upgrading to outperform as doesn’t see any near-term crash crunch, as well as no capital constraints on rapid Ebitda growth this year or next

· HIIQ +13%; after HHS ruling, expanding the duration of short-term medical plans to a maximum term of one year. Craig Hallum says the ruling is set to go into effect in October, ahead of the 2019 annual enrollment period and believes this is a significant positive catalyst for HIIQ

· MOH +15%; on Q2 beat and raised guidance by $3, driven by an improved MLR outlook vs previous expectations/capital strategy appears on track

· NBIX +14%; as quarterly results higher as the company’s Ingrezza topped analyst expectations, reported at $13M

· P +20%; after CEO talks about partnerships, self-serve ad integration and better quarterly results as double-digit organic revenue growth and declining EBITDA losses drove improving execution

· SODA +23%; as expects FY18 revenue growth of +23% vs. +15% prior and sees full-year EPS growth of +31% vs. +8% prior after Q2 beat

· TBPH +6%; as TD-9855 shows positive effect in low blood pressure disorder study

· ZION +2%; as large cap and regional banks jump amid the spike in treasury yields

Stock LAGGARDS

· AKAM -6%; 2Q earnings and 3Q guidance failed to meet estimates and was downgraded to hold at Deutsche Bank

· BGFV –3%; Q2 comp sales decreased 2.1% for Q2, compared to a 0.9% increase YoY and said 2Q same-store sales slid 2.1% amid weak sales of camping and water sports products

· BIDU -5%; after a report from the Intercept said that GOOGL plans to launch a censored search engine in China. Baidu also reported better-than-expected earnings results

· CAKE –12%; after Q2 EPS missed the lowest street estimate by 12c, and reducing its year EPS projection; cuts FY18 EPS view to $2.40-$2.48 from $2.62-$2.74

· DBD -35%; after posting an unexpected Q2 loss and cutting annual guidance

· DVN -6%; along with weakness in other E&P names NFX, CHK, APC after quarterly results and as oil prices extend recent slide (WTI crude fell 5% in July)

· HBI -18%; after Q2 EPS miss and TGT deal not renewed

· PCG -1%; following a Reuters report that the utility had hired lawyers to explore debt restructuring options, as it copes with liabilities stemming from last year’s northern California wildfires that analysts say could exceed $8B.

· PDD -14%; as State Administration for Market Regulation orders Shanghai government to investigate after media reported that counterfeit products were sold via PDD

· SYNA -6%; after the company’s merger talks with Dialog Semiconductor PLC fell apart/Synaptics confirmed the end of discussions in a press release later Tuesday evening

 

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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