Mid-Morning Look: August 03, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Friday, August 3, 2018

U.S. equities are holding up nicely despite a headline miss for the monthly jobs report (157K jobs added vs. the 193K estimate), as unemployment dipped to 3.9%, while also resilient in the face of retaliatory actions by China against the U.S. as they announced a new list of targets for tariffs. The jobs data overall was in-line as the miss in headline jobs offset by higher revisions while wages remain steadily higher. As for China, the country said it plans to levy duties at levels of 25%, 20%, 10% and 5% on about $60B U.S. imports, according to a statement on finance ministry’s website and will implement tariffs as soon as U.S. enacts measures. Despite all the macro distractions and quarterly earnings (mostly better – but a few big blow ups weighed on tech over the last 2-weeks), markets are still chugging along, as the S&P 500 index heads for its 5th straight week of gains. Consumer staples rise the last few days on earnings while energy prices have dipped on lower oil and weaker earnings results. Treasury yields dip to around 2.95%, after topping highs of 3% earlier this week.

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar is little changed as markets digest the mixed jobs report, softer ISM services data (lowest levels in 11-months), renewed trade threats between China and the U.S. related to tariffs and of course the Fed trajectory on interest rates after this week’s FOMC meeting kept rates unchanged, but pointed to 2-additional rates in 2018. The euro little changed under 1.16 vs. the dollar while the Pound holds above the 1.30 level and the yen gains. China’s central bank raised the cost of betting on renminbi depreciation, a move intended to stabilize its currency following a sharp fall in recent weeks

· Commodity prices are mixed as gold prices rebound more than $5 to above $1,225 an ounce after market its lowest closing level (not intraday) in over a year yesterday, falling for a second session in a row as trade tensions between the U.S. and China resurfaced (still on track for 4th straight weekly decline). Meanwhile, oil prices bounce off lows, looking to extend yesterday’s gains when it bounced off 6-week lows

Economic Data

· Jobs report headline miss; nonfarm payrolls rose 157K for July, missing the 193K economist estimate, though the prior month was upwardly revised to 248K from 213K; the unemployment rate dropped to 3.9% from 4% last month (in-line with estimates), while the participation rate held steady at 62.9%; average hourly earnings rose 0.3% MoM, in-line with estimates while prior month was downwardly revised to 0.1% from 0.2%; nonfarm private payrolls rose 170K, missing the 190K estimate and down from prior 234K, while manufacturing payrolls rose 37K

· The U.S. trade deficit rose 7.3% in June to mark the first increase in four months, keeping the U.S. on track to post the largest annual gap in a decade. The deficit climbed to (-$46.3 billion) from a revised (-$43.2 billion) in May, and above the (-$46.5B) estimate; imports rose 0.6% in June to $260.16B from $258.53B in May while exports fell 0.7% in June to $213.81B from $215.34B

· ISM Non-Manufacturing (services) for July falls to 55.7 and 11-month low and below the 58.6 estimate as business activity fell to 56.5 vs 63.9 prior month; other segments mixed as new orders fell to 57.0 vs 63.2, while employment rose to 56.1 vs 53.6; prices paid rose to 63.4 vs 60.7 and backlog of orders fell to 51.5 vs 57

Sector Movers Today

· Restaurants; SHAK shares slide as the burger chain’s quarterly same-sales growth came up just short of Wall Street’s expectations and it left its full-year revenue forecast; LOCOQ2 comps and EPS results topped estimates as management highlighted a re-emphasis on the core consumer in CA while continuing to evaluate the TX market; BOJA Q2 EPS missed by 5c due to higher impairment charges and announced plans to close 10 underperforming units in 3Q and refranchise 30 units in 2H18; WING Q2 EPS and revs topped consensus on comp store sales growth of 4.3%, though year profit view below estimates

· Heavy duty trucks; monthly Class 8 trucking data for July showed ACT Research Class 5-8 truck industry preliminary order data suggested orders increased 104% yr/yr and 4% from June. The sequential increase was driven entirely by superlative Class 8 performance. July is typically the weakest order intake month of the year, but July 2018 is now the all-time record order month for Class 8. Class 8 orders catapulted 180% yr/yr and 24% from June to 52,400. Class 8 order intake was an all-time record on an absolute basis (CMI, PCAR, ALSN, NAV among names)

· Software; DATA beat Q2 Street license revenue by 10% even as ratable license mix came in at the high end of guidance, while the midpoint of CY18 revenue guidance moves 1% higher despite increased subscription mix; IMMR shares plunge after Q2 surprise revenue decline; BNFT strong bookings in 2Q18 provide much higher conviction in CY19 revenue acceleration

· Biotech movers; REGN was downgraded to neutral at Baird saying stock price reflects a fair valuation after strong Dupixent sales, ex-U.S. Eylea posting another quarter of double-digit y/y growth; ICPT was downgraded to hold by Laidlaw with $95 tgt as the stock has already gained a significant amount of steam; BIIB said it would buy back up to $3.5B in shares; TSRO falls after cutting its 2018 guidance for sales of Zejula to $225M-$235M from $255M-$275M; BMRN 2Q18 revenues of $372.8M, above consensus while reiterated 2018 top and bottom line guidance

       Stock GAINERS

· ACIA +13%; reported in-line 2Q revenue/EPS while 3Q guidance was above estimates from a resumption of business with ZTE

· CATM +32%; reported Q2 adjusted EPS that beat the highest estimate and raised annual guidance (expects 2018 adjusted EPS of $1.70-$1.85 vs its prior forecast of $1.45-$1.65)

· CERN +6%; 2Q results as bookings were particularly strong at $1.775B (+9% y/y) and bookings guidance for 3Q18 was $1.45B-$1.65B (+40% y/y at the midpoint)

· CPB +4%; after the NY Post reported KHC had recently opened exploratory talks with KHC saying it has pored over some of its financials https://nyp.st/2O8y8Hh

· DISH +7%; as Q2 Ebitda beat and posted stronger-than-expected Pay-TV results for the second straight quarter

· ELY +12%; after better-than-expected earnings driven by the Rogue line of golf clubs and a new line of balls

· FLR +6%; Q2 EPS beat by 10c on lower corporate G&A; segment performance was mixed with incremental charges, while 2Q backlog of $29.3B was up 1% q/q

· KHC +6%; after better earnings and report opened talks with CPB (as per NY Post)

· TTWO +11%; following a better than projected earnings report and an increased FY19 guidance (Non-GAAP FY19 EPS guidance was increased to $4.15-$4.39 from $3.99-$4.25 previously


· AIG –4%; after Q2 EPS of $1.05 missed the $1.21 est. as 2Q net income $937M vs. $1.13B YoY; Q2 net investment income $3.12B vs. $3.53B y/y, driven by lower investment returns on alternative investments

· GRPN -8%; on Q2 results that missed EPS and revenue estimates with revenue down 7% Y/Y while FY18 guidance has Adjusted EBITDA from $280M to $290M

· NBL -8%; after a 2Q earnings miss, a boost to 2018 capex guidance while production expected to be at lower end

· SEDG -16%; despite better Q3 rev guidance as Roth Capital said strong results would not necessarily invalidate the Huawei short thesis and strength in the stock

· SRCL -12%; shares fall sharply as Q2 revenue of $883M missed the $897M estimate and guided year revs below estimates as well

· SYMC -13%; following decline in 2Q billings and lowered year forecast; noticeable weakness on the enterprise implied billings line, which contracted 20% ($111M)

· TSRO -15%; after cutting its 2018 guidance for sales of Zejula to $225M-$235M from $255M-$275M, prompting RBC to trim his PT to $38 from $46 on the significant outlook reduction

· WU -5%; after weak quarter as EPS miss mainly due to a lower adjusted operating profit margin, while cuts year 2018 view to “low single-digit” vs its prior forecast of “low to mid-single digit”


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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