Mid-Morning Look: April 01, 2019

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Mid-Morning Look

Monday, April 01, 2019

Index

Up/Down

%

Last

 

DJ Industrials

234.65

0.90%

26,163

S&P 500

21.95

0.77%

2,856

Nasdaq

62.47

0.81%

7,791

Russell 2000

15.97

1.04%

1,555

 

 

U.S. equities with a strong start to the month, week and quarter, getting a much needed boost out of China after improved economic data provided hopes their economy is stabilizing. The Shanghai index gained 2.5% overnight after the Caixin China manufacturing purchasing managers index rose to 50.8 in March from 49.9 in February, rebounding to expansionary territory for the first time in four months, while China’s manufacturing purchasing manager’s index for March rose to 50.5 from 49.2 last month, the biggest increase since 2012 and exceeding all estimates by economists. Both new orders and new export orders rose to the highest levels in six months! The data boosted shares of materials, industrial and metals stocks, along with optimism for a breakthrough in the country’s trade talks with the U.S. that will resume this week after talks last week in Beijing. Chinese vice Premier Liu He is set to travel to Washington to meet U.S. negotiators Wednesday. The advance in stocks is leading to a pullback in Treasury prices, with yields up across the board (10-year up 7 bps to 2.48%). Economic data was also plentiful in the U.S. today, with readings on retail sales (weaker), ISM manufacturing (stronger), construction spending (a beat) and business inventories (a beat). Recall stocks are coming off stellar gains last month and quarter: for the month, the S&P was up 1.8%, the Dow was up less than 0.1%, and the NASDAQ was up 2.6%. For the quarter, the S&P was up 14%, the Dow was up 12.4%, the NASDAQ was up 17.4%. The S&P 500 index recorded its strongest quarterly performance since the Q2 of 2009. Seeing a pullback early in interest rate sensitive names (utilities, telecom and REITs) as Treasury yields bounced off more than 1-year lows from last week.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar with a sharp rally off overnight lows after a round of mixed US economic data; WTI crude oil extended gains toward $61 per barrel as data showed China’s economy is stabilizing following better PMI readings overnight. Also boosting commodity sentiment, optimism for a breakthrough in the country’s trade talks with the U.S. that will resume this week after talks last week in Beijing. Treasury market’s drop with the yield on the 10-year spiking over 7 bps to 2.48% and the 2-year up to 2.28% after the economic data. Gold prices reversed lower, back below $1,300 as the dollar rebounded on data.

 

Economic Data

·     Retail Sales for February unexpectedly fell (-0.2%) vs. an expected rise of 0.2%, while retail sales less autos fell (-0.4%) in February vs. an estimated gain of 0.3%; retail sales rose 0.7% in Jan., revised up from 0.2% gain; most other retail segments struggled as sales fell at home centers, electronic stores, home furnishers, groceries, apparel chains and department stores

·     IHS Markit final U.S. manufacturing PMI 52.4 in March vs 52.5 flash estimate; index falls to 52.4 from 53 in February (year ago 55.6) – lowest reading since June 2017; Output falls to 51.3 vs 52.7 in February (lowest reading since June 2016) and new orders fall vs prior month

·     ISM Manufacturing for March rises to 55.3, above the 54.5 estimate; new orders rose to 57.4 vs 55.5 prior month, Employment rose to 57.5 vs 52.3 MoM and prices paid rose to 54.3 vs 49.4; backlog of orders fell to 50.4 vs 52.3 and new export orders fell to 51.7 vs 52.8

·     Business inventories for January jumped 0.8%, topping the 0.5% estimate while business sales rose 0.3% in January after falling (-0.9%) the prior month; December business inventories rose 0.8% m/m, revised up from 0.6% gain. Wholesalers inventories rose 1.2% m/m in January after rising 1.1% prior month (the 1.2% m/m increase largest since Sept. 2012)

·     Construction Spending for February rose 1.0%, topping the economist estimate for a decline of (-0.2%); January was revised to 2.5% gain from 1.3%; private construction rose 0.2% in Feb. after 1.5% gain and private residential construction rose 0.7% after rising 1.8%

 

 

Macro

Up/Down

Last

 

WTI Crude

0.78

60.91

Brent

0.87

68.45

Gold

-2.80

1,295.70

EUR/USD

0.0004

1.122

JPY/USD

0.31

111.17

10-Year Note

0.075

2.481%

 

 

Sector Movers Today

·     Auto’s; sector strong – China said it will continue with suspension of retaliatory tariffs on U.S. autos and auto parts from April 1, according to a statement on Ministry of Finance’s website -over the weekend, as per Bloomberg (BWA, AXL, LEA); KMX upgraded to overweight and tgt up to $93 from $83 at Stephens saying the tailwind from new omni-channel capabilities that enables customers to complete the entire car buying experience online, including financing, appraisal, and paperwork; SORL rises in reaction to mixed Q4 results as reported record 20% annual net sales increase for 2018; ADNT was upgraded to neutral at Baird saying risks from execution are likely better reflected following large YTD underperformance; LYFT shares dropped below its $72 per share IPO pricing last Friday (lows $69.12) after touching highs of $88.60 last Friday.

·     Transports; several airlines (LUV, UAL, AAL, DAL and ALK) all experienced system-wide outages leading to customers across cities in the U.S. complaining about flight disruptions (the problems were resolved); NSC lifted rails and transports in general, rising to record highs after Bank America upgraded to buy with a $205 tgt citing rapid improvement from its Precision Scheduled Rail overhaul

·     Pharma movers; MRK shares were active after China’s National Medical Products Administration approved its Keytruda (pembrolizumab) for the first-line treatment of patients with metastatic nonsquamous non-small cell lung cancer (NSCLC) with no EGFR or ALK mutations; PFE tgt raised to $48 from $45 at Bank America saying its orphan drug portfolio will serve as a “key inflection point” in the company’s strategy for more niche disease; AZN was upgraded to outperform at Cowen following the 5% pullback on Friday along with adding an attractive new breast cancer target provides a rare entry point; in the cannabis space, Creso Labs Inc. (CRLBF) agreed to buy Origin House, the registered business name for CannaRoyalty Corp. (ORHOF) in a deal valued at C$1.1 billion, or the equivalent of $823.5 million. https://on.mktw.net/2JV8Qzc

 

Stock GAINERS

·     ADNT +6%; upgraded to neutral at Baird saying risks from execution are likely better reflected following large YTD underperformance

·     ADXS +36%; following updated data from an open-label Phase 1/2 clinical trial, KEYNOTE-046, evaluating immunotherapy candidate ADXS-PSA, combined with Merck’s Keytruda

·     FFIV +2%; receives its second analyst upgraded in as many days (Piper on Friday) after Nomura upgraded it to buy from neutral with $180 tgt

·     NSC +2%; rising to record highs after Bank America upgraded to buy with a $205 tgt citing rapid improvement from its Precision Scheduled Rail overhaul

·     RDFN +6%; upgraded to overweight from neutral at Piper and raised tgt to $26 from $17 saying the company would benefit from an environment with lower interest rates

·     SORL +8%; rises in reaction to mixed Q4 results as reported record 20% annual net sales increase for 2018

·     TGTX +9%; after umbralisib for a deadly blood cancer saw an overall response rate of 52% in interim data from one arm of the “Unity-NHL” trial, meeting the main goal of trial

·     WYNN +3%; after Macau March Casino Revenue falls 0.4% YoY, better than the Bloomberg est drop of (-3%) according to data

·     ZTS +1%; record high – after Cantor boosted its price target to a Street-high $116 from $105, and raised 1Q EPS estimates to 77c from 49c ahead of results expected next month

 

Stock LAGGARDS

·     COTY -2%; added to JPMorgan’s analyst focus list as top short idea as we believe the technical dynamics following the completion of JAB’s partial tender offer will place downward pressure on the stock in the near term

·     CRUS -6%; as Craig Hallum said analysis by iFixit show CRUS’ adaptive noise cancellation (ANC) technology is not in the new AirPods 2

·     LYFT -9%; shares trade below the IPO pricing of $72 last Friday (low $69.12)

·     PBYI -11%; signed an exclusive license agreement with Pierre Fabre under which they will develop and commercialize NERLYNX (neratinib) in Europe

·     SCOR -21%; downgraded by three analysts following the unexpected departure of both CEO and President while company also guided 1Q revenues -4% y/y vs. prior mgmt guidance of flat or below 4Q’s +6%;

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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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