Mid-Morning Look: June 18, 2019

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Mid-Morning Look

Tuesday, June 18, 2019

Index

Up/Down

%

Last

 

DJ Industrials

333.14

1.28%

26,445

S&P 500

35.03

1.22%

2,924

Nasdaq

145.04

1.85%

7,990

Russell 2000

21.60

1.41%

1,554

 

 

U.S. equities surging to their best levels since early May (not far from all-time highs in some cases) on trade hopes after President Trump, just a few minutes after the stock market open today and ahead of the 2-day FOMC meeting kick-off today, said he had a “good meeting” with China’s Xi ahead of “extended meeting next week”. That helped stocks post the strongest opening 15 minutes for the S&P 500 since January 4th (December Employment report) according to Bespoke. The tweet from trump read: “Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.” Stocks had already been moving higher overnight after ECB President Draghi suggested the central bank could provide more stimulus if economic conditions do not improve and inflation remains. Those comments pushed global Treasury yields broadly lower, as the US 10-year yield hit lows below 2.02%, but have since moved back to yesterday levels around 2.07%. Earlier, the Italian 10-year yield fell 18 bps to 2.11%, Spain down 11 bps to 0.42% and German 10-year Bund yield is off a whopping eight basis points to -0.32%. President Trump criticized Draghi’s dovish remarks, saying additional ECB stimulus makes it “unfairly easier” for Europe to compete with the U.S. Either way, stocks are in rally mode into the FOMC meeting today (though results, economic outlooks are out tomorrow), where no rate cut is currently being priced in but still expected for a July cut (amazing given that stocks back near highs). The S&P 500 index is about 30-points from all-time highs, as the Nasdaq Composite neared the 8,000 level. Share of technology, industrials, and materials among the biggest gainers on trade hopes.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar seeing gains today, with the euro falling broadly after ECB President Draghi suggested the central bank could provide more stimulus if economic conditions do not improve (dollar overall mixed though, down vs. Canadian dollar, up vs. the Pound and little changed vs. the yen). Commodity prices are jumping on the trade hopes with China, as oil, gold and industrial metals rally. Treasury market’s rally with yields down on the dovish commentary from ECB Draghi overnight on additional easing measures a possibility.

 

Economic Data

·     Housing Starts MoM for May fell (-0.9%) to 1.269M from an upwardly revised 1.281M last month, but above estimates for 1.239M. Building Permits MoM for May rose 0.3% to 1.294M, above the downwardly revised 1.29M last month (from 1.296M) and above the 1.292M estimate

 

 

Macro

Up/Down

Last

 

WTI Crude

1.37

53.30

Brent

0.82

61.76

Spot Gold

3.10

1,342.75

EUR/USD

-0.0031

1.1187

JPY/USD

0.07

108.62

10-Year Note

-0.026

2.068%

 

 

Sector Movers Today

·     Semiconductors; the Philly semi index (SOX) rises as much as 4% topping the 1,400 level for its best one day gain since late January with big boosts for AVGO, AMD, NVDA, MU, LRCX, MCHP after the Trump tweet about meeting Chinese leader Xi helped boost hopes for a trade deal; ON shares active after Chinese antitrust officials approve its $1.07B acquisition of QTNA without any conditions; Stifel 2H19 estimates for several upstream semiconductor back-end test names (FORM, COHU, TER) on the risk of deteriorating visibility and further capacity digestion, following additional commentary directly from Huawei and its supply chain that further quantifies the downstream impact of recent trade restrictions/tariffs

·     Bank movers; plunging Treasury yields once again pressuring the banking stocks, with Deutsche Bank downgrading some interest rate sensitive stocks in the Brokers and Asset Managers space (SCHW, BK, NTRS) ahead of the Q2 reporting season as easing may mean valuations will stay depressed, while net interest margins (NIM) and revenue may be hurt so much as to eliminate any material earnings per share growth next year; BAC was upgraded to outperform at BMO Capital as expects upward consensus estimates revisions and a multiple re-rating to drive 34% total return in the shares; AXP tgt raised to $130 at Jefferies after recently hosted a meeting with mgmt., who remain focused on driving revenue sustainability, while Wells Fargo upped its tgt to $135 from $125 after mgmt meetings as well

·     Housing & Building Products; Raymond James downgrades U.S. homebuilders LEN (to market perform) and KBH (to underperform) on renewed concerns over declining earnings estimates and softening macro-economic data points as sees inventory staying elevated into summer, potentially creating more gross margin pressure for builders later this year; LOW said Q1 margin pressure due to slow adjustment to cost increases

·     Solar stocks upgraded at Goldman Sachs as raised SPWR (tgt raised to $11 from $6) and RUN (tgt raised to $20 from $15) to buy from neutral and SEDG upgraded to neutral from sell (tgt raised to $52 from $35) anticipating volume tailwinds in the second half of 2019 given the recent signs of strength in the sector’s financing environment

·     Transports; JBHT was downgraded to neutral at UBS as they have become increasingly convinced that freight is likely to remain weak through 2019 followed by falling truckload and intermodal contract rates in 2020; in rails, Deutsche Bank said overall rail volumes were down 3.6% yoy last week at CSX, NSC, UNP, CP, CNI and KSU on a weighted avg. basis compared to -5.1% yoy in the preceding week – moving the 4-week moving average to -4.2% yoy from -3.6% yoy in the preceding week as flooding in the Midwest likely remained a constraint on volumes last week

 

Stock GAINERS

·     AVGO +5%; big jump in semiconductors/tech after the Trump tweet about meeting Chinese leader Xi helped boost hopes for a trade deal

·     FB +2%; touched its highest level in over a month after announcing plans to launch a cryptocurrency called Libra

·     MGI +150%; as Blockchain company Ripple announced an investment in and partnership with MGI, agreeing to purchase $30M worth of freshly created MGI shares at $4.10 apiece, and can purchase another $20M more at its discretion at a minimum of $4.10

·     SNAP +6%; tgt was raised to Street high $20 from $15 at BTIG saying conviction in the company’s recovery has meaningfully increased and morale notably improved

·     USM +13%; successfully bid for high frequency spectrum in recent FCC Millimeter Wave Spectrum Auctions and purchased licenses covering 98% of its subscribers for $256M or 1.7c per MHz pop/also upgraded to overweight at Morgan Stanley

 

Stock LAGGARDS

·     BHVN -24% as offers to sell $300M in common stock, throwing cold water on takeover speculation that sent shares rising since April

·     DGLY -47%; after Taser maker AAXN wins patent litigation as U.S. District Court for Kansas granted summary judgment finding that Axon’s Signal technology does not infringe DGLY’s ‘452 patent/court dismisses 3-1/2 year case in its entirety

·     EXC -1%; as utilities fall with investors rotating out of defensive and into riskier assets

·     PACB -5%; after the U.K., Competition and Markets Authority (CMA) said ILMN’s proposed takeover of the company raises competition issues

·     STLD -2%; guides 2Q EPS 86c-90c below the 96c estimate citing lower profitability from the company’s long product steel operations; said 2Q profitability for the company’s metals recycling platform is expected to decrease QoQ

·     STZ -2% among top decliners in the S&P as consumer staples, along with utilities and REITs (defensive sectors) pare recent gains

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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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