Mid-Morning Look: July 01, 2019

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Mid-Morning Look

Monday, July 01, 2019

Index

Up/Down

%

Last

 

DJ Industrials

178.44

0.67%

26,778

S&P 500

24.64

0.84%

2,966

Nasdaq

94.48

1.17%

8,100

Russell 2000

8.16

0.52%

1,574

 

 

U.S. equities trade to new all-time highs as the S&P 500 topped its recent intraday best level a week ago, while the Dow Industrials surpassed its record on a closing basis (but still off its all-time intraday highs of 26,951.81 on 10/3/18). The Nasdaq Composite trades to highs of 8,150 before paring gains (all-time highs 8,176.08 on April of this year), all rising after President Donald Trump agreed to hold off on the imposition of further tariffs on Chinese imports after a meeting with China’s leader Xi Jinping this weekend at the G20 meeting in Japan. Trump agreed to hold off tariffs on another $300 billion of imports, and allowed U.S. companies to supply components again to Huawei, which has given a big boost the semiconductor and optical companies that do business with them. In other macro news, Iran has exceeded a key limit on enriched uranium agreed in its 2015 nuclear deal, the country’s foreign minister said on Monday. Oil prices rise after reports indicate (ahead of OPEC meeting today/tomorrow), that OPEC and Non-OPEC members are leaning to a 9-month extension of oil production cuts, as per several OPEC delegates (oil also helped by Iran news).

 

Economic data bleak picture overseas as global PMI manufacturing data in Europe and Asia overnight miss estimates: 1) China June Caixin Manufacturing PMI reported at 49.4 vs. est. 50.1 (back into contraction territory); 2) Taiwan’s PMI fell to 45.5, its lowest levels since 2011; 3) Japanese manufacturing activity contracted in June to hit a three-month low, as the Japan Manufacturing Purchasing Managers’ Index (PMI) dropped to a seasonally adjusted 49.3 from 49.8 in May, and also down from a preliminary reading of 49.5; 4) IHS Markit said its UK Purchasing Managers Index for the manufacturing sector fell to 48.0 in June from 49.4 in May, hitting its lowest level since February 2013. Though note the US ISM Manufacturing data this morning came in better than expected.

 

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar is broadly higher vs. most major currencies early (yen, pound, euro) after data in the U.S. came in better than PMI readings overseas along with positive market sentiment on the US/China trade truce. Turkish Lira rises around 3% to its strongest level since April after President Tayyip Erdogan said he heard from U.S. President Donald Trump there would be no sanctions over Turkey’s purchase of Russian S-400 Defence systems – Reuters reported

·     Commodity prices mixed with oil spiking in OPEC headlines, while gold prices tumble. Oil jumped after Russia and Saudi Arabia are leaning to extend the OPEC oil production cuts deal by another six to nine months, ahead of the OPEC and non-members meeting on July 1-2 to renegotiate the pact which expires June 30. The current deal called for production cuts of 1.2 million barrels a day. Gold prices dropped given the rotation out of defensive assets and into stocks.

·     Treasury market’s hold steady, with yields little changed from last week lows, as the 10-year yield holds around 2% and the 2-year 1.75%, as expectations remain that the Fed will lower interest rates at their July meeting to keep the economy running smoothly, despite stocks at all-time highs

 

Economic Data

·     ISM Manufacturing for June slipped to 51.7 from 52.1 last month, but was above the 51.0 estimate, helping ease fears of slowing (still, the data point at its lowest level since Oct. 2016 as new orders fell to 50 vs 52.7 prior an prices paid fell to 47.9 vs 53.2)

·     Construction Spending for May fell (-0.8%), worse than the estimate for an unchanged reading, while April was revised to 0.4% gain from unchanged; private construction fell (-0.7%) in May while public construction fell (-0.9%) in May

·     Manufacturing PMI for June was 50.6 vs. Flash Reading 50.1 and up from 50.5 in May (but down from year ago level of 55.4); employment falls to 50.8, its lowest level since August 2016 and vs. 51.9 in May while new orders rise vs prior month

 

 

Macro

Up/Down

Last

 

WTI Crude

0.84

59.31

Brent

0.95

65.69

Spot Gold

-18.50

1,391.00

EUR/USD

-0.0043

1.133

JPY/USD

0.49

108.34

10-Year Note

-0.005

2.014%

 

 

Sector Movers Today

·     Semiconductors; big rally in chip stocks after Presidents Trump and Xi agreed to a US-China trade truce, while Trump also said he would allow US companies to sell equipment to Huawei Technologies (shares of SWKS, MU, QRVO, and optical names NPTN, ACIA which rely on trade and Chinese demand to boost revenue jumped); WDC was upgraded to buy at Mizuho; AMAT said it is acquiring Kokusai Electric Corp. for $2.2B from the global investment firm KKR

·     Metals & Materials; FCX shares fell as cut its gold sales volume forecast for Q2 saying it sees market-to-market impact of lower copper prices in the quarter associated with March 31, 2019, provisionally priced sales will reduce Q2 revenue by ~$85M./sees 2Q gold sales volume 190,000 oz, saw 265,000; gold miners slumped (GOLD, AUY, NEM) as gold prices declined following relatively positive results from the G20 summit in Japan triggering a retreat from defensive assets

·     Casino & Leisure movers; in leisure, BC was downgraded to sector perform at RBC and cuts price target to $47 from $55 as likes BC’s positioning mid-to-long term, but near-term weather headwinds force company to destock; SIX was upgraded to overweight at KeyBanc predicated on an improving near-term setup, led by data supporting above-consensus attendance trends for 2Q19; casino stocks rise (WYNN, MGM, LVS, MLCO) as June gambling revenue in Macau rises 5.9% y-o-y, as sentiment to gamble sees an uptick – June’s figure of 23.8 billion patacas ($2.95 bln) is ahead of analyst expectations of a gain of 1-3%

·     Energy stock news; XOM said that in Q2 it expects higher oil prices and refining margins compared to the prior quarter, but the gains will be offset by lower natural gas and weaker margins in its chemicals business; BE rises after a subsidiary of DUK announced it will acquire a portfolio of distributed fuel cell technology projects from Bloom Energy; Barclays upgraded CPE to overweight saying it offers a better risk-adjusted high-leverage oil beta play, while the firm downgraded SM to underweight in part due to concern that small- to midcap E&P’s continue to underperform large caps

 

Stock GAINERS

·     BE +2%; after a subsidiary of DUK announced it will acquire a portfolio of distributed fuel cell technology projects from Bloom Energy

·     GWR +8%; to be acquired in an $8.4B buyout deal including debt by Brookfield Asset Management Inc. and Singaporean sovereign wealth fund GIC, with holders to receive $112 per GWR share, a 12% premium https://on.mktw.net/2Jfdd4Q

·     NPTN +15%, ACIA +14%; as optical names that have exposure to Huawei Technologies gets a boost after President Trump said he would allow US companies to sell equipment to the co

·     UTHR +5%; upgraded to outperform at Credit Suisse as sees downside limited saying the story becomes more fundamentally driven amid a recent downturn over Remodulin generics

·     WYNN +8%; as June gambling revenue in Macau rises 5.9% y-o-y, as sentiment to gamble sees an uptick – June’s figure of 23.8B patacas ($2.95B) is ahead of analyst expectations of a gain of 1-3%

 

Stock LAGGARDS

·     FCX -5%; as cut its gold sales volume forecast for Q2 saying it sees market-to-market impact of lower copper prices in the quarter associated with March 31, 2019, provisionally priced sales will reduce Q2 revenue by ~$85M./sees 2Q gold sales volume 190,000 oz, saw 265,000

·     GOLD -3%; as gold prices declined following relatively positive results from the G20 summit in Japan triggering a retreat from defensive assets

·     MNST -2.8% after KO said an arbitration panel informed them they could sell its energy drink under the terms of contract with MNST

·     MSGN -5%; after the NY Knicks fail to deliver with big name free agents yesterday

·     WLK ; after forecasts Q2 EPS of 73c-87c on sales of $2.1B-$2.2B (below estimates of $1.34/$2.19B) saying its average margin did not rise as much as industry pricing forecast at the start of Q2 2019/also forecasts FY EPS below estimates

·     ZM -3%; downgraded to sell form neutral citing valuation at Goldman Sachs with ZM trading at 47x compared to the 12x of its peers

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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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