Market Review: July 03, 2019

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Closing Recap

Wednesday, July 03, 2019

Index

Up/Down

%

Last

DJ Industrials

176.06

0.66%

26,962

S&P 500

22.55

0.76%

2,995

Nasdaq

61.14

0.75%

8,170

Russell 2000

11.43

0.73%

1,571


 

Equity Market Recap

·     U.S. stocks remain on cruise control as the S&P 500 index made it a 3rd straight record setting day, while the Dow Industrials also trades to a fresh all-time closing record of 26,951, and the Nasdaq Comp spikes in the final minutes to eclipse its prior intraday best of 8,176 in April. Overall stocks were higher with defensive sectors again leading (utilities, Staples, REITs), while energy was fractionally lower. Although higher on the day, the Small Cap Russell 2000 underperformed broader averages again, the only major benchmark not close to its all-time highs (which was 1,742 back in August). The Stoxx Europe 600 Index jumped to its highest level in almost 13 months on its fifth consecutive advance and the biggest increase in more than two weeks.

·     Stocks have pushed higher in recent weeks on two drivers – the Fed and trade hopes. The trade tensions eased this past weekend when the U.S. and China agreed to restart trade talks, while President Donald Trump also offered concessions including no new tariffs and an easing of restrictions on Huawei Technologies Co Ltd, and China agreed to make unspecified new purchases of U.S. farm products. That helped boost technology and agricultural stocks and improved sentiment for the time being. The other factor remains the Fed, with markets widely anticipating an interest rate cut at the July 31st meeting to stimulate slowing growth and to help alleviate the impact from the recent trade dispute between the US/China.

·     Overall economic data today (which was plentiful today given markets are closed tomorrow for July 4th holiday), was weaker, with private payroll data missing estimates, the trade deficit widened by over 8%, factory orders fell more than expected and ISM services data dropped from prior month – all helping build case for the Fed to cut interest rates at its meeting the end of the month. Treasury yields have sunk to multi-year lows with the 10-year under 1.95%, but yields are down globally with Germany plunging today and Italy 10-yr yield lowest since Oct ’16 at 1.61%. Recession fears also renewed as the 3-month/10-year yield curve has now been inverted for 30 trading days and near its most recent lows (10-yr yield 1.958% and the 3-month 2.195%).

Economic Data

·     ADP Private Payrolls data missed estimate as U.S. added 102,000 jobs, below the 140,000 estimate, while employment prior revised up to 41K from 27K

·     Weekly Jobless Claims fell 8K to 221K, just below the 223K estimate while the 4-week moving avg. rose a mere 500 to 222.25k in the latest week (prior week claims revised up to 229k from 227K); continuing claims fell 8K to 1.686M in the week ending June 22

·     ISM Non-Manufacturing for June falls to 55.1 from 56.9 in the prior month and vs. est. 56; overall business activity fell to 58.2 from 61.2 prior month, while new orders fell to 55.8 from 58.6 and employment fell to 55.0 vs 58.1 prior; prices paid rose to 58.9 from 55.4

·     Factory Goods Orders for May fell (-0.7%) vs. est. (-0.6%) while April orders were revised down to (-1.2%) from (-0.8%) – factory orders down three of the last four months

·     The U.S. trade deficit widened by 8.4% to (-$55.5B) in May from (-$51.2B) and compared to est. (-$54.0B); imports rose 3.3% in May to $266.16B from $257.64B in April and exports rose 2% in May to $210.64B from $206.41B in April

·     U.S. Challenger said job cuts fell 16.6K in June after rebounding 18.6K to 58.6K in May; planned layoffs are up 12.8% y/y versus May’s 85.9% y/y clip

 

Commodities

·     Gold prices have risen on worries over global growth and as latest nominations to major central banks (ECB named Lagarde to replace Draghi when his term ends in October) reinforced expectations of monetary policy easing. President Donald Trump also announced the names of two nominees to fill vacant posts on the Federal Reserve Board. Trump says he wants lower rates to better compete with China. Trump said he’s planning to nominate Christopher Waller and Judy Shelton to serve, candidates both seen as likely to advocate lower interest rates. Gold hit a six-year high last week at $1,438.63 an ounce, driven by a dovish outlook from major central banks and an escalation of tensions between the U.S. and Iran. Oil prices rebounded a bit after plunging nearly 5% on Tuesday, while inventory data today was bearish.

 

Currencies & Treasuries

·     The dollar was mixed, rising vs. majors but down vs. commodity related currencies (Aussie, New Zealand and Canadian dollars) which were among the best performers on the day, supported by the anticipation of easier global central bank policy. The British pound fell again after Bank of England Governor Mark Carney’s warned of damage from rising global protectionism. The Japanese yen was up vs. the dollar again, but pared gains late day after hitting lows of 107.53 – still off last week lows of 106.78 which was the lowest since January). Bitcoin prices up nearly 7% at $11,450 (well off yesterday lows of $9,660.44). Treasury prices jumped again, with the yield on the 10-year hitting fresh 2-year lows below the 1.95% mark, but yields continue to fall globally, with declines in Europe across the board as well on slowing growth fears.

 

 

Macro

Up/Down

Last

WTI Crude

0.25

56.50

Brent

0.71

63.11

Spot Gold

-2.15

1,416.50

EUR/USD

-0.0012

1.1273

JPY/USD

-0.04

107.84

10-Year Note

-0.027

1.946%

 

 

Sector News Breakdown

Consumer

·     Autos; TSLA steals the headlines today as Q2 deliveries were 95,200 (up 134% YoY) and comfortably above expectations of 85-90K units and stated that its order backlog increased sequentially. Model 3 shipments were the key driver of upside with 77,550 deliveries vs. consensus 68,705; RACE tgt raised to $187 from $160 at UBS as believe Ferrari shares have further room for upside as the strength of the brand and unparalleled revenue/ cash flow visibility warrant a premium valuation; Ford (F) says Q2 US light vehicle sales fell -4.5% while truck/van sales were up 7.5%

·     Consumer Staples; USNA shares dropped after cutting FY19 EPS view to $3.70-$4.10 from $5.00-$5.35 (est. $5.17) and cuts FY19 revenue view to $1.02B-$1.06B from $1.21B-$1.26B citing the challenging consumer environment it encountered in China during the quarter; SBRY said total retail sales were down 1.2% in Q1, and comp sales excluding fuel were down 1.6% in Q1, compared with 0.2% in the prior year; strength in food sector today (CPB, THS, KHC, K, CAG) – recall sector recently dropped on weak outlooks/earnings in space. Kellogg (K) outperformed after Barron’s mentions the potential gold mine the food company is sitting on with its veggie-focused Morningstar Farms asset.

·     Casino & Leisure movers; ISCA missed Q2 estimates and reaffirms FY2019 guidance and said admission revenue fell 5% to $24.39M in Q2; in movie theaters, AMC tgt was cut to a street low $11 from $15 at Loop Capital citing recent weakness at the U.S. box office, while upgraded CNK to buy from hold based on its relative attractiveness, historical industry outperformance in 36 of the past 41 quarters and ability to hold margins even in down box office years

·     Retail movers; AOBC, RGR, SPWH shares active after June NICS firearm data released at 2.312M vs. prior month 2.349M but up from 1.935M YoY/Piper noted firearm background check data is positive for the 2nd straight month – the first time since before to 2016 election

 

Energy

·     Energy stocks tried to rebound after plunging yesterday on the near 5% decline in WTI crude oil prices as global slowing growth fears remains a market concern. Tensions with Iran giving oil a boost after President Hassan Rouhani said on Wednesday that Iran will boost its uranium enrichment after July 7 to whatever levels it needs beyond the cap set in the landmark 2015 nuclear deal. With decisions in the books for OPEC Plus, Morgan Stanley has trimmed its long-term forecast for oil prices.

·     Inventory data: The EIA reported weekly inventory draws for crude and gasoline but was smaller than expected – bearish): Crude stockpiles fell -1.09M barrels vs. est. for draw of -3M barrels; gasoline inventories fell -1.58M barrels vs. est. for draw of -2.4M barrels and distillate rose 1.41M barrels vs. est. for draw of -1.25M barrels. Overnight, the API reported that U.S. crude supplies fell by -5M barrels for the week ended June 28, showed stockpile declines of -387,000 barrels for gasoline and -1.7M barrels for distillates

·     Equipment and E&P sector; Piper decreased estimates for the land drillers (HP, NBR, PDS, PTEN) but still view the drillers favorably as model super spec dayrates for the group softening modestly, but decreasing by far less than the most bearish anecdotes from private drillers suggest; OXY board determined against fixing a record date for a consent solicitation sought by Carl Icahn to approve certain proposed actions without a meeting.

 

Financials

·     Bank movers; quiet in the banking space, having to deal with pressures of lower lending margins as yields on the 10-year Treasury sink to 2-year lows (1.95%), weighing on banks and brokers the last few weeks; JEF reported Q2 EPS and revenue that topped consensus estimates while Q2 commissions and other fees of $159.8M increased drop $158.1M a year ago and from $147.3M in Q1 2019 and investment banking revenue of $430.1M fell from $500.3M a year ago but up $285.6M QoQ

 

Healthcare

·     Pharma movers; JAZZ detailed its U.S. commercial launch plan for Sunosi (solriamfetol) yesterday afternoon via a webcast saying the product will be available at pharmacies next week and its salesforce will begin calling on healthcare providers next week as well; UMRX shares tumbled after the FDA placed a clinical hold on the phase 1 trial of its cancer treatment ACTR087 after the company submitted a safety report regarding one patient in the trial experienced serious adverse event; RDHL said U.S. regulators have accepted its marketing application for Talicia to treat H.pylori bacterial infection; LCI said it sees regulatory review of its NDA continuing, as FDA denied a petition submitted by Genus Lifesciences requesting that the agency refuse to accept any submissions related to its NDA for Cocaine Hydrochloride Topical Solution, 4% and 10%.

·     Cannabis sector active, led on news in CGC after its co-Chief Executive Bruce Linton was fired from that role and will leave the board/the move comes nearly two weeks after co’s Q4 net loss widened to 98 Canadian cents a share, bigger than the analysts’ estimates

·     Biotech movers; Guggenheim said today that three upcoming decisions from the Centers for Medicare and Medicaid Services (CMS) on the coverage and reimbursement for expensive CAR-T cancer therapies are expected to have minimal impact on the existing CAR-T treatments (notes shares of BLUE, ALLO, FATE, CELG, GILD as names with exposure); KPTI shares surged over 30% on headlines of a potential label for its Xpovio (selinexor) treatment for multiple myeloma.

·     Healthcare services and providers; Leerink said Critical Texas Medicaid contract awards may be delayed by as much as two months, citing a response from the Texas Health and Human Services Commission (notes CNC, UNH, ANTM hold ~75% of current share in the Texas market) – HUM is competing with MOH for the awards; shares of MCK rise after Baird called the company a bullish fresh pick, saying a rising tide may lift each distributor near term – also helping shares along with ABC follows a number of drug makers hiked prices earlier this week

 

Industrials & Materials

·     Industrial & Machinery; heavy duty truckers active (CMI, PCAR, NAV) after U.S. orders for Class 8 trucks fell 69% YoY to 13,100 vehicles, though figure was up 20% MoM and above the Wells Fargo estimate range of 8K-11K. June Class 5-7 orders came in at 19.2K units (8.8K for Class 5 and 10.4K for Classes 6-7) – which represent a 30% y/y decline and a 6% drop from May

·     Metals & Materials; in chemicals sector, OMN shares jumped over 50% after agreeing to be acquired by Synthomer for $10.15 per share while reports weaker Q2 results (EPS 12c/$205.7M vs. est. 21c/$216.7M); in paper & Packaging, KeyBanc lowered estimates for IP, PKG and UFS again, this time to reflect deteriorating N.A. uncoated freesheet fundamentals and continued plummeting pulp prices (notes they had already reduced estimates for IP and PKG twice in the past three weeks, and just reduced our UFS estimates three weeks ago); UFS was downgraded to underperform at BMO Capital (tgt cut to $39) saying fundamentals are eroding in Domtar’s core businesses and near-term optionality around its asset base has diminished.

 

Technology, Media & Telecom

·     Tech space actually very quiet today with SYMC the big mover in security sector after reports overnight it is being targeted for an acquisition by AVGO, as an agreement could be reached within weeks. No potential purchase price was reported https://on.mktw.net/2XoCoeQ ; semiconductors lagged broader tech while Internet names (GOOGL, GRUB, NFLX, PINS, SNAP) outperformed

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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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