Market Review: July 05, 2019

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Closing Recap

Friday, July 05, 2019

Index

Up/Down

%

Last

DJ Industrials

-42.87

0.16%

26,923

S&P 500

-5.36

0.18%

2,990

Nasdaq

-8.44

0.10%

8,161

Russell 2000

3.58

0.23%

1,575


 

Equity Market Recap

·     U.S. stocks rallied off morning lows in what was an overall snoozer of a day following the 4th of July holiday yesterday, as volumes were down broadly. U.S. stocks dropped with the Dow Industrial Average down over 200 points mid-morning, as a stronger than anticipated bounce in June jobs data (224K vs. est. 160K) partially reduced the probabilities of a Fed rate cut later this month, which has been a key catalyst to the S&P, Dow Industrials and Nasdaq Composite touching all-time highs on Wednesday. Though it reduced expectations of being more aggressive, fed fund futures still point to a 25 bps cut at the July meeting which helped bounce stocks late day (Nasdaq briefly turned positive). Treasury prices tumbled as yields spiked along with the U.S. dollar on the jobs news, while gold dropped and oil managed to bounce off earlier lows (though still ended the week down over 1.5%). Banking stocks led the gains while interest rate sensitive names (utilities, housing, telecom and REITs) dropped. Healthcare and biotech stocks slipped mid-session after President Trump said today his administration is working on a "favored-nations clause," or a system that would allow the U.S. to buy drugs based on the lowest prices paid by other countries.  Note next week to be dominated by Fed Chairman Powell (with earnings season kicking off the following week) – as Fed Minutes from the June meeting are released, while he also testifies on the economy and monetary policy to the House Financial Services Panel (7/10) on Wednesday and the Senate Banking Committee on Thursday (7/11). There is also important inflation data the tail end of next week as well with CPI on 7/11 and PPI on 7/12.

Economic Data

·     Jobs data was mixed as Nonfarm payrolls for June reported at 224K vs. est for 160K (prior revised to 72k from 75k) while private payrolls at 191K vs. est. 150K (prior to 83k from 90k); manufacturing rises 17k vs. est. 3k and the unemployment rate rises to 3.7% from 3.6%; average hourly earnings rise 0.2% less than the est. 0.3% (and YoY holds at 3.1% vs. est. 3.2%)

 

Commodities

·     Gold prices fell -$20.80 or 1.5% to settle at $1,400.10 an ounce, one of its biggest tumbles of 2019 after an unexpectedly strong jobs report tempered rate cut expectations and boosted the dollar. With today’s slide, gold futures ended the week lower by about 1%.

·     Oil prices rebounded from earlier losses (lows of $56.29) as the jobs report provided a boost to the U.S. economic jobs outlook, with WTI settling at $57.51 per barrel up 17c on the session, not far off the highs $57.77 per barrel. For the week, WTI crude declined 1.6% after mixed inventory data and despite OPEC agreeing to extend production output cuts.

 

Currencies & Treasuries

·     Treasury prices plunged on the day, with shorter term yields moving the most as the 2-year yield spiked as high as 1.885% (over a 12 bps move), and the 10-yr yield neared 2.07% for a move of over 11 bps before ending around 2.04% (off recent 2-year lows). Today’s action was all based on the stronger headline jobs report beat which lowered expectations of the get being more aggressive in its bringing down interest rates in the upcoming July meeting.

·     The U.S. dollar was another beneficiary of the reduced rate cut expectations/better jobs report rising to 3-week highs vs. the Japanese yen around 108.60 and up from 108.05 prior to the data release. The British Pound fell to its lowest levels since early January, dropping below the 1.25 level vs. the US dollar (-0.55%) before paring declines, as the greenback spikes vs. most rival currencies on better headline jobs report.

 

 

Macro

Up/Down

Last

WTI Crude

0.17

57.51

Brent

0.93

64.23

Gold

-20.80

1,400.10

EUR/USD

-0.0060

1.1225

JPY/USD

0.73

108.56

10-Year Note

0.092

2.042%

 

 

Sector News Breakdown

Consumer

·     Retailers were one of the few bright spots on the day, with underperforming department stores such as M, KSS, JWN leading the group higher

·     GM said Q2 deliveries in China including joint ventures fell (-12.2%) to 753,926 vehicles, now having slipped for four consecutive quarters. Sales by brand: Buick -14.1% Y/Y to 198K, Chevrolet -18.5% to 107K, Cadillac +36.6% to 67K, Wuling -0.9% to 246K, Baojun -31.8% to 136K

·     Interest rate sensitive homebuilders (BZH, DHI, LEN, PHM, TOL) declined given the spike in Treasury yields

 

Energy

·     Energy stocks fell, aided by the biggest weekly decline since May for oil prices as global demand concerns outweighed an OPEC+ pact to extend supply curbs into 2020 announced earlier this week in Vienna and worries that a renewed confrontation with Iran may threaten supplies. Generally soft incoming global data has also weighed on prices over the past week, with PMI figures in particular, painting a slowing economic picture

 

Financials

·     Bank movers; shares of banks and brokers outperform following the jobs report and subsequent rally in Treasury yields as the data pointed to labor-market strength and lowered the case for a Federal Reserve interest-rate cut in July (though fed fund futures are still implying more than a 70% chance for a Fed rate cut); DB shares outperformed following news of its expected company overhaul following its decline in the group’s investment banking business

 

Healthcare

·     Biotech & Pharma movers; KPTI rises after an FDA approval of its cancer drug Xpovio late Wednesday, despite a recommendation that the agency wait for more data from a March panel; ALXN won European Commission approval late Wednesday for ULTOMIRIS (ravulizumab) for the treatment of adult patients with paroxysmal nocturnal hemoglobinuria with hemolysis with clinical symptoms indicative of high disease activity and for adult patients who are clinically stable after at least six months on SOLIRIS; TYME announced positive outcomes that further justify advancing the development of pancreatic cancer treatment SM-88; TEVA was upgraded to buy with $12 target at Argus; GRFS said the FDA approved Xembify, its new 20% subcutaneous immunoglobulin, used to treat primary immunodeficiencies

 

Industrials & Materials

·     OSAGY confirmed it has received a binding offer from a consortium of Bain Capital and The Carlyle Group to conclude an investment agreement and to make a public takeover offer worth 35 euros per share, or an EU3.4B deal https://on.mktw.net/2YykSBB

·     Airlines active; GOL said load factor rose 540 bps to 83% in June, total departures grew 4.6% and seats up 4.7%; total June traffic rose 14.4% and capacity climbed 7%; earnings start for the transports/airlines next week with DAL earnings on Thursday 7/11

·     Iron ore, which had surged to recent 5-year highs above $120 a ton after a dam disaster in Brazil and bad weather in Australia curtailed shipments just as China’s mills ramped up steel output, is in freefall on reports China is investigating the cause of the steep rise imported into China in an effort to “crack down on abnormal behavior” (CLF, VALE, RIO)

·     Gold miners (NEM, GOLD, AEM, AUY) shares slide given the spike in the dollar, which is weighing on gold prices (spot gold fell around 2% early below $1,390 an ounce)

 

Technology, Media & Telecom

·     FB traded down from 6-month highs on Wednesday, but still roughly $20 bucks from all-time highs of $218.62 reached last July (7/25/18). GOOGL rose 1% late day, moving above its 50-day MA or 1,131.80 (earlier topped its 200-day MA 1,125)

·     EA notable decliner in the S&P, breaking below its 50, 100- 200 day moving averages – recall on Wednesday shares fell 4.5% (BMO raised its tgt the other day on potential for its Apex Legends game)

·     QCOM shares slipped after a U.S. judge late Wednesday ruled against its effort to block the implementation of a sweeping antitrust ruling against it as the company pursues an appeal that could take more than a year to wind through the courts.

·     NTNX shares weaker, falling over 7% early, but held its 52-week low of $24.61 on 6/25, trading to $24.83 before paring losses (note shares coming into the day riding a 6-day win streak)

·     Samsung Electronics forecast a steep plunge in its Q2 operating profit, though one-off gains helped it beat analyst expectations; April-June operating profit likely fell 56% to 6.5 trillion won ($5.6 billion), vs. (est. 6 trillion)

·     NXST shares active after its stations went dark yesterday on AT&T (T) outlets in 97 markets following the holiday expiration of their contract

·     Intelsat (I) shares rose after FCC Chairman Ajit Pai’s speech in Argentina referred to expected action on mid-band satellite spectrum monetization in the fall

·     AAPL supplier Hon Tai said June sales rose 1.71% YoY to NT$396.5B

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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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