Mid-Morning Look: July 09, 2019

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Mid-Morning Look

Tuesday, July 09, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-103.12

0.38%

26,703

S&P 500

-5.33

0.18%

2,970

Nasdaq

4.20

0.05%

8,102

Russell 2000

-6.55

0.42%

1,554

 

 

U.S. equities open weaker, on track for a third straight decline, as stocks remain sluggish following Friday’s stronger jobs report (added 224K jobs vs. est. 160K) which has raised expectations that the Fed might take it slow in easing interest rates. Stocks however have since bounced off opening lows, led by technology and healthcare names while energy and financials once again lag. Investors await potential market moving comments from several Fed officials today and ahead of Fed Chair Powell’s two-day appearance on Capitol Hill tomorrow and Thursday in his semi-annual testimony on monetary policy. European markets were broadly lower while the dollar extends gains vs. rivals. In the technology space, one big M&A deal with CSCO agreeing to acquire optical/comm equipment maker ACIA on deal valued at $2.6B. U.S. Treasury prices are mostly lower, with the 2-year flat at 1.89% and the 10-year yield up. Pressure on futures overnight on trade after the U.S. Commerce Department determined that China and Mexico are unfairly subsidizing exports of fabricated structural steel and said it would impose duties on imports. In a preliminary ruling announced Monday, the department said it would apply duties ranging from 30.3% to 177.43% on Chinese imports of the product and up to 74.01% duty on those from Mexico. MMM a drag on the Dow Industrials early after the component was downgraded by an analyst.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar trades up vs. the Japanese yen to hi of 108.96 before paring gains (failed before its 50-day MA resistance of 108.98) – but still best levels in roughly 5 1/2 weeks; the euro down slightly vs. the dollar, but back above the 1.12 level (lows of day 1.1193) as markets await Powell testimony next two days (euro 4-week lows). Commodity prices little changed with gold down slightly (on dollar recent rebound) while oil prices steady ahead of weekly inventory data tonight (API) and tomorrow morning (EIA). Treasury market’s slip as yields extend gains for a third straight session as the 10-year yield tops 2.06% (about 12 bps off last week lows). No major economic data for a second day, with attention on Powell and Fed speaker’s next two-days.

 

 

Macro

Up/Down

Last

 

WTI Crude

0.13

57.79

Brent

0.23

64.33

Spot Gold

-2.60

1,393.00

EUR/USD

-0.0009

1.1205

JPY/USD

0.13

108.85

10-Year Note

0.013

2.061%

 

 

Sector Movers Today

·     Casino & Leisure movers; in hotels and lodging, JPMorgan downgraded MAR and HLT to Neutral from Overweight on more even risk-reward, and cut RHP and CPLG to Underweight from Neutral saying they see more risk to the downside as recent share performance, peak valuations, an extended cycle and decelerating industry trends all point to diminished upside from here; in leisure, SIX was upgraded to outperform at Wells Fargo and raise tgt to $56 from $52 as believe concerns around weather, China trade and dividend sustainability are fairly discounted; in vehicles, Raymond James said based on dealer survey results it appears that 2Q19 North American retail trends were down modestly for the second straight quarter following four consecutive quarters of growth (PII, HOG)

·     Pharma movers; industry has been under pressure on Trump attack on prices (MRK, JNJ, LLY), but small reprieve today as a federal judge on Monday dealt a blow to the Trump administration by striking down a new rule that would have forced pharmaceutical companies to include the wholesale prices of their drugs in television advertising. Note the Trump administration has outlined other plans to tackle soaring drug prices, with President Trump outlining an executive order with a “favored nations clause” regarding prescription drug pricing

·     Aerospace & Defense; European regulators have ordered inspections on some older Airbus (EADSY A380 superjumbo airplanes after some cracks were detected in wings on the world’s largest passenger aircraft; Citigroup downgraded LDOS and CACI to neutral, but upped tgts on both (CACI to $230 from $200, and LDOS to $83 from $75), in light of impressive YTD share performance (CACI +45%, LDOS +54%) driven by better #s and multiple expansion; LHX added to conviction buy list at Goldman Sachs with $240 tgt on solid near-term growth from recent wins and current DoD outlay strength, and market share gains from its focus on innovation

·     Bank movers; in broker news, PJC agreed to acquire Sandler O’Neill in a total deal valued at $485M, paying $350M in cash to Sandler O’Neill equity holders at the time of closing; and $135M in restricted consideration, primarily in restricted stock https://on.mktw.net/2LbE9Wh ; in research, Stephens with several banking rating changes as they upgraded: FMRE, FBK and CNOB, while downgraded BUSE, PNFP, TBK, BFST, CADE, HWC, FBMS and TCBK

 

Stock GAINERS

·     ACIA +36%; after agreeing to be acquired by CSCO for $70 per share in $2.6B deal to meet the fast-growing consumer demands for data https://on.mktw.net/32dORRH (other optical/comm equipment related stocks moving after deal – AAOI, NPTN, CIEN, FN)

·     CUTR +5%; said 2Q preliminary results exceeded consensus growth estimates and its own revenue forecast

·     LHX +1%; added to conviction buy list at Goldman Sachs with $240 tgt on solid near-term growth from recent wins and current DoD outlay strength

·     LLY +1%; as big Pharma names move higher after a federal judge on Monday dealt a blow to the Trump administration by striking down a new rule that would have forced pharmaceutical companies to include the wholesale prices of their drugs in television advertising

·     SQ +4%; upgraded to Market Perform at Raymond James saying their short thesis from the end of Jan has mostly played out and we now believe the risk/reward is more balanced

·     SRPT +1%; as tgt raised to $220 at Morgan Stanley citing increased confidence that the company will capture the majority of market share in DMD

 

Stock LAGGARDS

·     COHU -6%; provided an update on near-term conditions in an 8-K filed Monday after close saying that it no longer expects a recovery in revenue in the back half of the year

·     DVA -6%; after Politico report on Trump administration’s plan to encourage more kidney transplants and at-home dialysis. President Donald Trump is set to unveil a series of initiatives on Wednesday morning and is considering a possible executive order https://politi.co/2G2zIt0

·     FCX -4%; Jefferies lowered its copper, zinc and thermal coal price forecasts to reflect weak demand while JPMorgan lowers its Q219 EPS forecast FCX and cut tgt to $13 to reflect actual copper prices coming in lower than initially estimated

·     LNN ; after Q3 earnings and revenues fell well short of consensus estimates as the company’s operating revenue fell amid constrained demand for irrigation equipment due to uncertainty in trade negotiations

·     MMM -1%; downgraded to sector perform at RBC Capital and cut tgt to $176 from $207 saying the stock has been worst-performing large-cap multi-industrial YTD and investor sentiment has turned negative as co stumbled through four guidance cuts in past five quarters

·     PII -2%; Raymond James said based on dealer survey results it appears that 2Q19 North American retail trends were down modestly for the second straight quarter following four consecutive quarters of growth (PII, HOG)

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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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