Closing Recap

Tuesday, June 15, 2021

Equity Market Recap

·     U.S. stocks fade on the day, led lower by large cap tech and materials as investors prepare for Fed Chairman Powell’s biggest and maybe most important meeting and press conference since taking over as Fed Chair. Wholesale inflation (PPI) came in hot this morning for both headline and core prices, following the “hotter” CPI reading last week, but again had no impact on stocks or Treasury markets. Wall Street continues to buy into the “transitory” mantra by the Fed that the recent surge in prices is temporary and not a long-term concern as stocks continue to rise and Treasury yields fall. Heading into the crucial FOMC meeting, major averages are just off record highs with gold sliding a third day and the dollar steady as markets await to see if there will be any Fed comments about “tapering” asset purchases soon (though no changes are anticipated tomorrow). Back to the PPI data, headline and core PPI came in ahead of expectations, with the year-over-year headline number at 6.6%, the largest rise since 2010.

·     Stocks/sector movers; DKNG stumbles after Hindenburg issues a short call accusing the company of black market operations; CLF rises on early on raised guidance, while other precious metal, steel stocks X, NUE, FCX, AA, TECK all slide; Energy stocks FANG, MRO, NOV, OXY, CVX lead as WTI Crude tops $72/barrel for the first time since October 2018 as Goldman Sachs says doesn’t rule out oil reaching $100 per barrel; DFS, COF among leaders in the S&P following their May credit card data as COF net charge offs fell to 2.33% in May from 2.4% prior on improving delinquencies, along with better DFS data as well; rails and truckers help boost the Dow Transport index which outperformed broader markets.

Economic Data:

·     Producer Price Index (PPI) MoM for May reported at 0.8% vs. est. 0.5% and prior 0.6% while Producer Price Index (PPI) YoY for May was 6.6% vs. est. 6.3%; core prices also hotter than expected as PPI Ex: Food & Energy (core) MoM for May rose 0.7% vs. est. 0.5% and on a YoY basis, rose 4.8% which was in-line with ests (and vs. 4.1% prior)

·     Advance Retail Sales MoM for May fell (-1.3%) vs. est. (-0.8%) vs. April +0.9% (from prior view of unchanged); Retail Sales Less Autos MoM for May fell (-0.7%) vs. est. 0.5% – April was unchanged, up from prior decline of (-0.8%); U.S. May gasoline sales +0.7% vs. April -1.1%

·     NY Fed Empire state current business conditions index 17.4 in June missing the consensus 22.6 reading and was down from 24.3 in May; the new orders index 16.3 in June vs 28.9 in May; prices paid index 79.8 in June vs 83.5 in May; the employment index at 12.3 in June vs. 13.6 in May

·     Industrial Production rose 0.8% vs. est. 0.6% while April was revised to 0.1% from 0.5%; capacity utilization reported at 75.2% vs. est. 75.1% (prior month remains 74.65); U.S. May motor vehicle assembly rate rose to 9.85 mln units/yr from April 8.83 mln units/yr

·     April business inventories -0.2% (vs. est. -0.1%) vs. March +0.2% vs. prior 0.3%; business sales +0.6% vs. March +5.8%; inventory/sales ratio 1.25 months’ worth vs march 1.26 months

Commodities

·     Oil prices spike as WTI crude gains $1.24, or 1.75% to settle at $72.12 per barrel, getting a boost earlier after Goldman Sachs said earlier they doesn’t rule out oil reaching $100 per barrel, while WTI crude tops $72/barrel for the first time since October 2018. Vitol CEO Russell Hardy sees the oil moving between $70 and $80 a barrel for the remainder of 2021 on the expectation that the Organization of the Petroleum Exporting Countries and its allies (OPEC+) keep supply discipline, even as Iran’s exports may resume

·     Gold prices slide -$9.50 or 0.5% to settle at $1,856.40 an ounce, falling a 3rd straight day after trading around the $1,900 an ounce level last week, as traders position themselves ahead of the FOMC meeting – mining stocks also down the last few days as well (NEM, AEM).

Currencies & Treasuries

·     U.S. Treasury yields and the U.S. dollar remain in tight trading ranges into tomorrow’s FOMC meeting with the 10-year yield around 1.5%, the 2-yr 0.165% and the long-bond 30-yr 2.21%. The U.S. Treasury sold $24B in 20-year auction at a yield of 2.12% vs. 2.137% when issued prior as the bid-to-cover (demand) at 2.40 and indirect bidders awarded 62.07% of auction and directs 20.4%. The U.S. dollar index (DXY) little changed most of the day around 90.50. Bitcoin prices advance again topping the $40K level, while broader crypto assets also climbed.

Sector News Breakdown

Consumer

·     Retailers; H&M (HNNMY) reported Q2 net sales 46.5B SEK (~$5.59B, +62% YoY) that were almost 20% below pre-pandemic 2Q19 as stores are still being impacted by restrictions and closures in China and Europe, though June 1-13 sales are tracking 2% higher than 2019 as more countries reopen; The 40-day “go-shop” period expired in the deal for HOME by PE firm Hellman & Friedman; Piper reduced their Greater China revenue estimate for NKE and said they are comfortable being below the street estimates (EPS 47c on net revs $11B vs street consensus 51c on $11.1B) given current geopolitical tensions, though still favor the company’s long-term digital opportunity; Cowen upped their pt on BOOT to $90 from $86 as the see material long-term upside to consensus that they believe is underappreciating the company’s resiliency and operational moat that supports a premium valuation

·     Auto sector; LAD generated $2.1B in May sales (+89% vs pre-pandemic May 2019 with same-store sales +26% vs 2019), and bought 5 locations in Texas that are expected to add $350M in annualized revenue; KeyBank reiterated their OW rating and $23 pt on GT as their tracker shows sustained sales above 2019 levels (May +15%, YTD +17% vs 2019) after March’s all-time high and April’s near-record strength, and they raised their 2021 tire producer sell-in forecast to +12% from +7%; VRM announced intention to offer $500M of convertible senior notes due 2026; RIDE shares got a boost after President says company has ‘firm’ orders for 2021 and 2022 production, says they are ‘binding orders’ (comes a few days after saying it had going concerns)

·     Consumer Staples; CCEP reinstated outperform at Credit Suisse and reiterate our Outperform rating on KO ($62 TP, +15% potential upside) and MNST ($118 TP, 27% potential upside) – the bullish stance on CCEP’s post-pandemic growth is a positive signal for the Coke system, as well as key contributor Monster.

·     Casinos, Gaming, Lodging & Leisure sector; DKNG shares tumble in the online betting space after Hindenburg Research out with a negative short call as it warns that the company’s merger with SBTech brings it exposure to extensive dealings in black-market gaming, money laundering and organized crime https://hindenburgresearch.com/draftkings/ ; RCL announced that it has commenced a private offering of $650 million aggregate principal amount of senior unsecured notes due 2026; in research, BTIG says taking ABNB and BKNG above-Street in 2Q and the year with our tracking showing momentum in May and into June.

Energy

·     Energy stock movers; sector was the top gainer in the S&P today, led behind a spike in oil prices as Goldman Sachs said today they doesn’t rule out oil reaching $100 per barrel, as WTI Crude tops $72/barrel for the first time since October 2018 (XOM, FANG, NOV, OXY, CVX were among the names that outperformed); for XOM, Credit Suisse raised its tgt to $72 saying as refined product demand starts approaching pre-pandemic levels we believe XOM’s refining results will demonstrate material FCF inflection which remains underappreciated; PBR said it is taking measures to raise local production and imports of natural gas from Bolivia to supply thermoelectric plants during Brazil’s worst drought in decades,

Financials

·     Bank movers & Insurance; banking stocks await the FOMC policy outlook tomorrow/comments on the inflation outlook; financials have been among the top S&P sector gainers YTD – if Treasury yields get moving to the upside (10-yr down 25 bps from a month ago), banks could see more upside as it would improve their NIM; PFG downgraded to neutral at Piper saying upcoming investor day will likely be focused on establishing long-term profitability improvement targets & our belief the results from the strategic review are disclosed in the week before the investor day, but struggle to identify PFG-specific catalysts to drive prospective; CBOE said it plans to extend global trading hours for its S&P 500 Index (SPX) options and Cboe Volatility Index (VIX) options to nearly 24 hours each business day; Citi (C) guided its Q2 equities/FICC trading revenue below the St (mgmt. sees both down ~30-33% Y/Y vs. the St forecast of down ~17-19%) w/underwriting and advisory revs forecast down ~3-5% Y/Y (which is ahead of the St’s down 10% forecast)

·     Consumer Finance; DFS credit card delinquency rate 1.01% at may end vs 1.12% at April end; credit card charge-off rate 1.78% at may end vs 1.54% at April end; COF May domestic credit card net charge-offs rate 2.33 % vs 2.40% in April; delinquencies rate for auto 3.14% at May end vs 2.74% at April end; JPM Credit card charge-off rate 1.77% in May vs 1.97% in April; credit card delinquency rate 0.69% at may end vs 0.78% at April end; ADS delinquency rate of 3.2% as of May 31, 2021 compared to 4.8% in the same period a year ago; the net charge-off rate of 5.2% rises from 5.1% for the five months ended May 31, 2021; BAC credit card charge-off rate was 2.23% in May vs 2.28% in April and delinquency rate was 1.03% vs 1.17% at April

·     Bitcoin news; Cryptocurrency-exposed stocks rise after Bitcoin topped $40,000 per token, its highest level since May; MOGO init Buy and a target of $13 at BTIG based on a sum-of-the parts analysis in which we value the company at $8 per share (9x EV/revenue based on the company’s FY23E net revenues) while valuing its stake in cryptocurrency exchange Coinsquare at $5 per share; MARA set to join the Russell 2000® index

·     REITs; ARE sees FY adj FFO/shr $7.70-7.80, in-line with est. $7.75, and prices upsized 6.5M share offering at $184; ABR 6M share Spot Secondary priced at $18.65; JPMorgan upgraded WPC to OW with an $88 pt from $77 and downgraded BNL to N with a $25 pt from $23 as they say the gap in YTD performance between the two (BNL +34%, WPC +12% vs REITs +26%, S&P +14%) is too wide and expect it to close; Raymond James said they are going all-in on seniors housing, issuing a double-upgrade on WELL to Strong Buy from Market Perform with a $92 target and raised their target on OP-rated VTR to $65 from $61 as prior concerns over the recovery trajectory appear to have been overly cautious; Wolfe initiated coverage on several REITs with new Outperform ratings on CBRE ($112 pt), CWK ($27), ESRT ($16), EPRT ($36), EXR ($189), INVH ($46), JLL ($332), KRC ($88), NTST ($29), NMRK ($22), VICI ($47), VTR ($71), WD ($147), WELL ($94) and Peer-perform ratings on AMH ($46), AVB ($238), BXP ($142), CPT ($150), CXP ($19.25), EQR ($83), ESS ($351), FR ($54), GLPI ($52), HPP ($34), MGP ($43), MPW ($23), OHI ($43), PGRE ($13), PLD ($133), PSA ($335), O ($79), SLG ($90), UDR ($56); Argus reiterated their Buy rating on PEAK and raised their price target to $39, implying a total return of 15% including dividends, as they expect it to benefit from steady demand in its Medical Office and Life Science segments

Healthcare

·     Pharma movers; AMPE receives approval to expand enrollment of its ap-019 phase ii study to India; phase ii study will utilize inhaled Ampion to treat those suffering from respiratory distress due to covid-19; AZN announces that its antibody cocktail, AZD7442, didn’t achieve a statistically significant reduction in the risk of symptomatic COVID-19 after exposure to the virus, failing to meet primary endpoint of the STORM CHASER trial; CLSD announced positive safety results from an ongoing Phase 1/2a trial for CLS-AX in six patients with neovascular age-related macular degeneration (wet AMD); NVAX filed prospectus supplement with SEC which contemplates sale of up to $500M of shares; VBLT slides after saying it will temporarily pause recruitment of new U.S. patients in its ongoing late-stage study testing VB-111, its experimental treatment for platinum-resistant ovarian cancer

·     Biotech movers; BIIB announced top-line results from its Ph 3 STAR study for BIIB111 gene therapy for chloridemia as the study did not meet primary and also failed to meet key secondary endpoints; separately, SAGE and BIIB announce positive pivotal phase 3 results for zuranolone, an investigational two-week, once-daily therapeutic being evaluated for major depressive disorder (shares tumbled as antidepressant achieves goals of large study, but questions about benefit linger); AXSM announces planned NDA submission for AXS-14 for the management of fibromyalgia; FUSN rises as early-stage data showed its lead alpha therapy candidate, FPI-1434, for targeted tumor cells shows favorable safety profile with no drug-related serious adverse at three different dose levels; OCGN rises after saying it picked Jubilant HollisterStier, a privately held pharmaceutical contract manufacturer, to produce its still-investigational COVID-19 vaccine for the U.S. and Canada (though vaccine is not yet approved)

Industrials & Materials

·     Industrial, Aerospace & Defense; AXON and DroneSense announces a strategic partnership to provide public safety agencies with an end-to-end drone software solution, including piloting, administration, evidence management and live streaming; The U.S. and EU resolved 17-year aircraft subsidies dispute (BA, EADSY); FAST downgraded to Underweight at Morgan Stanley saying the business model is enduring, but the next ~12 months aren’t supportive;

·     Transports; ODFL added to Catalyst Call Buy idea at Deutsche Bank; SAVE upgraded from Neutral to Buy at Citigroup on the back of Monday afternoon’s solid 2Q investor update, which now calls for the carrier’s first positive EBITDA margin since the pandemic’s onset; AMZN could be making a push to fly cargo for other companies after it rapidly expanded its fleet, according to a report in The Information

·     Metals & Materials; sector got crushed as Materials among worst performers of day; CLF issued Q2 guidance this morning as it sees Q2 adj Ebitda of $1.3B and full-year adj Ebitda of $5B; copper miners decline early (FCX, SCCO) after the metal slides to a seven-week low amid concerns about possible tightening of monetary policy in the U.S. and pullback in Chinese demand

Technology, Media & Telecom

·     Internet; Chinese e-commerce platforms BABA, JD, PDD was warned by China’s industry ministry to regulate their promotional phone messages related to the upcoming annual June 18 shopping festival; GDDY announced launch of GoDaddy payments

·     Semiconductors; NVDA is said to be encountering delays in filing its $40B deal to purchase Softbank’s (SFTBY) ARM chipmaker unit with the European Union’s antitrust regulator as the EC is asking many more questions than the companies expected, according to The Information

·     Software movers; PING 6M share Spot Secondary priced at $24.00; CDAY downgrade from Buy to Hold at Needham based on recent checks highlighting 2020 sales comp changes that were not well-received internally and competitive dynamics turning more negative.

·     Media & Telecom FOXA said Fox news media launches fox news podcasts+ exclusively on apple podcasts; available for $2.99 per month, subscribers will have access to exclusive content including fox news investigates specials, other shows