Mid-Morning Look

Thursday, June 06, 2019

U.S. equities are mixed, pulling back from overnight highs given more macro trade fears with China and Mexico, while oil prices remain weak along with another drop in the dollar. The euro jumped against the U.S. dollar after the ECB said it expects ECB interest rates to stay at their current levels through at least the first half of 2020 (in-line with prior), while keeping the benchmark deposit facility interest rate at -0.40% but announced new programs as its new series of targeted longer-term refinancing operations (TLTRO III). The ECB also marginally cut its growth forecasts for the next two years, acknowledging the risk that Europe’s slowdown will be longer and deeper than expected. During press conference, ECB President Draghi said some officials raised possibility of rate cuts while some members raised possibility of restarting QE. Headlines on trade not a positive for sentiment as the meeting with Mexico yesterday at the White House did not go well as President Trump said that “not nearly enough,” progress was made during the meeting with Mexico’s foreign minister and top American officials. Trump tweeted this morning, “If no agreement is reached, Tariffs at the 5% level will begin on Monday, with monthly increases as per schedule,” Trump tweeted Wednesday. “The higher the Tariffs go, the higher the number of companies that will move back to the USA!” President Trump also reiterated that the U.S. is prepared to place tariffs on another $300 billion of imports from China if necessary and asserted that Beijing “wants to make a deal badly.” Retailers are among the top decliners in the S&P 500 this morning, while energy stocks attempt to rebound from yesterday’s rout.

Treasuries, Currencies and Commodities

·     In currency markets, the dollar is under pressure early, falling vs. most rival currencies after mixed weaker economic data, calls for the Fed to cut interest rates at least twice in 2019, and general sour market sentiment to start the day. The euro posted a quick drop to lows 1.1203 after its ECB meeting headlines but then quickly popped as high as 1.13 before paring gains. Commodity prices are mixed as oil prices erase early gains after falling into correction territory on Wednesday (defined as 20% drop from recent highs), while gold prices are on track for its 7^th straight day of gains. Treasury market’s rally with yields falling across the board again.

Economic Data

·     Nonfarm productivity for Q1 rose 3.4%, just missing the 3.5% economist estimate after prelim 1Q productivity was up 3.6%. Unit labor costs fell (-1.6%) in 1Q, greater than the prelim reading of down (-0.9%) which was also the estimate.

·     Weekly Jobless Claims were unchanged from the prior week at 218K, slightly above the 215K estimate while the 4-week moving average stood at 215K in the latest week; continuing claims rose 20k to 1.682M

·     The U.S. trade deficit for April narrowed to (-$50.8B) from (-$51.9B) in March and was mostly in-line with the (-$50.7B) estimate as imports fell (-2.2%) in April to $257.64B from $263.32B MoM while exports fell (-2.2%) in April to $206.85B from $211.41B in March. Goods shipments to China fell to $8.5B in April from $10.2B MoM (down 20% year-to-date, while imports from the nation have declined 13.2% in 2019

Sector Movers Today

·     Autos; TSLA shares rise for a 3^rd day, tracking higher after Electrek reported that the EV automaker hit a record North America sales number in Q2 saying Tesla has already delivered 33K vehicles in North America this quarter; FCAU has withdrawn its offer to merge with Renault after the French company’s board failed for a second day to reach a conclusion on the proposal; tire maker GT was upgraded to neutral at Longbow with $14 tgt

·     Consumer Staples; shares of tobacco names (PM, MO) active after BTI, IMMBY shares jumped overseas after Barclays with industry note saying the US FDA probably won’t publish a rule banning menthol cigarettes over the next 12 months; BYND with its first quarterly earnings since its IPO later this afternoon

·     Semiconductors; AMD was upgraded to equal weight from underweight at Morgan Stanley and tgt raised to $28 from $17 as sees positive near-term catalysts saying the table is set well for 2020; tgts were cut at Barclays MU (to $40 from $45), LITE (to $50 from $60), NVDA to $180 from $220, QCOM to $90 from $100 and XLNX to $105 from $130 – to reflect pullback in the sector given softer demand environment, Huawei Technologies Co uncertainty and risk of further trade escalation/also notes DRAM and NAND contract prices continue to fall

·     Software movers; CLDR shares plunge as Q1 EPS/revs were in-line but bookings and churn were weak, said its CEO will be retiring at the end of the quarter and cut its full-year revenue guidance by $90M to $745M-$765M and said that Q2 would be another tough booking quarter; MDB reported a top-line beat 7% ahead of consensus estimates while guiding 2Q revs to be $91M at the mid-point, about 3.5% above the Street; CTXS upgraded to buy at Deutsche Bank citing improving growth in the company’s desktop business after the segment grew 13% in Q1

Stock GAINERS

·     AMD +5%; upgraded to equal weight from underweight at Morgan Stanley and tgt raised to $28 from $17 as sees positive near-term catalysts saying the table is set well for 2020

·     CIEN +24%; raised FY19 revenue outlook to 13%-14% from previous 6%-8% guidance range and guided Q3 revs above views after Q2 beat (Q2 EPS 48c/$865M vs. est. 41c/$819.3M; Q2 GM 43.9% vs. 40.9% YoY)

·     CMTL +19%; after Q3 beat and raised FY19 revenue view to $660.0M from $645M-$660M (est. $655.18M), though guides Q4 EPS and revs below views

·     CTRV +130%; as announces positive data from preclinical study of its experimental drug, CRV431, to treat liver disease from non-alcoholic steatohepatitis (NASH)/says CRV431 significantly decreased extent of fibrosis in a second animal model of liver fibrosis

·     EOG +2%; as the energy sector rebounds after leading declines yesterday (CXO, CVX, OXY higher)

·     FLEX +2%; upgraded at Goldman Sachs to conviction buy list citing the recent pullback with shares down 18% from a May peak, which created an “attractive” and “compelling” valuation

·     SFIX +16%; Q3 active clients of 3.1M, was an increase of 17% YoY while raises year rev outlook to $1.57B-$1.58B from prior view $1.53B-$1.56B/Stifel notes marks the fourth consecutive quarter of accelerating ARPU growth

·     UAL +2%; airlines rise again after strong returns yesterday; UAL was upgraded to buy at Goldman Sachs today while the firm downgraded SAVE

Stock LAGGARDS

·     CLDR -43%; shares plunge as Q1 EPS/revs were in-line but bookings and churn were weak, said its CEO will be retiring at the end of the quarter and cut its full-year revenue guidance by $90M to $745M-$765M and said that Q2 would be another tough booking quarter

·     EROS -34%; said the company and all of its units “have met and continue to meet all debt service commitments,” in response to a credit rating downgrade earlier that sunk shares

·     FLT -5%; after Citron Research posted a negative call on the company talking about the company’s egregious billing practices https://bit.ly/2wD0CCj

·     HOME -48%; as profit fell in Q1 citing unfavorable weather conditions/guided year adjusted EPS 67c-74c on revs $1.39B below est $1.03/$1.4B

·     KIRK -39%; reports a net loss of $8.9M for the quarter as total sales fell (-9.1%) and comp sales dropped (-10.7%) vs. up 1.4% YoY – both below estimates – while also cut its FY19 EPS view

·     MIK 13%; trades to record lows as Q1 comp sales fell (-2.9%) missing the est. for a drop of (-1.5%) amid a decrease in customer transactions while gross profit fell 130 bps to 38.2% of sales

·     TUSK -29%; recall late yesterday the WSJ reported that the FBI is looking into Mammoth Energy work in Puerto Rico https://on.wsj.com/2XtF5Ig

Syndicate

·     Avalara (AVLR) 3.59M share Secondary priced at $69.40

·     Descartes Systems (DSGX) 6M share Secondary priced at $35.50

·     i3 Verticals (IIIV) 4.49M share Secondary priced at $22.75

·     Orchard Therapeutics (ORTX) 9M share Secondary priced at $14.25

·     Q2 Holdings (QTWO) 2.52M share Secondary priced at $69.50

·     Verra Mobility (VRRM) 15M share Secondary priced at $12.50