Early Look

Friday, June 14, 2019

U.S. stock futures are sliding, led by weakness in technology shares after semiconductor giant Broadcom (AVGO) cut its outlook for the year citing weaker demand (weighing on shares of semi companies MU, NVDA, INTC, AMD), materials fall after Chinese data disappointed investors and geopolitical concerns arise after the U.S. released a video it said shows Iran was involved in the attack on an oil tanker near the Persian Gulf yesterday (despite Iran rejecting those claims). Oil prices (and stocks) slip after a brief pop yesterday following the attacks on the tankers yesterday, as the IEA cut its outlook for oil demand growth in 2019, saying economic sentiment is weakening and the consequences for oil demand are becoming apparent. Safe-haven assets spike, with gold topping the $1,350 an ounce level and Treasury prices jumping to their best levels of the week (sending the yield on the 10-year down to 2.06%). Busy day of economic data coming up with retail sales, confidence and industrial production expected. In Asian markets, The Nikkei Index rose 84 points to 21,116, the Shanghai Index dropped -28 points to 2,881 and the Hang Seng Index fell -176 points to 27,118. In Europe, the German DAX is down over -80 points to 12,080, while the FTSE 100 is down over -30 points to 7,330.

Stocks advanced on Thursday after two days of declines, led by a strong rebound in energy stocks alongside oil prices following attacks on two tankers in the Gulf of Oman raising supply fears. U.S. WTI crude prices settled 2.2% higher at $52.22, a day after the price plunged 4% to its lowest level in five months amid continued increases in U.S. crude stockpiles and concerns about weaker demand growth. However, U.S.-China trade tensions and fears of slowing economic growth remain concerns for global stock markets. Defensive-oriented sectors such as health care, consumer staples, real estate and utilities lagged after outperforming the broader market yesterday. Treasury prices gained again pushing the two-year slumped 5.7 basis points to 1.834%, its lowest since Dec. 2017 while the 10-year Treasury note yield fell 3.3 basis points to 2.096%. Note the S&P has climbed more than 5% from last week’s lows, its best nine-day stretch since January, with the index rising for 6 of the last 8 sessions.

Market Closing Prices Yesterday

·     The S&P 500 Index climbed 11.80 points, or 0.41%, to 2,891.64

·     The Dow Jones Industrial Average rose 101.94 points, or 0.39%, to 26,106.77

·     The Nasdaq Composite gained 44.41 points, or 0.57%, to 7,837.13

·     The Russell 2000 Index advanced 16.01 points, or 1.05% to 1,535.80

Events Calendar for Today

·     8:30 AM EST      Retail Sales MoM for May…est. 0.6%

·     8:30 AM EST      Retail Sales Ex: Autos for May…est. 0.4%

·     9:15 AM EST      Industrial Production for May…est. 0.2%

·     9:15 AM EST      Capacity Utilization for May…est. 78.0%

·     10:00 AM EST    University of Michigan Confidence, June-P…est. 98.0

·     10:00 AM EST    Business Inventories for April…est. 0.5%

·     1:00 PM EST       Baker Hughes Weekly Rig Count

World News

·     Chinese industrial output slowed to the weakest pace since 2002 last month as China’s factory output rose 5% YoY, missing estimates for growth to remain steady at 5.4%. Fixed-asset investment slid to 5.6% from 6.1% in April. Retail sales beat, rising to 8.6% in May from 7.2%

·     The Russian Central Bank lowers its key interest rate to 7.5% (in-line with estimates)

·     Speaker of the House Nancy Pelosi said Thursday that the Democratic-controlled House won’t pass must-do legislation to increase the government’s borrowing cap until the Trump administration agrees to boost spending limits on domestic programs

·     White House press secretary Sarah Sanders will leave her job at the end of June, Donald Trump has announced

·     The Toronto Raptors captured Canada’s first NBA championship, outlasting the battered two-time defending champion Golden State Warriors 114-110 on Thursday night in a Game 6

Sector News Breakdown

Consumer

·     Chewy 46.5M (CHWY) share IPO priced at $22.00

·     Alaska Air (ALK) reports combined May traffic up 1.0% on a 0.7% increase in capacity compared to May 2018; load factor increased 0.3 points to 85.7%

·     Copa Holdings (CPA) May system-wide passenger traffic in RPMs decreased 2.6% YoY, while capacity in ASMs decreased 4.6% as system load factor for the month was 86.1% up 1.8%

·     Blue Apron (APRN) announced that its board approved a reverse stock split of the company’s stock at a ratio of 1-for-15

·     Seneca Foods (SENEB) Q4 EPS loss (91c) on revs $262.6M ($239.2M last year) and Q4 gross margin 5.3% vs. 7.1% last year

·     Retailers Walmart (WMT), Target (TGT) and hundreds of other companies urged President Trump not to impose extra levies on Chinese goods. More than 500 firms across a range of industries signed a letter expressing concern about an escalation of the trade war

Energy

·     The International Energy Agency (IEA) cut its outlook for oil demand growth in 2019, saying economic sentiment is weakening and the consequences for oil demand are becoming apparent. The IEA revised down its 2019 demand growth estimate by 100,000 barrels to 1.2 million barrels per day (bpd), but said it would climb to 1.4 million bpd for 2020. Saudi output shrank by 110,000 barrels from April to 9.7 million barrels. That is the lowest since 2015 and 610,000 barrels below its OPEC+ target.

Healthcare

·     Navidea Biopharmaceuticals (NAVB) announced that it has regained control over the intellectual property (IP) related to its Manocept platform.

·     Alexion Pharmaceuticals (ALXN) said its treatment for adults with paroxysmal nocturnal hemoglobinuria showed sustained efficacy on the co-primary endpoints of transfusion avoidance and normalization of lactate dehydrogenase through 52 weeks.

Industrials & Materials

·     Volkswagen AG said that it would offer up to 15% of its truck unit Traton AG in a range of EUR27 ($30.5) to EUR33 a share, making the IPO worth up to EUR1.9 billion. The share offering values all of Traton at about EUR16.5 billion

·     Louisiana-Pacific (LPX) announced that its Peace Valley facility in Fort St. John, British Columbia, will indefinitely curtail production of oriented strand board, or OSB, beginning early in Q3

·     Vale (VALE) said it expects to reach global settlements covering economic and environmental damages from the January tailings dam collapse by late this year or early next year

·     Ashland (ASH) downgraded to Neutral on valuation at JPMorgan

·     Bayer (BAYRY) plans to invest about 5 billion euros ($5.6B) in developing alternatives to its weed killer glyphosate as it battles lawsuits claiming the herbicide causes cancer – Bloomberg

Technology, Media & Telecom

·     Broadcom (AVGO) shares fell -8%; Q2 adjusted EPS $5.21/$5.52B vs. est. $5.18/$5.69B; cuts FY19 revenue view to $22.5B from $24.5B (below est. $24.41B) – breakdown as follows: $17.5B from semiconductor solutions and $5B from infrastructure software; cuts FY19 CapEx view to approximately $500M from $550M; said they “currently see a broad-based slowdown in the demand environment, which we believe is driven by continued geopolitical uncertainties, as well as the effects of export restrictions on one of our largest customers” – shares of chip makers weak after lower guidance/outlook

·     Finisar (FNSR) Q4 EPS 27c/$310M vs. est. 26c/$327M; will not hold an earnings call, nor provide 1Q forward guidance due to the previously announced proposed acquisition by II-VI Incorporated (IIVI)

·     Huawei’s foldable phone will likely launch in September, later than it was reportedly set to, as it does extra tests following the debacle Samsung went through with its Galaxy Fold, a Huawei spokesperson confirmed to CNBC.

·     Kornit Digital (KRNT) 4.34M share Secondary priced at $27.50