Mid-Morning Look: May 15, 2018

Terrie AmengualDaily Market Insights

Mid-Morning Look

Tuesday, May 15, 2018

U.S. equities are broadly lower, falling amid concerns that higher borrowing costs and a strengthening dollar could weigh on corporate profits. All 11 major industries decline, led by technology and high dividend paying sectors. With rates surging, interest rate sensitive groups such as homebuilders (DHI, LEN), utilities for their dividends (ED, CNP), REITs for their high dividends as well (IYR) and Telco/tower space among the top decliners early while banks/financials, which tend to benefit from a rising rate environment, outperform. The 10-year Treasury yield hit a seven-year high of 3.06% while the dollar rose to its highest levels for the year. The Dow Industrial Average 8-day win streak in jeopardy, though the tech heavy NASDAQ underperforms the most. The 10-year U.S. Treasury yield rose to its highest level since 2011, extending a selloff in the world’s biggest bond market and raising fresh questions about how high America’s borrowing costs will climb. There are several Fed speakers scheduled this week, and investors will look to clues about how the most recent tame inflation readings could offset the stronger data points we have seen lately (housing and retail sales today).

Treasuries, Currencies and Commodities
·      In currency markets, the US dollar rises to a fresh 3-month high against the yen, topping 110.30; the British Pounds falls to lows of 1.3451 (now down -0.6%), the lowest levels since late December; after nearly touching the 1.20 level yesterday, the euro falls to lows of 1.182 vs. the greenback today; the dollar back to 1.29 vs. the Canadian dollar
·      Precious metals decline as Treasury yields surge, with the 10-yr yield topping 3.06% and the dollar firmed (helped by stronger economic data) as gold remains on track for a sixth loss in seven sessions. Gold prices have slumped more than 5% since its recent peak of $1,322.30 last week, a roughly two-week high. Gold falls below $1,300 an ounce, while silver also slips 2%
·      Energy prices drop from best levels in nearly 4-years yesterday, with investors booking profits amid a broader market pullback, taking down riskier assets; WTI crude drops back below $71 per barrel, while Brent down around $78 per barrel after earlier highs of $79.45)
·      Treasury markets falling further as the yield on the benchmark 10-year rises above 3.06%, its highest levels since 2011; stronger economic data helping propel yields higher; 2-yr yields also rising, up above 2.56% while the 30-yr at 3.18%

Economic Data
·      Empire manufacturing index for May rises to 20.1 from 15.8 last month and was above the 15.0 estimate by economists; prices paid rose to 54 from 47.4 prior (highest since June 2011), while new orders rose to 16 vs 9.0 prior; number of employees rose to 8.7 vs 6.0; the six-month general business conditions rose to 31.1 vs 18.3
·      Retail Sales for April reported at 0.3%, in-line with economists’ estimates while retail sales less autos rose 0.3% in April, slightly below the 0.5% estimate; retail sales rose 0.8% in March; retail sales ex-auto dealers, building materials and gasoline stations rose 0.3% in April
·      U.S. Home Builders’ Confidence index in May rises to 70 vs. 68 last month and above the 69 estimate; the present single family sales rise to 76 vs 74 last month, future single family sales unchanged at 77 vs 77 last month and prospective buyers traffic unchanged at 51
·      Business Inventories for March unchanged MoM vs. est. 0.1%; Business sales rose 0.5% in March after rising 0.5% the prior month; Feb. business inventories rose 0.6% MoM

Sector Movers Today
·      Housing & Building Products; in home improvement retail, Dow component HD reported earnings and revenue beat, but Q1 comp sales of 4.2% was below the 5.6% estimate, as the company cited poor weather for the lower comps (note LOW reports next week) – shares pared losses after saying May comp sales are up double-digits so far; SMG was upgraded to buy at SunTrust and upped tgt to $100 saying the stock has bottomed out and is poised to follow its counter seasonal trend of outperformance; housing stocks (LEN, DHI) fall on rising rates
·      Monthly credit card data; COF April net charge-offs 5.04% vs. 5.29% MoM, while April 30-plus day performing delinquencies 3.33% vs. 3.57% in March; SYF April Credit Card Charge-Offs 5.64% vs. 4.81%; reports April delinquencies 2.84% vs. 3.03% in March; DFS April net-charge offs 3.2% vs. 3.3% in March; 30-day delinquency rate 2.3%, the same as in March; JPM April net charge-offs 2.63% vs. 2.65% MoM, while delinquencies 1.17% vs. 1.22% MoM; BAC April default rate 2.96% vs. 2.81% last month and 30-plus day delinquency rate 1.63% vs. 1.69% last month; ADS April NCO’s unchanged at 6.3% while delinquencies of 5.3% also unchanged
·      Gene editing; Chardan overweight the gene editing space on “scarcity value”. We believe there are far fewer credible companies in gene editing than there are maturing opportunities to meet profound societal needs, and see the likelihood big biopharma recognizes this scarcity value and continues to increase exposures; firm upgrade NLTA to buy and raise tgt to $57.50, CRSP tgt raised to $72.50, but EDIT tgt cut to $55

Stock GAINERS
·      INO +10%; said its HIV vaccine, PENNVAX-GP, showed generated nearly 100% immune responses, sustained durable memory responses 12 months after the start of the clinical study
·      MU +1%; Stifel raises tgt to $101 saying that the negativity in NAND Flash is overdone and has created buying opportunities in buy-rated MU, WDC and SGH
·      PFNX +10%; said PF708 study shows comparable profiles with Forteo/on track to submit a New Drug Application in 3Q
·      SRPT +1%; Leerink raised its tgt on SRPT to street high $121 tgt

Stock LAGGARDS
·      A -8%; as Q2 core growth hit the guidance midpoint, but fell short of expectations due to unforeseen headwinds in China and ICP/MS shipment timing
·      AZZ -8%; as Q1 EPS well below consensus on lower revenue and guidance also disappoints
·      HAIR -11%; reported results that were below consensus
·      SWCH -11%; after reported disappointing March quarter results as sales and EBITDA came up short, primarily related to customer contract delays
·      TSLA -1%; after tgt cut to $291 at Morgan Stanley and lower ests on downgrades to auto margin forecasts and likely greater equity dilution
·      VIPS -16%; reported mixed 1Q results and missed on 2Q guidance

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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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