Mid-Morning Look: July 13, 2018

Terrie AmengualDaily Market Insights

Mid-Morning Look

Friday, July 13, 2018

After directionless trading to start the day, U.S. equities have found solid footing, as the Dow Industrials approach 25,000 and the benchmark S&P 500 trades above 2,800 for the first time since March 13th as investors prepare for the upcoming quarterly earnings onslaught over the next month. Stock averages bouncing despite lack of bank/financial participation after quarterly results from WFC and Citi fail to impress the street, though JPM results topped views. The tech heavy Nasdaq Composite index also setting new intraday record highs for a second straight day. AT&T shares fell after the U.S. Justice Department said it’s appealing a judge’s decision allowing the company’s takeover of Time Warner, weighing on telecom. Economic data this morning a drag on markets as consumer sentiment (UoM data) falls to six-month low on tariff concerns, while import prices for June posted an unexpected decline of (-0.4%), though the prior month was upwardly revised to 0.9% from 0.6%. Major US averages on track for best week in a month despite the ongoing trade disputes, tariff impacts between the U.S. and its partners such as China, Canada, the EU and Mexico. The dollar trying to make it a 5th straight day of gains while oil prices rebound after falling 5% this week.

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar index (DXY) on track for a 5th straight gain, rising about 1% on the week as it gains ground vs. the yen (highest levels since January), British Pound and euro this week, while emerging market currencies (Mexico, Argentina) rebounded off recent lows

· Commodity prices mixed as gold prices remain near 1-year lows, down around $1,240 an ounce, while oil prices rebound, but still on track for losses around 5% this week….soybeans down over 2% at lowest levels in 10-years, while nickel top gainer up over 2%

· Treasury markets hold steady, in a fairly narrow trading range this week (lows around 2.82% with highs just shy of 2.87%) as markets digest the mixed economic data (higher inflation readings, softer confidence), the ongoing trade issues with the US and rival countries, and surging stocks; the 10-yr yield down around 2.83% on the morning while the 2-yr holds around 2.58%

Economic Data

· The preliminary University of Michigan consumer sentiment survey for July fell to 97.1 vs. 98.2 prior month and slightly below the 98 estimate and at its lowest level since January; the current economic conditions index fell to 113.9 vs. 116.5 last month while the expectations index rose to 86.4 vs. 86.3 last month.

· Import Prices for June fell (-0.4%) MoM well below the expected rise of 0.1% and after rising 0.9% in May; Import prices rose 4.3% y/y in June; Import prices ex-fuels fell 0.3% after rising 0.2% in May while Import prices ex-petroleum fell 0.3% after rising 0.1% in May. Export prices rose 0.3% after rising 0.6% in May while export prices ex-agriculture rose 0.4% after rising 0.6% in May

Sector Movers Today

· Large Cap banks active on earnings: 1) JPM reported better-than-estimated FICC sales and trading revenue; EPS of $2.29 beats consensus of $2.22 after a miss in Q1, which was its first in two years

· 2) WFC shares fell after missing quarterly profit expectations, posting declines in mortgage banking, loans and deposits/provision for loan losses of $452M, down 19% Y/Y with net charge-offs of $602M, down $53M Y/Y/Q2 revs fell to $21.6B from $22.2b YoY;

· 3) Citigroup (C) shares dipped after Q2 revenue missed estimates as Q2 consumer banking and institutional clients net income fell from Q1 levels, while Q2 net income growth was primarily driven by higher revenue and lower effective tax rate (tax rate was 24% vs 32% Y/Y)/global consumer banking net income of $1.28B fell 8% from Q1 and rose 14% from a year ago. Institutional clients group net income of $3.23B declined 3% from Q1, but was up 17% YoY

· 4) PNC Q2 margin expands on higher fee income and net interest income, while managing expenses; Q2 net interest income up by 2% to $2.4B vs. Q1 on higher loan and securities yields and additional day in Q2 partly offset by increased funding costs; Q2 Net interest margin (NIM) increased to 2.96% vs. 2.91% in Q1 and 2.84% a year ago.

· Housing & Building Products; JPMorgan with comments on builders, positive on LEN and PHM among large-caps and BZH, CCS, MTH, and WLH among smaller-caps; JPM upgraded MDC to neutral from underweight while cutting NWHM to underweight; within building products, JPM top picks are SWK and FBHS; RH provides clarification on product sourcing from China saying imports from China will be approximately 25% to 30% in FY19

· Consumer finance; MA and Visa (V) shares fall from all-time highs yesterday after card volume trends from JPM, WFCand C were generally in-line with expectations of a modest deceleration; SYF adds to yesterday losses of over 5% after Bloomberg reported yesterday that COF is bidding to issue WMT’s private-label card and replace incumbent SYF

· Auto movers; Goldman Sachs downgraded auto supplier VC to neutral citing the company’s high exposure to Ford, elevated 2019 consensus revenue growth expectations and risk associated with VC’s AV/ADAS platform/product offering, while firm upgraded MNRO to buy and raised price target to $71 from $58 citing promising unit growth; boutique firm M Science said TLSA Model 3 conversion rate appeared to be soft through the first week of July, as per Bloomberg

· Brokers & Asset managers; IVZ, WETF downgraded to market perform and BLK upgraded to outperform at KBW Inc.; Citigroup upgrades RJF to buy while downgrades WETF to neutral from buy and cut tgt to $10 from $12.75 as close the AB/APAM Pair Trade reflecting AB’s 3,100 Bps YTD outperformance and APAM’s building yield (and remain bullish AB)

Stock GAINERS

· ADXS +44%; after the FDA lifted a clinical hold on the company’s phase 1/2 study for a cancer drug combination

· GLMD +12%; after Stifel initiated with a buy and $35 tgt …follows a 21% gain yesterday after Cantor initiated overweight and $59 tgt

· MNRO +9%; upgraded to buy at Goldman Sachs and raised price target to $71 from $58 citing promising unit growth (form downgraded VC in conjunction with call)

· RH +4%; provides clarification on product sourcing from China saying imports from China will be approximately 25% to 30% in FY19

· VFC +2%; trades to record highs after Bank America upgraded to buy as believes Vans momentum is sustainable and will be a “go-to-brand” for the back-to-school selling season

· WWE +3%; tgt raised to $100 at Morgan Stanley and overweight rated saying it may be the strongest example of the rapid appreciation in content “value” in the public markets

Stock LAGGARDS

· GOGO -8%; said it is reviewing a range of attractive strategic alternatives, including opportunities suggested by various strategic and financial parties, with the goal of maximizing holder value

· INFY -3%; shares pull back from 52-week highs as Q1 net income fell short of consensus views, while revenue topped estimates and said op margins of 23.7% was at “the upper quartile of the guidance,” while fiscal 2019 guidance was maintained at 22% to 24%

· INGR -9%; lowered its 2Q and 2018 EPS forecast by -27c (vs consensus), and -40c (versus prior mgmt. guidance), respectively and lowers full year 2018 EPS citing sharply lower sweetener demand in North America.

· JAZZ -2%; lost an appeals court bid to revive seven patents on its narcolepsy drug Xyrem; the Patent Trial and Appeal Board was correct to rule that the patents didn’t cover new inventions

· JNJ -1%; after the pharma company was ordered to pay $4.69 billion in damages to 22-women in a lawsuit linking baby powder to cancer

· MCD -1%; late Thursday that two states said they were investigating whether the fast-food chain’s salads were linked to dozens of cases of foodborne illness

· NVRO -16%; after announcing it terminated the employment of Vice President Worldwide Sales on July 9th after just 8-months on the job

· T -1%; after the Department of Justice late Thursday filed for an appeal of a ruling allowing the telecoms major to acquire Time Warner Inc. CEO Randall Stephenson expects the DOJ appeal of the Time Warner case may take five or six months

· WFC -2%; reported profit miss, and lower loan deposits as 2Q total average loans fell $6.9B QoQ to $944.1B while loans fell $12.8B, or 1%, YoY

 

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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