Mid-Morning Look: May 17, 2019

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Mid-Morning Look

Friday, May 17, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-6.26

0.02%

25,856

S&P 500

-1.30

0.05%

2,875

Nasdaq

-12.32

0.16%

7,885

Russell 2000

-11.01

0.72%

1,546

 

 

Staying with the theme over the last two-weeks, global stock markets are moving in reaction to headlines related to trade, with U.S. averages on track to snap their three-day win streak, falling after China’s state media signaled a lack of interest in resuming trade talks with the U.S. under the current threat to escalate tariffs while the government looks to boost its economy. The Ministry of Commerce spokesman said Thursday he had no information about any U.S. officials coming to Beijing for further talks. Following the commentary, in what has been a back-and-forth between Washington and Beijing since the U.S. boosted tariffs on $200B of goods last Friday and China responding early this week on its own tariffs, stocks have been moving on any/every headline related to talks. Stocks managed to overcome yesterday’s news that the U.S. placed China based Huawei Technologies Co on a blacklist which bans it from acquiring components and technology from U.S. firms without prior approval. The news has sunk shares of semiconductors and optical suppliers to Huawei over the last two-days. After all 11 S&P 500 sectors advanced on Thursday, all eleven trade in the red to start before the late morning bounce, with the industrials group a top decliner given the earnings miss and lower outlook from Deere (DE) citing China trade issues. The S&P 500 fell and held yesterday lows while the Dow and Nasdaq Comp has since pared losses. Economic data positive as the University of Michigan confidence sentiment for May (preliminary reading) at 102.4, beating ests and best level since Jan ’04 (follows strong data on manufacturing, jobless claims and housing yesterday). The dollar gains again, rising vs. the British Pound (at 4-month lows) as British Prime Minister Theresa May was forced by members of her own party to agree to set a timeline for her to quit as leader.

 

Treasuries, Currencies and Commodities

·     In currency markets, the British Pound falls to 4-month lows as talks with Labour collapse; the euro drops vs. the dollar which extends weekly gains on a pick-up of better economic data on Thursday and Friday; emerging market currencies on track for big losses; the Japanese yen paring overnight gains as stocks rally

·     Commodity prices are mixed with oil prices rising again into a meeting this weekend of OPEC members and Russia (not Iran) in what has been a good week for oil prices on Mideast tensions; gold prices dropping on the dollar rebound, while copper on track for a 5th weekly decline

·     Treasury markets are higher, pushing the two-year yield 2 bps lower to 2.18% and the 10-year yield down 2 bps to 2.39%, but have been paring gains as stocks, much like yesterday’s trading action, have bounced off initial overnight lows on trade concerns

 

Economic Data

·     The preliminary University of Michigan consumer sentiment survey for May rose to 102.4 (the highest since January 2004) vs. 97.2 prior month; the current economic conditions index rose to 112.4 vs. 112.3 last month and the expectations index rose to 96.0 vs. 87.4 last month.

 

 

Macro

Up/Down

Last

 

WTI Crude

0.29

63.16

Brent

-0.31

72.31

Gold

-8.20

1,278.50

EUR/USD

-0.0011

1.1163

JPY/USD

-0.08

109.77

10-Year Note

-0.012

2.393%

 

 

Sector Movers Today

·     Optical sector under pressure a second day given placement of Huawei and affiliates on U.S. trade blacklist; group led by weakness in NPTN after being downgraded to neutral/hold at Needham and MKM today citing the uncertainty associated with the U.S. government move against China’s Huawei, whose business is tied to nearly half of NeoPhotonics’ revenue (as per MKM); ACIA said it is taking steps to suspend transactions affected by the U.S. Dept. of Commerce’s recent order regarding Huawei Technologies and specific license requirements and intends to fully comply with the order (also weak LITE, AAOI, IIVI)

·     Metals & Materials; U.S. steel rebar producers (CMC, NUE, STLD) volatile after the U.S. announced a rollback of steel tariffs against Turkey to 25% from the 50% it had originally placed in August; iron ore prices topped $100/mt for the first time since May 2014 and up 38% YTD), following reduced supply from big miners and strong steel demand from China, causing low inventories at steel mills. Ore supplies have been restricted since January’s dam disaster in Brazil at a mine owned by Vale (shares of CLF, BHPand VALE active). Copper prices fell for a fifth weekly loss as concerns deepened about the impact of a prolonged trade war between the US and China – FCX, SCCO – (the price of copper has fallen 8% since April 17)

·     Retailers; UAA was upgraded to overweight at JPMorgan and raised tgt to $29 saying mgmt meetings portrayed confidence in the company’s brand direction; BOOT rises after reported a strong quarter as comps grew 8.7% and gross margin expanded 180bps while guidance of 20% at the high-end on comps of 5%; FL was upgraded to buy at B Riley/FBR and up tgt to $73 driven by improving trends in FL’s core footwear business, as well as in their international channels; WWW was downgraded to hold from buy at Argus as reported disappointing 1Q19 revenue and lower gross profit

·     Auto sector gets a boost after President Trump confirmed earlier reports this week that the U.S. is delaying the decision on auto tariffs for the EU and Japan for at least 180-days; TSLA traded to fresh 52-week lows as momentum remains to the downside; CPRT was downgraded to neutral at Guggenheim as analysis indicates that industry growth will significantly slow in coming years due to declining accident frequency and more gradual increases in total loss frequency; Ford (F) said it aims to stay on track to deliver 40 hybrid and fully electric vehicles by 2022

 

Stock GAINERS

·     AMAT +5%; reported F2Q results above estimates, while the guide was generally in line for Q3/FY inline guidance and an unchanged outlook for wafer fab equipment (WFE) in 2019

·     BOOT +5%; after reported a strong quarter as comps grew 8.7% and gross margin expanded 180bps while guidance of 20% at the high-end on comps of 5%

·     CRAY +18%; on news HPE to acquire the company in a deal valued at $1.3 billion as HPE will pay $35 per share in cash a17.4% premium from yesterday https://on.mktw.net/2w1afdZ

·     HUM +2%; as managed care stocks outperform across the board (ANTM, UNH) as well as select healthcare services (CAH, ABC) as a final rule on negotiating medicines for Medicare left out some more forceful policies

·     UAA +5%; upgraded to overweight at JPMorgan and raised tgt to $29 saying mgmt meetings portrayed confidence in the company’s brand direction

 

Stock LAGGARDS

·     ABBV ; Phase 3 INTELLANCE-1 study did not meet primary endpoint of overall survival at the interim analysis and demonstrated no survival benefit for patients with newly diagnosed glioblastoma

·     AOS -5%; adds to yesterday losses after the short call by J Cap yesterday sent shares lower by over 6%

·     BIDU -13%; after broad earnings miss and lower guide as Q1 adjusted profit 2.77 yuan vs., est. 2.94 yuan and sees Q2 revenue 25.1B-26.6B yuan below the 29.32B est

·     CMC -5%; after the U.S. announced a rollback of steel tariffs against Turkey to 25% from the 50% it had originally placed in August (also weakness in STLD, NUE)

·     DE 5%; quarterly earnings fell short of consensus and lowered FY net income to $3.3B down from prior view of $3.6B and sees FY sales up about 5% down from prior view of up 7%

·     IQ -6%; after lower Q2 guidance amid greater regulatory scrutiny/ sees Q2 revenue $1B-$1.1B, vs. consensus $1.11B

·     NPTN -25%; downgraded to neutral/hold at Needham and MKM today citing the uncertainty associated with the U.S. government move against China’s Huawei, whose business is tied to nearly half of NeoPhotonics’ revenue (as per MKM)

·     PINS -10%; after year rev guidance fell short of $1.06B-$1.08B, consensus $1.09B and reported a larger than expected quarterly loss of (33c) vs. est. (11c) in its first earnings as a public company

·     TSLA -4%; falling to fresh 52-week lows

 

Syndicate

·     Avantor (AVTR) 207M share IPO priced at $14.00

·     Fastly (FSLY) 11.25M share IPO priced at $16.00

·     Luckin Coffee (LK) 33M share IPO priced at $17.00

·     Tremont Mortgage Trust (TRMT) 5M share Spot Secondary priced at $5.65

_________________________________________________________________

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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