Market Review: June 10, 2019

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Closing Recap

Monday, June 10, 2019

Index

Up/Down

%

Last

DJ Industrials

78.34

0.30%

26,062

S&P 500

13.31

0.46%

2,886

Nasdaq

81.07

1.05%

7,823

Russell 2000

9.16

0.60%

1,523


 

Equity Market Recap

·     U.S. stocks made it a 6th straight day of gains as the S&P 500 index traded above the 2,900 level (briefly) for the first time since May 7th while the tech heavy Nasdaq Composite outperformed, rising as high as 7,895 (and topping its 50-day MA resistance of 7,858) before paring gains late day and moving back below that technical level, led by software stocks after a big M&A deal in the space. But it was news on trade that sparked investor buying early, as the U.S. suspended plans for tariffs on Mexico over the weekend as Mexico agreed to step up efforts to stem the flow of illegal Central American migrants, helping alleviate some trade concerns (still no resolution with China remains a concern for markets). The gains on Monday follow the best weekly returns since November of last year, while Treasuries slipped, lifting yields off recent multi-year lows, and the dollar rebounded. Software stocks buoyed the NASDAQ after CRM announced a $15BB deal for DATA this morning while in other deal news, a huge deal in the defense sector with Dow component UTX merging with defense co RTN. Regarding trade with China; over the weekend, White House’s acting budget Chief Russell Vought is pushing for a delay in implementing key provisions of a law that restricts U.S. government’s business with Huawei Technologies Co., citing the burdens on U.S. companies that use Huawei. This morning in an interview on CNBC, President Trump said Huawei could be part of trade talks with China. Also helping, Group of 20 finance leaders on Sunday vowed to protect global growth from disruptions such as trade tensions; China export growth saw a small rebound in May, though imports fell.

 

Commodities

·     Oil prices slumped late day, as WTI crude fell 73c to settle at $53.26 per barrel (well off earlier highs of $54.84 per barrel), sliding late day alongside a pullback off the highs for U.S. stocks. There are several potential market moving events this week for the energy complex with weekly inventory data, oil ministers in Moscow and the IEA report this week. The ongoing trade dispute between the U.S. and China has dented commodity markets over the last month.

·     Gold futures slump -$16.80 or 1.3% to settle at $,329.30 an ounce, snapping its 8-day win streak as the dollar rebounds and investors add to riskier assets. Gold prices have been supported over the last 2-weeks amid a dovish Fed outlook (as expectations ramp the Fed will potentially cut rates in one of the next 2-meetings), which has weighed on the dollar, supportive of gold prices. Gold gained roughly 2.7% last week, its biggest weekly rise since March 2018.

 

Currencies & Treasuries

·     Early strength in the U.S. dollar, with the dollar index higher (DXY) rising as much as 0.4% to highs 96.93 before paring gains late session alongside the pullback in stocks. There was no major economic data to sway currency markets today, though the dollar has recently been pressured on weaker than expected jobs reports last week (ADP and nonfarm payrolls) raised expectations that the Fed will lower rates in their upcoming meetings to help stimulate the economy (the Fed has also noted potential negative implications of a trade war with China). The Mexican peso gained after President Trump announces a deal to indefinitely suspend tariffs on Mexican goods. The dollar traded to a seven-day high against the Japanese yen as investors flee safe havens. Treasury yields rise after a 2-week plunge (2-year yield down 32 bps and the 10-year down 25 bps over the last 2-weeks heading into today) on the rising rate cut expectations by the Fed.

 

 

Macro

Up/Down

Last

WTI Crude

-0.73

53.26

Brent

-1.00

62.29

Gold

-16.80

1,329.30

EUR/USD

-0.0022

1.1312

JPY/USD

0.21

108.40

10-Year Note

0.059

2.143%

 

 

Sector News Breakdown

Consumer

·     Auto sector; industry rose early (GM, F, FCAU, BWA, LEA) after President Donald Trump called off his tariff threat on Mexico on Friday which helps many names in the auto industry as imports from Mexico (in 2018) were roughly $350B, of which $93B were auto imports (as per Deutsche Bank); TSLA was upgraded to buy at Roth Capital after meetings last week with major Chinese EV producers and relevant supply chain participants; NSANY is set to ask Renault to significantly cut its 43.4% stake in the Japanese car maker in return for supporting an FCA-Renault merger, Reuters reports https://on.mktw.net/2EZCs9W

·     Retailers; strength in beaten up consumer discretionary names, specifically department stores with M, JWN, KSS rallying; GME said it planned to buy back up to 12 million shares between $5.20 and $6.00 in "modified Dutch auction"; SFLY shares rallied after Reuters reported Private equity firm Apollo Global Management LLC is in the lead to acquire the company after making the highest offer https://yhoo.it/2IAGjeF; OSTK said its Medici Land Governance blockchain subsidiary signed an agreement with Liberia’s Ministry of Finance and Development Planning.

·     Consumer Staples; KHC a small relief rally early after issuing its long-delayed 10-K and said its internal investigation into a procurement issue that led to it restating results going back to 2015 is complete; BYND extends last week gains to fresh all-time highs, adding to Friday’s 39% gain after earnings; TAP among top S&P 500 decliners after Credit Suisse initiated with an underperform and $50 tgt (SAM initiated neutral and $320 tgt); IPAR upgraded to buy at Davidson on the potential for extra sales from a new license agreement with Kate Spade

·     Casino & Leisure movers; Strength in casinos/gaming early (MLCO, LVS, WYNN) helped after Bernstein said Macau’s gross gaming revenue (GGR) for June 1-9 period was 6.65 billion patacas, equating to an average daily rate of about 738 million patacas, down 2% year-over-year and down 12% compared to May; in towables, THO shares rallied on earnings

 

Energy

·     Energy stocks were higher with oil prices and stocks rallying; CRK agreed to acquire privately-held Covey Park Energy for $2.2B in cash and stock, including the assumption of outstanding debt and the retirement of existing preferred units/also Jerry Jones will invest an additional $475M in cash for 50M newly issued CRK common shares at $6/share and $175M of newly issued convertible preferred shares; in utility sector, S&P said California’s big electric utilities (PCG, EIX) face potential downgrades to below investment-grade levels this month, as wildfire season kicks off

·     Pipeline/MLP sector; MMLP agrees to sell natural gas storage assets in Louisiana and Mississippi to Hartree Bulk Storage for $215M; CQP downgraded to sector perform at RBC Capital as does not expect much growth beyond run-rate earnings for Cheniere Energy Partners

 

Financials

·     Bank movers; banks outperform, gaining with broader market strength; JPM mentioned favorably in Barron’s saying falling interest rates and a threatening economic slowdown bode ill for U.S. banks, and their stocks have fallen out of favor, but there are some compelling reasons to embrace the banks, especially JPMorgan

·     Services & REITs; Stephens downgraded RLGY to equal-weight saying their call has been “dead wrong” to this point, adding that RLGY is likely to stay depressed until it can "prove out sustainability of the model." Stephens upgraded RDFN and raised its tgt to $23 saying the recent pullback in shares has brought a very favorable near-term setup

·     Advisory and brokers; LAZ was downgraded to neutral from buy at UBS and lowering revenue forecast as its pipeline of advisory revenue has been weak and they do not have confidence that there will be a sufficient upward inflection in announced activity that will benefit enough; FII was upgraded to overweight at JPMorgan as see Federated nicely defensive with the ability to grow in good markets, while providing some protection in down markets

·     Lending and finance movers; SYF and AMZN are partnering on a credit card for Prime members who might not have good enough credit to get one otherwise; FISV announces debt offering in 4-parts to fund FDC purchase; FNMA and FMCC shares fell after Treasury Secretary Steven Mnuchin said a major overhaul of the country’s housing finance system needs to occur first – Mnuchin said he’d prefer an explicit government backstop of Freddie and Fannie securities, a measure that would have to be implemented by Congress

 

Healthcare

·     Pharma movers; LLY shares slip after results at ADA studies over the weekend for REWIND data at ADAREWIND as Trulicity showed a 12% reduction in major cardiovascular events in patients in the study/CSFB said investors may have been hoping for a greater risk reduction – UBS said primary endpoint, in-line with Victoza (13%) but may not be good enough vs expectations; AZN said that a phase 3 study of diabetes medication Farxiga showed the drug lowered the risk of kidney-function decline/the data from the Declare-Timi 58 trial showed that patients with type-2 diabetes administered Farxiga showed a 47% reduction in the relative risk of the composite renal-specific outcome of kidney function decline; MRK agreed to buy privately held Tilos Therapeutics for up to $773M https://on.mktw.net/2MD7Hhn ; MNKD posts data from three studies testing its diabetes treatment Afrezza during a scientific meeting at San Francisco/Leerink says data is "impressive" and continues to support Afrezza’s use in the real world; TLRY announced a deal with its majority shareholder Privateer Holdings to extend the lock-up period for up to two years on the 75M common shares held by Privateer

·     Biotech movers; PRVB shares more than double after results from the NIH-sponsored "At-Risk" study published in the New England Journal of Medicine show a single course of the company’s PRV-031 (Teplizumab) delays Type 1 diabetes onset in high-risk individuals by at least two years; NBY surges after its eye care spray, Avenova, is now available without a prescription on AMZN; APTX announces positive initial data of its Phase II study of NYX-2925 in patients with Fibromyalgia, saying it was statistically significant compared with placebo; ONCE shares slipped as the company and Roche (which agreed to buy them), received requests for more information and documentary material from the U.S. FTC in connection with the pending deal; SESN announced successful Pre-BLA meeting for Vicinium

·     Medical devices and equipment; ABT announced new data showing use of its FreeStyle Libre system, the company’s continuous glucose monitoring technology, significantly reduced hemoglobin A1c levels for people living with Type 2 diabetes on intensive insulin therapy; MDT announced that it has initiated the company’s pivotal trial for its next-generation Guardian continuous glucose monitoring sensor designed to improve accuracy and overall system performance; TNDM shares slipped after data at the American Diabetes Association meeting was positive but failed to reach expectations that had risen going into the meeting, Opco said

 

Industrials & Materials

·     Aerospace & Defense; mega merger deal in the sector as UTX agreed to buy defense contractor RTN over the weekend in an all-stock deal, forming an aerospace and defense giant with $74 billion in sales. The new entity will be called Raytheon Technologies Corp. when the deal closes in the first half of 2020. Raytheon shareholders will receive 2.3348 shares in the new company for every share they currently own https://bloom.bg/2WzoaY8

·     Transports; not much in the way of individual stock news for transports, but the group, which has suffered given the broader global slowing growth concerns rebounded nicely today, trading up as much as 2% led by several sectors; KSU shares benefitted from reports that President Trump suspended tariffs to Mexico (KSU has lines there and revs would be impacted)

·     Metals & Materials; China reports a rebound in iron ore imports last month from an 18-month-low in April, but were still well below the year-ago month as disruptions to output in Brazil and Australia slowed shipments. China, the world’s biggest iron ore consumer, imported 83.75M metric tons in May, 3.7% higher than the April total but down 11% from the year-ago month

 

Technology, Media & Telecom

·     Semiconductors; ADI was double upgraded to buy from sell at Goldman Sachs and raised its tgt to $114 from $101 as believes analog units are tracking below trend which indicates that the end of the cyclical correction may be approaching, barring a prolonged economic recession; TSM reports May revenue of about NT$80.44B, up 8% Q/Q but down 1% YoY/revenue for the first five months of the year totaled NT$373.84B, down 9% YoY; AMD tgt raised to $40 at Bank America ahead of the E3 gaming conference this week while RBC Capital said during the E3 conference, MSFT announced its next generation Xbox codenamed "Project Scarlett"/this product will come with a CPU and GPU product provided by AMD

·     Software movers; DATA to be acquired by CRM in a stock deal valued at $15.7 billion as Salesforce will exchange 1.103 of its shares for each Tableau share outstanding, valuing DATA shares (based on Friday’s closing prices) at $177.88 each, a 42% premium and the deal is expected to close during Salesforce’s Q3 https://on.mktw.net/2I5ONLs (shares of AYX, SPLK, TWLO, TEAM advanced in sympathy); MSFT announced its next generation Xbox codenamed "Project Scarlett" which RBC noted will come with a CPU and GPU product provided by AMD;

·     Internet; TCEHY and BABA look like winners according to Barron’s noting Alibaba reported strong quarterly earnings in May but the stock has fallen 22% since Donald Trump took a hawkish turn toward Beijing on May 4, while shares of Tencent (TCEHY) are off 15%; NFLX shares were initially weaker on a Variety report that Hulu said to be offering lower rates of increase for advertisers who commit to a boost in overall business; AMZN shares traded strong leading Internet names

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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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