Mid-Morning Look: July 12, 2019

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Mid-Morning Look

Friday, July 12, 2019

Index

Up/Down

%

Last

 

DJ Industrials

122.79

0.45%

27,210

S&P 500

2.09

0.09%

3,002

Nasdaq

5.86

0.07%

8,201

Russell 2000

6.09

0.39%

1,564

 

 

U.S. equities on track to end the week with new record highs for the S&P 500 and Dow Industrials, led by gains in healthcare related stocks for a second day, while consumer discretionary names also rising. Stocks gain as investors continued to cling to the prospect that the Fed will cut interest rates at the end of the month, despite major averages at record highs, and inflation picking up in the form of CPI and PPI the last few days. Regarding trade, White House adviser Peter Navarro said in an interview on CNBC on Friday that the U.S. is in a “quiet period” with China over trade negotiations and that in-person talks would start soon in China. Recall President Trump and Chinese President Xi Jinping last month agreed to another truce in the year-long trade spat between the world’s two largest economies. Back to data, June PPI inflation data similar to yesterday CPI, coming in slightly “hotter” than expected (raises fears the Fed won’t be as aggressive in cutting rates/lowers case for rate cuts in general). Attention will likely shift back to corporate earnings next week with big banks and industrial companies among those scheduled to release 2Q results. Treasury yields down small on the day (but big week of gains).

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar slipping early vs. most major currencies, while commodity prices get a bounce in oil and gold despite weaker trade data out of China overnight and Treasury yields down only slightly after posting big gains from last Friday low of 1.9392 on the 10-year (hi’s shy of 2.15% earlier today). Bitcoin prices up 5% to $11,700 despite President Donald Trump coming out against cryptocurrencies such as bitcoin and Facebook’s upcoming Libra project Thursday night.

 

Economic Data

·     The producer price index (PPI) MoM for June rises 0.1%, is lightly above the unchanged estimate while core PPI (Ex: Food & Energy) MoM for June also rises slightly to 0.3% vs. est. 0.2%. PPI rose 1.7% YoY in June, the slowest rate of increase since January 2017, but was still slightly above the 1.6% estimate. Final demand ex food, energy rose 2.3% y/y vs. est. up 2.1%

 

 

Macro

Up/Down

Last

 

WTI Crude

0.19

60.39

Brent

0.36

66.88

Gold

2.80

1,409.50

EUR/USD

-0.0006

1.1248

JPY/USD

-0.42

108.07

10-Year Note

-0.01

2.127%

 

 

Sector Movers Today

·     Bank movers; analysts have been very cautious on banks heading into earnings season, with many of the lowering estimates and tgt price – more today as well as Citigroup upgraded MS to buy, but downgraded CMA, NTRS, and MTB to Sell and cut WFC, CFG, and FITB to Neutral to more closely reflect the forward curve, including two rate cuts in 2019 and 2020 and terminal yield curve assumptions to Fed Funds of 1.75% and a 10-yr of 2.25%; HBAN was downgraded to underperform at Macquarie noting in the past six months, Huntington has risen 9.7% compared with the financial sector median performance of +4.9%; online discount broker, SCHW received two downgrades as KBW Inc. cut to market perform from outperform and cut tgt to $43.50 from $51, while Bank America cut to underperform given a tougher revenue and margin outlook

·     Chemicals; in the lithium sector, Morgan Stanley said they are even more bearish on the future of battery raw material lithium, saying it expects prices to fall by 30% over the next six year, though the firm upgraded SQM to equal-weigh but reiterate their underweight rating on ALB and see greater downside to consensus estimates; in the TiO2 sector, Citigroup downgraded CC and VNTR to neutral noting that several chemical companies have guided down, most notably BASF, as the firm has turned more cautious on ethylene/PE (resume LYB coverage at Neutral) – they cut 2Q estimates for commodity companies by ~14%, by ~2% for gases and ~1% for specialties; APD downgraded at Seaport Global on valuation (UBS cut on price yesterday as well)

·     Paper & Packaging sector; Bank America downgraded AVY, BERY to neutral and cut BCC, SON to underperform as they expect sluggish 2Q revenue trends which, combined with comps, will burden earnings throughout 2H (said investors can hide in rigid packaging with OI now preferred and GPK in paper); separately, Seaport Global downgraded PKG to neutral saying the stock’s relatively strong performance in a generally negative tide of news flow has made risk-reward less favorable, in their view

·     Industrial & Machinery; MCRN shares soar as HI agreed to acquire the company in deal valued at approximately $2B, including net debt of about $686M, with MCRN holders to receive $11.80 in cash and a 0.1612 shares of HI for value of $18.07 per share https://on.mktw.net/2LiN3kR ; LECO was upgraded to outperform at Baird as the combination of lowered expectations and easier comps create a better setup; OTR Global upgraded shares of farm equipment manufacturers DE and AGCO to positive from mixed

 

Stock GAINERS

·     F +2%; and Volkswagen said they would team up to develop self-driving cars and share electric-car components/the agreement calls for Volkswagen to purchase a stake in Ford’s initiative that is developing self-driving technologies

·     HOOK +19%; after the recent IPO (April) said the FDA gave the go-ahead for its first clinical trial in immuno-oncology: a Phase 1/2 study of HB-201 in HPV-positive cancers

·     INFY +6%; after raising year revenue guidance from 7.5%-9.5% to 8.5%-10%; says maintained FY 20 operating margin guidance range of 21%-23%

·     MCRN +24%; as HI agreed to acquire the company in deal valued at approximately $2B, including net debt of about $686M, with MCRN holders to receive $11.80 in cash and a fixed exchange ratio of 0.1612 shares of HI for value of $18.07 per share https://on.mktw.net/2LiN3kR

·     MNOV +13%; outlined a late-stage trial plan for ibudilast, its treatment for progressive MS following feedback from the U.S. FDA/says it plans to conduct one late-stage trial

·     SFIX +5%; was upgraded to buy at Goldman Sachs with $38 tgt as sees a more compelling risk/reward in the company’s ability to lean into its existing core customer base

·     TOWR +68% after agreed to be acquired by Autokiniton Global Group for $31 per share; Including Tower’s debt and pension related liabilities, the total value of the transaction is approximately $900 million https://yhoo.it/2XYNdDV

 

Stock LAGGARDS

·     AVY -2%; downgraded at Bank America along with other paper/packaging names

·     CTST -10%; has ceased sale and shipment of all cannabis products, days after Health Canada inspections revealed the existence of several illegal grow rooms at an Ontario facility

·     EMKR -11%; as cuts Q3 revenue view to $17.0M-$17.5M from $20M-$22M (and below consensus $21.4M); said chip product sales, GPON in particular, experienced significant decline in Q3, largely due to additional negative effects of trade dispute with China

·     ILMN -15%; guides Q2 revs light at $835M vs. est. $876M and lowers growth revenue outlook to about 6% from prior view of 13%-14% growth

·     PNM -3%; after cut 2019 EPS guidance to $2.05-$2.11 from $2.10-$2.20 and sees Q2 EPS 36c-38c, below prior guidance 57c-59c and the 62c estimate

·     SCHW -1%; KBW Inc. cut to market perform from outperform and cut tgt to $43.50 from $51, while Bank America cut to underperform given a tougher revenue and margin outlook

·     USX -18%; after the company lowered its guidance and Bank of America Merrill Lynch downgraded the stock to a Neutral rating from Buy

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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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