Morning Briefing July 2nd 2019

Little conviction in early going

U.S. equity futures trade little changed, with the S&P 500 futures hovering four points below fair value.

Yesterday’s rally on Wall Street was followed by a mixed Asian session that saw most indices settle near their flat lines. The Reserve Bank of Australia lived up to expectations, lowering its cash rate by 25 bps to 1.00%. RBA Governor Philip Lowe called on the Australian government to increase fiscal spending.

Markets in Europe trade on a mixed note while EU officials are still struggling to fill the bloc’s top jobs. Die Welt reported today that European Council President, Donald Tusk, proposed a plan that would see Germany’s Defense Minister Ursula von der Leyen replace EU Commission President Juncker in his post while IMF Managing Director Christine Lagarde would take over for Mario Draghi at the ECB. Belgian Prime Minister Charles Michel was proposed as a replacement for EU Council President Tusk.

The office of the U.S. Trade Representative Robert Lighthizer added $4 billion worth of imports from the EU to a list of products that could be subject to new tariffs.

U.S. Treasuries are reclaiming some of their losses from yesterday, sending the 10-yr yield lower by two basis points to 2.01%. Crude oil is down 0.2% at $58.98/bbl, hovering just above its 200-day moving average (58.75). The U.S. Dollar Index is down 0.1% at 96.74.

In U.S. corporate news:

  • Amarin (AMRN 20.86, +1.62, +8.4%): +8.4% after issuing better than expected guidance for Q2 and FY19
  • Simply Good Foods (SMPL 26.48, +1.60, +6.4%): +6.4% after beating earnings and revenue expectations for Q3
  • Greenbrier (GBX 28.61, -2.24, -7.3%): -7.3% after missing Q3 EPS expectations and issuing weaker than expected guidance for Q4

Reviewing overnight developments:

  • Asian markets ended mixed. Japan’s Nikkei UNCH, Hong Kong’s Hang Seng +1.2%, and China’s Shanghai Composite UNCH.
    • In economic data:
      • South Korea’s June CPI -0.2% m/m (expected 0.1%; last 0.2%) and up 0.7% yr/yr (expected 1.0%; last 0.7%)
      • Japan’s Monetary base +4% yr/yr (expected 3.4%; last 3.6%)
      • Hong Kong’s May Retail Sales -1.3% yr/yr (last -4.5%)
    • In news:
      • Chinese Premier Li delivered a speech touting efforts to make China a more even playing field for all businesses — foreign and domestic — and said China would lift restrictions by 2020 on foreign ownership of securities, futures and life insurance firms, according to CNBC
      • The Reserve Bank of Australia, meanwhile, followed through with an expected 25 basis points cut in its cash rate to an all-time low 1.00% and provided an indication that it is ready to cut rates again if necessary
  • Major European indices are mixed. Germany’s DAX -0.1%, U.K.’s FTSE +0.5%, and France’s CAC UNCH.
    • In economic data:
      • Eurozone’s May PPI -0.1% m/m (expected -0.1%; last -0.3%) and +1.6% yr/yr (expected 1.7%; last 2.6%)
      • Germany’s May Retail Sales -0.6% m/m (expected 0.5%; last -2.0%) and +4% yr/yr (expected 2.7%; last 4.0%)
      • UK’s June Nationwide Housing Price Index +0.1% m/m (expected 0.2%; last -0.2%) and +0.5% yr/yr (expected 0.5%; last 0.6%); June Construction PMI 43.1 (expected 49.3; last 48.6)
      • Spain’s Unemployment Change -63.8K (expected -90K; last -84.1K)
      • France’s May Govt. Budget Balance EUR -83.9B (expected EUR -60.0B; last EUR -70.2B)
    • In news:
      • The U.S. is proposing additional tariffs on another $4 billion of EU goods

U.S. equity futures:

  • S&P 500 Futures -2 @ 2966
  • DJIA Futures -25 @ 26675
  • Nasdaq Futures -12 @ 7778

Overseas: 

  • Europe: DAX -0.1%, FTSE +0.5%, CAC +0.3%
  • Asia: Nikkei +0.02%, Hang Seng +1.2%, Shanghai -0.03%

Commodities: 

  • Crude Oil -0.15@ 58.94
  • Nat Gas +0.010 @ 2.277
  • Gold +6.10 @ 1395.40
  • Silver unch @ 15.19
  • Copper -0.01 @ 2.68

U.S. Summary:

  • Earnings/Guidance:
    • Alliance Data (ADS) reaffirms FY19 outlook after completing sale of Epsilon to Publicis
    • Amarin (AMRN) sees Q2 revs above consensus; sees FY19 revs above consensus
    • Ceragon(CRNT) sees Q2 revs below consensus following a further delay in receiving certain large orders from India
    • CyberOptics (CYBE) lowers Q2 revenue guidance as orders for SMT and semiconductor products started to weaken during Q2
    • Greenbrier (GBX) misses by $0.06, reports revs in-line; guides Q4 EPS below consensus, revs below consensus
    • Simply Good Foods (SMPL) beats by $0.02, beats on revs
  • General News:
    • President Trump says China trade talks have already resumed and that he believes the U.S. cannot accept a 50-50 deal with China
    • USTR adds $4 bln in EU tariffs to existing review related to Airbus (EADSY) subsidies; tariffs that total $21 bln could be initiated as early as August 13 pending outcome of WTO dispute
    • Russia and Non-OPEC allies agree to extend production reductions until March of 2020, according to CNBC
    • China has conducted anti ship ballistic missile testing in the South China Sea, according to CNBC
    • 20 drug makers have increased prices on over 40 prescription drugs, according to The Wall Street Journal
    • Nike (NKE) has stopped sales of certain shoe after criticism from Colin Kaepernick, according to The Wall Street Journal
  • M&A:
    • Nordson (NDSN) acquires Optical Control GMBH; terms not disclosed
  • Syndicate:
    • AVROBIO (AVRO) files for $200 mln mixed securities shelf offering
    • Essential Properties Realty Trust (EPRT) files for common and preferred stock shelf offering
    • Forty Seven (FTSV) files for $250 mln mixed securities shelf offering
    • Rimini Street (RMNI) files for 1,896,490 share offering by holders
    • Soliton (SOLY) files for 1,147,500 share common stock offering by the selling stockholders
  • IPOs:
    • Expected this week:
      • None at this time

Gapping Up/Down

  • Gapping up: AMRN +11.1%, CYAD +10.3%, SMPL +4.1%, VERU +2.8%, SRC +1.8%, HMSY +1.6%, NEE +1.5%, CVNA +1%, TEVA +0.5%
  • Gapping down: OCX -16.7%, GBX -9%, ADP -3.2%, SOLY -3%, HNGR -2.8%, CYBE -2.7%, CRNT -1.6%

Analyst Research:

  • Upgrades:
    • Bio-Techne (TECH) upgraded to Buy from Neutral at Janney; tgt raised to $270
    • Cars.com (CARS) upgraded to Buy from Neutral at Citigroup; tgt $24
    • Dova Pharmaceuticals (DOVA) upgraded to Outperform from In-line at Evercore ISI
    • Genesee & Wyoming (GWR) was upgraded to Neutral at Credit Suisse
    • Landstar System (LSTR) upgraded to Mkt Perform from Underperform at Raymond James
    • Medical Properties Trust (MPW) upgraded to Buy from Hold at SunTrust; tgt raised to $20
    • Meridian Bancorp (EBSB) upgraded to Overweight from Neutral at Piper Jaffray; tgt raised to $20
  • Downgrades:
    • Arrow Elec (ARW) downgraded to Outperform from Strong Buy at Raymond James; tgt lowered to $80
    • BlackLine (BL) downgraded to Sell from Buy at Goldman Sachs; tgt lowered to $41
    • Comerica (CMA) downgraded to Sell from Neutral at Goldman Sachs; tgt $70
    • Coty (COTY) downgraded to Sell from Neutral at Citigroup; tgt lowered to $10
    • Cummins (CMI) downgraded to Sell from Hold at Loop Capital; tgt lowered to $145
    • Dave & Busters (PLAY) downgraded to Hold from Buy at Jefferies; tgt lowered to $40
    • Fortune Brands Home & Security (FBHS) downgraded to Sell from Hold at Loop Capital; tgt $50
    • GTT Communications (GTT) downgraded to Sector Weight from Overweight at KeyBanc Capital Markets
    • Ingersoll-Rand (IR) downgraded to Hold from Buy at Jefferies; tgt $140
    • KAR Auction Services (KAR) downgraded to Sell from Neutral at Guggenheim; tgt $20
    • LendingTree (TREE) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt $415
    • Nordstrom (JWN) downgraded to Neutral from Buy at UBS; tgt lowered to $33
    • PACCAR (PCAR) downgraded to Sell from Hold at Loop Capital; tgt lowered to $62
    • Roku (ROKU) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt $90
    • Ryder System (R) downgraded to Hold from Buy at Loop Capital; tgt lowered to $62
    • Spirit Aerosystems (SPR) downgraded to Hold from Buy at Jefferies; tgt lowered to $85
    • Stryker (SYK) downgraded to In-line from Outperform at Evercore ISI
    • The Trade Desk (TTD) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt $220
    • Watts Water Tech. (WTS) downgraded to Neutral from Buy at Janney; tgt $93
    • Western Digital (WDC) downgraded to Sell from Hold at The Benchmark Company; tgt $40
    • Westlake Chemical (WLK) downgraded to Equal Weight from Overweight at Barclays; tgt lowered to $71
  • Others:
    • CenterPoint (CNP) added to Conviction Buy List at Goldman Sachs
    • Churchill Downs (CHDN) added to Franchise Pick List at Jefferies
    • Corteva (CTVA) initiated with Hold at Loop Capital
    • Revolve Group (RVLV):
      • initiated with a Buy at Guggenheim; tgt $50
      • initiated with an Outperform at Cowen; tgt $42
      • initiated with an Equal Weight at Barclays; tgt $32
      • initiated with an Outperform at Credit Suisse; tgt $40
      • initiated with a Neutral at BofA/Merrill Lynch
      • initiated with an Overweight at Morgan Stanley; tgt $39
      • initiated with a Buy at Jefferies; tgt $60
      • initiated with an Outperform at Raymond James; tgt $40
    • Uber (UBER) initiated with a Hold at Stifel; tgt $50
    • Wyndham Hotels & Resorts (WH) initiated with an Overweight at Barclays; tgt $72

Upcoming Events:

  • Econ Data:
    • Auto sales for June (prior 3.52M)
    • Truck sales for June (prior 9.92M)
  • Earnings:
    • Monday (July 1)
      • Pre-Market: None of note
      • After-Hours: None of note
    • Tuesday (July 2)
      • Pre-Market: AYI GBX OMN SMPL
      • After-Hours:  None of note
    • Wednesday (July 3)
      • Pre-Market:  ISCA
      • After-Hours: None of note
    • Thursday (July 4)
      • Market closed for Independence Day
    • Friday (July 5)
      • Pre-Market:  None of note
      • After-hours:  None of note

Asia & Europe detail:

Asia: Nikkei +0.02%, Hang Seng +1.2%, Shanghai -0.03%

Equity indices in the Asia-Pacific region were mixed on Tuesday. Hong Kong’s Hang Seng led the pack with a 1.2% gain, coming off Monday’s closure for holiday, which was accented with violent protests over efforts to change laws that would make it easier to extradite offenders to China to stand trial. Chinese Premier Li delivered a speech touting efforts to make China a more even playing field for all businesses — foreign and domestic — and said China would lift restrictions by 2020 on foreign ownership of securities, futures and life insurance firms, according to CNBC. The Reserve Bank of Australia, meanwhile, followed through with an expected 25 basis points cut in its cash rate to an all-time low 1.00% and provided an indication that it is ready to cut rates again if necessary.

  • In economic data:
    • South Korea’s June CPI -0.2% m/m (expected 0.1%; last 0.2%) and up 0.7% yr/yr (expected 1.0%; last 0.7%)
    • Japan’s Monetary base +4% yr/yr (expected 3.4%; last 3.6%)
    • Hong Kong’s May Retail Sales -1.3% yr/yr (last -4.5%)

—Equity Markets—

  • Japan’s Nikkei: +0.02%
  • Hong Kong’s Hang Seng: +1.2%
  • China’s Shanghai Composite: -0.03%
  • India’s Sensex: +0.3%
  • South Korea’s Kospi: -0.4%
  • Australia’s ASX All Ordinaries: +0.1%

—FX—

  • USD/JPY: -0.2% to 108.25
  • USD/CNH: +0.3% to 6.8807
  • USD/INR: +0.1% at 68.959

Europe: DAX -0.1%, FTSE +0.5%, CAC +0.3%

Major European indices are mostly higher, sporting modest gains despite another batch of soft data that included weaker-than-expected retail sales for May out of Germany and a 43.1 construction PMI reading for June out of the UK that marked a 10-year low. Buyers showing some reserve, however, in the face of news that the U.S. is proposing additional tariffs on another $4 billion of EU goods. Separately, officials in the EU are still trying to determine who will take over the EU Commission’s leadership post; meanwhile, Italy has made budget inroads that its says should prevent it from incurring disciplinary action.

  • In economic data:
    • Eurozone’s May PPI -0.1% m/m (expected -0.1%; last -0.3%) and +1.6% yr/yr (expected 1.7%; last 2.6%)
    • Germany’s May Retail Sales -0.6% m/m (expected 0.5%; last -2.0%) and +4% yr/yr (expected 2.7%; last 4.0%)
    • UK’s June Nationwide Housing Price Index +0.1% m/m (expected 0.2%; last -0.2%) and +0.5% yr/yr (expected 0.5%; last 0.6%); June Construction PMI 43.1 (expected 49.3; last 48.6)
    • Spain’s Unemployment Change -63.8K (expected -90K; last -84.1K)
    • France’s May Govt. Budget Balance EUR -83.9B (expected EUR -60.0B; last EUR -70.2B)

—Equity Markets—

  • STOXX Europe 600: +0.3%
  • Germany’s DAX: -0.1%
  • U.K.’s FTSE 100: +0.5%
  • France’s CAC 40: +0.03%
  • Italy’s FTSE MIB: +0.4%
  • Spain’s IBEX 35: -0.02%

—FX—

  • EUR/USD: +0.1% to 1.1295
  • GBP/USD: -0.1% to 1.2622
  • USD/CHF: +0.1% to 0.9881
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