US Market Briefing 8th of July 2018

Market pulling back along with aggressive rate cut hopes

The S&P 500 futures trade nine points, or 0.3%, below fair value, as dampened hopes for a 50-basis points rate cut after Friday’s strong employment report continue to invite some profit taking at near record highs. 

Several Fed officials are slated to speak throughout the week, including Fed Chair Powell, who investors hope will provide more guidance on monetary policy. Mr. Powell will speak three times this week, including Wednesday and Thursday when he delivers his semi-annual monetary policy testimony before Congress.

In the meantime, Dow components Apple (AAPL 201.00, -3.23, -1.6%) and Boeing (BA 351.20, -4.66, -1.3%) are underperforming in pre-market action following some downbeat news. Apple was downgraded to Sell from Neutral at Rosenblatt with a price target of $150. Boeing lost out on a $5.9 billion 737 Max order from a Saudi airline, which turned to its competitor Airbus instead. 

On the data front, investors will receive the Consumer Credit report for May (Briefing.com consensus $17.7 billion) at 3:00 p.m. ET. 

U.S. Treasuries are little changed this morning. The 2-yr yield is unchanged at 2.87%, and the 10-yr yield is down one basis point to 2.04%. The U.S. Dollar Index is unchanged at 97.30. WTI crude is down 0.1% to $57.45/bbl. 

In U.S. Corporate news:

  • Apple (AAPL 201.00, -3.23): -1.6% after the stock was downgraded to Sell from Neutral at Rosenblatt with a price target of $150. 
  • Boeing (BA 351.20, -4.66): -1.3% after news that a Saudi airline canceled a $5.9 billion 737 Max order, turning to its competitor Airbus instead. 
  • Crowdstrike (CRWD 67.95, +0.74): +1.1% after Needham initiated the stock with a Buy rating with a price target of $80. 

Reviewing overnight developments:

  • Equity indices in the Asia-Pacific region began the week on a lower note. Japan’s Nikkei -1.0%, Hong Kong’s Hang Seng -1.5%, China’s Shanghai Composite -2.6%, India’s Sensex -2.0%, South Korea’s Kospi -2.2%, Australia’s ASX All Ordinaries -1.1%.
    • In economic data:
      • China’s June FX Reserves $3.12 trln (expected $3.09 trln; last $3.10 trln)
      • Japan’s May Core Machinery Orders -7.8% m/m (expected -3.6%; last 5.2%); -3.7% yr/yr (expected -3.9%; last 2.5%). May Current Account surplus JPY1.31 trln (expected surplus of JPY1.24 trln; last surplus of JPY1.60 trln). June Bank Lending +2.3% yr/yr (expected 2.6%; last 2.6%) and June Economy Watchers Current Index 44.0 (expected 43.9; last 44.1)
    • In news:
      • Geely Automobile warned that its net profit for the first half of 2019 is likely to be down 40% yr/yr.
      • Protests continued in Hong Kong, with demonstrators marching through an area that is popular with tourists from the Mainland.
      • South Korea called on Japan to scrap plans for restricting exports of materials used in manufacturing semiconductors and smartphone displays.
      • Bank of Japan Governor Haruhiko Kuroda said that rates will be kept at very low levels until the spring, at minimum.
  • Major European indices trade near their flat lines. STOXX Europe 600 UNCH, Germany’s DAX -0.1%, U.K.’s FTSE 100 +0.1%, France’s CAC 40 -0.1%, Italy’s FTSE MIB +0.2%, Spain’s IBEX 35 -0.3%.
    • In economic data:
      • Eurozone’s June Sentix Investor Confidence -5.8 (expected 0.3; last -3.3)
      • Germany’s May trade surplus EUR18.70 bln (expected surplus of EUR16.80 bln; last surplus of EUR16.90 bln). May Imports -0.5% m/m (expected 0.3%; last -0.9%) and May Exports +1.1% m/m (expected 0.5%; last -3.4%). May Industrial Production +0.3% m/m (expected 0.4%; last -2.0%)
    • In news:
      • A weekend snap election in Greece saw New Democracy win outright majority. Prime Minister Kyriakos Mitsotakis was sworn in today.
      • Deutsche Bank announced plans for significant restructuring on Sunday. The bank will close its global equities business and lay off 18,000 employees before 2022. Deutsche Bank will suspend its dividend for two years.

U.S. equity futures:

  • S&P 500 Futures -6 @ 2984
  • DJIA Futures -67 @ 26817
  • Nasdaq Futures -29 @ 7822

Overseas: 

  • Europe: DAX -0.1%, FTSE +0.1%, CAC -0.1%
  • Asia: Nikkei -1.0%, Hang Seng -1.5%, Shanghai -2.6%

Commodities: 

  • Crude Oil -0.05 @ 57.46
  • Nat Gas -0.009 @ 2.409
  • Gold +7.10 @ 1407.20
  • Silver -0.10 @ 15.10
  • Copper +0.02 @ 2.68

U.S. Summary:

  • Earnings/Guidance:
    • AZZ (AZZ) beats by $0.14, beats on revs; reaffirms FY20 EPS guidance, revs guidance
    • MDC Holdings (MDC) sees Q2 new home orders increasing 32%
  • General News:
    • President Trump renews his criticism against Fed Chair Jerome Powell and is preparing to replace him in 2022 if he wins re-election, according to Bloomberg
    • US and China have not made any progress toward trade deal since their last meeting, according to South China Morning Post
    • Study shows deeper links between Huawei and Chinese military and intelligence, according to FT
    • Both US parties are still deadlocked ahead of September deadlines for budget and debt ceiling increase, according to Politico
    • Iran has begun to enrich uranium above JCPOA limits, according to CNN
    • The 5th Circuit Court of Appeals will hear case Tuesday seeking to declare the entire Affordable Care Act unconstitutional, according to The Hill
    • Former Vice President & Presidential candidate Joe Biden says he would raise corporate tax rate to 28% from 21% and move top tax rate to 39.5% from 37%, according to CNN
    • Turkish President Recep Erdogan has fired the head of the country’s central bank, according to BBC
    • Greece has elected a new center-right government, according to FT
    • A Saudi airline cancelled a $5.9 bln Boeing (BA) 737 Max order in favor of Airbus. according to FT
    • Deutsche Bank (DB) outlines significant strategic transformation and restructuring plans; will suspend dividend until 2022 and exit its Equities Sales and Trading business; aims to cut 18,000 jobs by 2022
    • Google (GOOG) spokesperson has denied reports it is discussions with Dish (DISH) to create mobile carrier, according to 9to5Google 
  • M&A:
    • Bruker (BRKR) acquired PMOD Technologies LLC; terms not disclosed
    • Crane (CR) increases all-cash offer for CIRCOR to $48/share
    • Former CEO of Symantec (SYMC) said to be talking with buyout firms in effort to make potential bid that competes with Broadcom (AVGO) offer, according to Bloomberg
  • Syndicate:
    • Cellular Biomedicine (CBMG) files for $200 mln mixed securities shelf offering
    • Frontline (FRO) files for mixed securities shelf offering
  • IPOs:
    • Expected this week:
      • None at this time

Gapping Up/Down

  • Gapping up: SYMC +6.4%, CBIO +5.8%, SBGL +3.8%, BLDP +1.7%, AMD +1.6%, AU +1.6%, GFI +1.2%, GOLD +0.8%, BBL +0.7%, BHP +0.6%, IAG +0.6%, CS +0.6%, JCI +0.5%, RIO+0.5%, GDX +0.5%
  • Gapping down:  AZZ -11.1%, LOPL -5.4%, JNPR -3.4%, TTM -3%, FFIV -2.6%, AMAT -2.3%, TKC -2.1%, BX -2.1%, WB -1.8%, HBAN -1.8%, BK -1.7%, AAPL -1.6%, JD -1.6%, BA -1.5%,BABA -1.4%, LLY -1.4%, VZ -1.2%, ABB -1.2%, ING -1.1%, TSLA -0.9%, LIN -0.8%, TEF -0.8%, DB -0.5%

Analyst Research:

  • Upgrades:
    • Cabot Oil & Gas (COG) upgraded to Outperform from Market Perform at Wells Fargo; tgt $28
    • Edgewell Personal Care (EPC) upgraded to Buy from Hold at SunTrust; tgt raised to $40
    • Flowserve (FLS) upgraded to Buy from Neutral at Citigroup; tgt raised to $61
    • Johnson Controls (JCI) upgraded to Neutral from Underweight at JP Morgan; tgt raised to $35
    • Life Storage (LSI) upgraded to Outperform from Mkt Perform at Raymond James; tgt $106
  • Downgrades:
    • Advanced Energy (AEIS) downgraded to Neutral from Buy at DA Davidson; tgt lowered to $55
    • Apple (AAPL) downgraded to Sell from Neutral at Rosenblatt; tgt $150
    • Applied Materials (AMAT) downgraded to Neutral from Buy at DA Davidson; tgt lowered to $45
    • Blackstone (BX) downgraded to Mkt Perform from Mkt Outperform at JMP Securities
    • BNY Mellon (BK) downgraded to Underweight from Overweight at Morgan Stanley
    • Boot Barn Holdings (BOOT) downgraded to Neutral from Outperform at Robert W. Baird
    • F5 Networks (FFIV) downgraded to Sell from Neutral at Goldman; tgt lowered to $120
    • Huntington Banc (HBAN) downgraded to Underperform from Market Perform at BMO Capital Markets; tgt $14
    • Juniper Networks (JNPR) downgraded to Sell from Neutral at Citigroup; tgt lowered to $24
    • Lam Research (LRCX) downgraded to Neutral from Buy at DA Davidson; tgt lowered to $200
    • Lennox Int’l (LII) downgraded to Underweight from Neutral at JP Morgan; tgt $231
    • MSCI (MSCI) downgraded to Neutral from Buy at UBS; tgt raised to $258
    • NetApp (NTAP) downgraded to Sell from Neutral at Citigroup; tgt lowered to $55
    • SVB Financial Group (SIVB) downgraded to Mkt Perform from Outperform at Keefe Bruyette; tgt lowered to $255
    • State Street (STT) downgraded to Underweight from Overweight at Morgan Stanley
    • Verizon (VZ) downgraded to Neutral from Buy at Citigroup; tgt $62
  • Others:
    • American Express (AXP) resumed with a Buy at Deutsche Bank; tgt $142
    • Best Buy (BBY) initiated with a Buy at Guggenheim; tgt $80
    • Cabot Micro (CCMP) initiated with a Buy at Goldman Sachs; tgt $148
    • Capital One (COF) resumed with a Hold at Deutsche Bank; tgt $98
    • CrowdStrike (CRWD):
      • initiated with a Buy at Needham; tgt $80
      • initiated with an Overweight at Piper Jaffray; tgt $75
      • initiated with an Overweight at Barclays; tgt $80
      • initiated with a Buy at Stifel; tgt $80
      • initiated with a Buy at Mizuho; tgt $80
    • Discover Financial Services (DFS) resumed with a Hold at Deutsche Bank; tgt $87

Upcoming Events:

  • Econ Data:
    • 10:00 ET: Consumer Credit for May (Briefing.com consensus $17.7B; Prior $17.5B)
  • Earnings:
    • Monday (July 8)
      • Pre-Market: AZZ
      • After-Hours: None of note
    • Tuesday (July 9)
      • Pre-Market: LNN, PEP
      • After-Hours:  HELE, KSHB, WDFC
    • Wednesday (July 10)
      • Pre-Market:  ANGO, MSM
      • After-Hours: AIR, BBBY, PSMT, YRD
    • Thursday (July 11)
      • Pre-Market: DAL, FAST
      • After the close: None of note
    • Friday (July 12)
      • Pre-Market:  INFY
      • After-hours:  None of note

Asia & Europe detail:

Asia: Nikkei -1.0%, Hang Seng -1.5%, Shanghai -2.6%

Equity indices in the Asia-Pacific region began the week on a lower note. Geely Automobile warned that its net profit for the first half of 2019 is likely to be down 40% yr/yr. Protests continued in Hong Kong, with demonstrators marching through an area that is popular with tourists from the Mainland. South Korea called on Japan to scrap plans for restricting exports of materials used in manufacturing semiconductors and smartphone displays. Bank of Japan Governor Haruhiko Kuroda said that rates will be kept at very low levels until the spring, at minimum.

  • In economic data:
    • China’s June FX Reserves $3.12 trln (expected $3.09 trln; last $3.10 trln)
    • Japan’s May Core Machinery Orders -7.8% m/m (expected -3.6%; last 5.2%); -3.7% yr/yr (expected -3.9%; last 2.5%). May Current Account surplus JPY1.31 trln (expected surplus of JPY1.24 trln; last surplus of JPY1.60 trln). June Bank Lending +2.3% yr/yr (expected 2.6%; last 2.6%) and June Economy Watchers Current Index 44.0 (expected 43.9; last 44.1)

—Equity Markets—

  • Japan’s Nikkei: -1.0%
  • Hong Kong’s Hang Seng: -1.5%
  • China’s Shanghai Composite: -2.6%
  • India’s Sensex: -2.0%
  • South Korea’s Kospi: -2.2%
  • Australia’s ASX All Ordinaries: -1.1%

—FX—

  • USD/JPY: +0.1% to 108.53
  • USD/CNH: -0.1% to 6.8882
  • USD/INR: +0.4% to 68.68

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

Major European indices trade near their flat lines. A weekend snap election in Greece saw New Democracy win an outright majority. Prime Minister Kyriakos Mitsotakis was sworn in today. Deutsche Bank announced plans for significant restructuring on Sunday. The bank will close its global equities business and lay off 18,000 employees before 2022. Deutsche Bank will suspend its dividend for two years.

  • In economic data:
    • Eurozone’s June Sentix Investor Confidence -5.8 (expected 0.3; last -3.3)
    • Germany’s May trade surplus EUR18.70 bln (expected surplus of EUR16.80 bln; last surplus of EUR16.90 bln). May Imports -0.5% m/m (expected 0.3%; last -0.9%) and May Exports +1.1% m/m (expected 0.5%; last -3.4%). May Industrial Production +0.3% m/m (expected 0.4%; last -2.0%)

—Equity Markets—

  • STOXX Europe 600: UNCH
  • Germany’s DAX: -0.1%
  • U.K.’s FTSE 100: +0.1%
  • France’s CAC 40: -0.1%
  • Italy’s FTSE MIB: +0.2%
  • Spain’s IBEX 35: -0.3%

—FX—

  • EUR/USD: -0.1% to 1.1217
  • GBP/USD: -0.1% to 1.2517
  • USD/CHF: UNCH at 0.9918
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