US Morning Briefing 18th of July 2019

Netflix weakness, trade deal uncertainty keep steam out of futures market

The S&P 500 futures trade four points, or 0.2%, below fair value, pressured by a disappointing report from Netflix (NFLX 321.30, -41.14, -11.4%) and lingering uncertainty about U.S.-China trade progress. 

Shares of Netflix have dropped 11% in pre-market action after second quarter net subscriber additions came in well below expectations. Netflix attributed the miss to noticeable softness in regions with price increases and to the lack of hit shows released during the second quarter. Netflix expects subscriber growth to increase above consensus in the third quarter.

Dow components IBM (IBM 142.05, -1.02, -0.7%) and UnitedHealth (UNH 269.45, +2.80, +1.1) both beat earnings estimates, but shares currently trade mixed. 

Separately, Treasury Secretary Mnuchin told CNBC this morning that Huawei Technologies is not a “sticking point” in China trade talks, contrary to a report from The Wall Street Journal that was published yesterday. He added that there is another trade call scheduled for today. He also said markets should not be concerned about the debt ceiling.

On the data front, investors will receive the weekly Initial Claims (Briefing.com consensus 215,000) and Continuing Claims report along with the Philadelphia Fed Index for July (Briefing.com consensus 5.0) at 8:30 a.m. ET. The Conference Board’s Leading Economic Index for June (Briefing.com consensus 0.0%) will be released at 10:00 a.m. ET. 

U.S. Treasuries trade near their unchanged marks. The 2-yr yield is down one basis point to 1.82%, and the 10-yr yield is unchanged at 2.06%. The U.S. Dollar Index is down 0.1% to 97.13. WTI crude is up 0.6% to $57.11/bbl. 

In U.S. Corporate news:

  • Netflix (NFLX 321.30, -41.14): -11.4% after paid membership grew by only 2.7 million, which was less than their 5.0 million forecast and less than the 5.5 million in Q2 last year. Netflix expects Q3 paid memberships to increase slightly above estimates. 
  • IBM (IBM 142.05, -1.02): -0.7% despite beating earnings estimates and reaffirming FY19 EPS guidance. 
  • UnitedHealth (UNH 269.45, +2.80): +1.1% after beating earnings estimates and raising its FY19 EPS guidance. 
  • Morgan Stanley (MS 44.05, +0.28): +0.6% after beating top and bottom-line expectations. 
  • eBay (EBAY 41.20, +2.17): +5.6% after beating earnings estimates and raising its FY19 EPS guidance, although eBAY lowered its revenue guidance for Q3 and FY19.  

Reviewing overnight developments:

  • Equity indices in the Asia-Pacific region ended Thursday on a lower note. Japan’s Nikkei -2.0%, Hong Kong’s Hang Seng -0.5%, China’s Shanghai Composite -1.0%, India’s Sensex -0.8%, South Korea’s Kospi -0.3%, Australia’s ASX All Ordinaries -0.4%.
    • In economic data:
      • Japan’s June trade deficit JPY10 bln (expected deficit of JPY140 bln; last deficit of JPY620 bln). June Imports -5.2% yr/yr (expected -0.4%; last -1.5%) and Exports -6.7% yr/yr (expected -5.6%; last -7.8%). July Reuters Tankan Index 3 (last 6)
      • Australia’s June Employment Change 500 (expected 9,100; last 42,300) and Full Employment Change 21,100 (last 2,400). June Participation Rate 66.0%, as expected (last 66.0%) and Unemployment Rate 5.2%, as expected (last 5.2%). NAB Quarterly Business Confidence 6 (last 1)
    • In news:
      • Bank of Korea unexpectedly lowered its repurchase rate by 25 bps to 1.50%, largely due to weak trade. Central bank governor Lee Ju-yeol cautioned that the room for policy action is limited.
      • Japan, meanwhile, reported its seventh consecutive month of falling exports.
      • Taiwan Semiconductor Manufacturing beat Q2 expectations but its net profit was down 7.6% yr/yr. Bank Indonesia cut its repurchase rate by 25 bps to 5.75% and Governor, Perry Warjiyo, noted that more easing is likely in the future.
  • Major European indices are mixed with Spain’s IBEX (-0.7%) showing relative weakness. STOXX Europe 600 UNCH, Germany’s DAX -0.5%, U.K.’s FTSE 100 -0.4%, France’s CAC 40 +0.1%, Italy’s FTSE MIB +0.4%, Spain’s IBEX 35 -0.7%.
    • In economic data:
      • U.K.’s June Retail Sales +1.0% m/m (expected -0.3%; last -0.6%); +3.8% yr/yr (expected 2.6%; last 2.2%). June Core Retail Sales +0.9% m/m (expected -0.2%; last -0.4%); +3.6% yr/yr (expected 2.7%; last 2.0%)
      • Swiss June trade surplus CHF.4.096 bln (expected CHF3.210 bln; last CHF3.398 bln)
    • In news:
      • Construction company, ACS, is the weakest component, falling nearly 5.0%, after its Australian subsidiary, CIMIC Group, reported weak results for the first half of 2019.
      • British Prime Minister hopeful, Boris Johnson, said that the whole Brexit deal was “effectively defunct”, adding that the Irish backstop will not work.
      • The euro slipped to a session low against the dollar after Bloomberg reported that the European Central Bank is considering a change to its inflation target.
      • France and Spain sold 3- and 5-yr debt at negative rates.

U.S. equity futures:

  • S&P 500 Futures -2 @ 2983
  • DJIA Futures -38 @ 27193
  • Nasdaq Futures -12 @ 7873

Overseas: 

  • Europe: DAX -0.5%, FTSE -0.4%, CAC +0.1%
  • Asia: Nikkei -2.0%, Hang Seng -0.5%, Shanghai -1.0%

Commodities: 

  • Crude Oil +0.33 @ 57.11
  • Nat Gas +0.024 @ 2.328
  • Gold -1.40 @ 1421.90
  • Silver +0.12 @ 16.09
  • Copper -0.01 @ 2.70

U.S. Summary:

  • Earnings/Guidance:
    • ADTRAN (ADTN) beats by $0.06, reports revs in-line
    • Alcoa (AA) beats by $0.01, misses on revs, reduces industry outlook for 2019 aluminum demand growth
    • Alliance Data (ADS) misses by $0.12, reports revs in-line; guides FY19 EPS above consensus, revs in-line
    • Ally Financial (ALLY) beats by $0.08, beats on revs
    • Ashland (ASH) warns about third quarter results in personal care and certain industrial end markets within the Specialty Ingredients segment; lowers FY19 EBITDA guidance
    • Barrick (GOLD) prelim Q2 gold sales and production are in line with the solid base set in the first quarter and support annual production at the upper end of the 2019 group guidance range
    • BB&T Corp (BBT) beats by $0.04, beats on revs
    • Blackstone (BX) beats by $0.06, beats on revs
    • Cohen & Steers (CNS) misses by $0.01, reports revs in-line
    • Crown (CCK) misses by $0.01, reports revs in-line; guides Q3 EPS below consensus; lowers FY19 EPS to below consensus
    • Crown Castle (CCI) beats by $0.05, beats on revs; raises FY19 FFO above consensus
    • Danaher (DHR) beats by $0.03, beats on revs; guides Q3 EPS below consensus; raises FY19 EPS
    • Dover (DOV) beats by $0.03, beats on revs; guides FY19 EPS toward the higher end of prior range
    • eBay (EBAY) beats by $0.06, reports revs in-line; guides Q3 EPS in-line, revs below consensus; raises FY19 EPS guidance for the second quarter in a row, lowers revs guidance
    • Honeywell (HON) beats by $0.02, misses on revs; guides Q3 EPS in line; raises FY19 EPS and organic revenue guidance
    • IBM (IBM) beats by $0.09, reports revs in-line; reaffirms FY19 EPS guidance of at least $13.90
    • Kinder Morgan (KMI) misses by $0.01, misses on revs
    • Morgan Stanley (MS) beats by $0.07, beats on revs; RoE 12.1%; Equity -14% yr/yr, Fixed Income -18% yr/yr
    • Netflix (NFLX) beats by $0.05, reports revs in-line, misses subscriber forecast; guides Q3 EPS and revs in-line, subs just above estimates; reaffirms FCF, operating margin
    • Novartis AG (NVS) beats by $0.13, beats on revs; raises FY19 guidance
    • Philip Morris International (PM) beats by $0.13, beats on revs; raises FY19 adjusted EPS guidance excluding currency
    • Plexus (PLXS) reports EPS in-line, beats on revs; guides Q4 revs below consensus
    • Pool (POOL) misses by $0.01, misses on revs; guides FY19 EPS in-line
    • PPG Industries (PPG) beats by $0.02, misses on revs; guides Q3 EPS below consensus
    • SAP SE (SAP) misses by $0.02, reports revs in-line; reaffirms FY19 outlook
    • SM Energy (SM) reports Q2 production results, increases FY19 production guidance while lowering capex outlook
    • Snap-On (SNA) beats by $0.01, reports revs in-line
    • Sonoco Products (SON) misses by $0.02, misses on revs; guides Q3 EPS in-line; reaffirms FY19 EPS guidance
    • SunTrust Banks (STI) beats by $0.03, beats on revs
    • Taiwan Semi (TSM) beats by NT 0.02, beats on revs; guides Q3 revs above consensus in US dollars
    • UnitedHealth (UNH) beats by $0.14, reports revs in-line; raises FY19 EPS guidance
    • United Rentals (URI) beats by $0.23, reports revs in-line; lowers FY19 outlook
    • Watsco (WSO) misses by $0.13, misses on revs
  • General News:
    • US and China have not made much progress toward a trade deal and some are questioning when negotiations will continue, according to Bloomberg
    • Treasury Secretary Steven Mnuchin in CNBC interview says, based on one of the three Treasury scenarios (which is the most conservative), the debt ceiling will be reached in early September; adds markets should not be concerned about the debt ceiling
    • Treasury Secretary Mnuchin in CNBC interview says Huawei is not a “sticking point” in China trade talks
    • US and Japan could have news on trade deal shortly, according to Reuters
    • House has voted to kill impeachment resolution for President Trump by a vote of 332-95, according to The Hill
    • House voted to repeal tax on high cost health insurance plans in the Affordable Care Act by a vote of 419-6, according to New York Times
    • Qualcomm (QCOM) fined 242 mln by the EU for engaging in predatory pricing
    • irgin Holidays aims to stop selling tickets to SeaWorld (SEAS) attractions that feature captive animals, according to Sun UK
    • TransUnion (TRU) determines that TransUnion Limited, a Hong Kong entity in which the Company holds a majority interest, has been the victim of criminal fraud
    • Wayfair (W) announces retirement of COO James Savarese; appoints Thomas Netzer as successor
  • M&A:
    • 8×8 (EGHT) acquires privately-held Wavecell for $125 mln in cash and stock
    • Advanced Disposal (ADSW), Waste Mgmt (WM) receive request for additional information and documentary materials from the DOJ in connection with pending merger
    • Genuine Parts (GPC) enters into definitive agreement to acquire Todd Group, a distributor of truck parts and accessories
    • IDEX Corp (IEX) acquires Velcora Holding AB and its Roplan and Steridose businesses from FSN Capital Partners for cash consideration of ~$137 million
    • The European Commission announced its final approval of the sale of Liberty Global’s (LBTYA) operations in Germany, Hungary, Romania and the Czech Republic to Vodafone Group plc (VOD)
    • Thomson Reuters (TRI) acquires HighQ; terms not disclosed
  • Syndicate:
    • Akerna (KERN) files for 6,699,766 share common Stock offering by holders
    • Amarin (AMRN) commences underwritten public offering of $400 mln American Depositary Shares pursuant to a shelf registration
    • Autolus Therapeutics (AUTL) files for $300 mln mixed securities shelf offering
    • Ellington Financial (EFC) prices public offering of 3.5 mln shares of common stock at a price to the public of $17.66 per share
    • Essential Properties Realty Trust (EPRT) prices secondary offering by selling shareholders of 22,859,406 shares of common stock at $19.75 per share
    • Forty Seven (FTSV) prices offering of 9.375 mln shares of common stock at $8.00 per share
    • Medical Properties Trust (MPW) prices upsized offering of $900 mln aggregate principal amount of senior notes due 2029
    • Neptune Wellness Solutions (NEPT) closes $41 mln private placement — issued an aggregate of 9,415,910 common shares at a purchase price of $4.40/share
    • New York Mortgage Trust (NYMT) prices offering of 20 mln shares of common stock for gross proceeds of $122.2 mln
  • IPOs:
    • Priced to trade:
      • AssetMark (NYSE: AMK) prices 12.5 mln share IPO at $22.00, above the expected $19.00-21.00 range
      • Fulcrum Therapeutics (Nasdaq: FULC): Clinical-stage biopharmaceutical company developing treatments for rare diseases. Prices 4.5 mln share IPO at $16.00, the low-end of the expected $16.00-18.00 range
      • Genmab (Nasdaq: GMAB): Denmark-based biotech company specializing in antibody therapeutics for treatment of cancer. Prices upsized 28.5 mln ADS IPO (from 27.8 mln ADS) at $17.75, mostly in-line with the latest referenced exchange price of $18.11
      • Mirum Pharmaceuticals (Nasdaq: MIRM): Biopharmaceutical company commercializing late-stage pipeline of therapies for liver diseases. Prices 5 mln share IPO at $15.00, the midpoint of the expected $14.00-16.00 range
      • Owl Rock Capital (NYSE: ORCC) prices upsized 10 mln share IPO (from 9.5 mln shares) at $15.30, the low-end of the expected $15.30-16.30 range
      • Phreesia (NYSE: PHR): Developer of technology platform that enables healthcare providers to optimize efficiency and profitability. Prices upsized 9.29 mln share IPO (from 7.81 mln shares) at $18.00, above the expected $15.00-17.00 range
    • Expected this week:
      • Afya (Nasdaq: AFYA): Major education company based in Brazil. 13.7 million initial shares. Initial price range $16.00-18.00.
      • Health Catalyst (Nasdaq: HCAT): Provider of data and analytics technology to healthcare organizations. 6.0 million initial shares. Initial price range $20.00-23.00.
      • Medallia (NYSE: MDLA): Developer of enterprise software that captures experience data from signal fields emitted by customers and employees. 14.5 million initial shares. Initial price range $16.00-18.00.
      • Sunnova Energy (NYSSE: NOVA): Residential solar and energy story service provider. 17.7 million initial shares. Initial price range $16.00-18.00.

Gapping Up/Down

  • Gapping up:  NVS +5.6%, EBAY +5.3%, TSM +0.9%, HON +0.8%, DOV +0.8%, UNH +0.5%, DHR +0.5%, GTLS +0.5%
  • Gapping down: LLNW -16.4%, KERN -13.5%, NFLX -11.2%, AMRN -8.2%, URI -6.2%, SAP -5.9%, CCK -5%, PLXS -4.8%, EFC -3.6%, AA -3.2%, NYMT -2.7%, W -2.6%, ROKU -2.1%, KMI-2.1%, TCBI -2%, UMPQ -1.8%, SDRL -1.6%, CCI -1.2%, MTB -0.8%

Analyst Research:

  • Upgrades:
    • Apple (AAPL) upgraded to Outperform from Mkt Perform at Raymond James; tgt $250
    • BNY Mellon (BK) upgraded to Mkt Perform from Underperform at Keefe Bruyette
    • Power Integrations (POWI) upgraded to Buy from Hold at Stifel; tgt raised to $90
    • PriceSmart (PSMT) upgraded to Sector Outperform from Sector Perform at Scotia
    • Skyworks (SWKS) upgraded to Outperform from Mkt Perform at Raymond James; tgt $90
    • TreeHouse Foods (THS) upgraded to Outperform from Market Perform at BMO Capital Markets
    • U.S. Bancorp (USB) upgraded to Neutral from Underperform at BofA/Merrill Lynch; tgt raised to $55
  • Downgrades:
    • Advanced Micro (AMD) downgraded to Neutral from Buy at Mizuho; tgt raised to $37
    • Air Products (APD) downgraded to Mkt Perform from Outperform at Bernstein
    • Allegheny Tech (ATI) downgraded to Neutral from Buy at Longbow
    • Arconic (ARNC) downgraded to Neutral from Buy at Longbow
    • BrightView (BV) downgraded to Neutral from Overweight at JP Morgan; tgt $18
    • Comerica (CMA) downgraded to In-line from Outperform at Evercore ISI
    • Eagle Materials (EXP) downgraded to Hold from Buy at Jefferies
    • Exxon Mobil (XOM) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt lowered to $90
    • MGM Resorts (MGM) downgraded to Equal-Weight from Overweight at Morgan Stanley
    • Qualcomm (QCOM) downgraded to Equal Weight from Overweight at Barclays; tgt lowered to $75
    • Skyworks (SWKS) downgraded to Equal Weight from Overweight at Barclays; tgt raised to $80
    • Texas Capital (TCBI) downgraded to Hold from Buy at SunTrust; tgt lowered to $63
    • The Trade Desk (TTD) downgraded to Hold from Buy at Jefferies; tgt raised to $250
    • U.S. Concrete (USCR) downgraded to Hold from Buy at Stifel; tgt raised to $53
  • Others:
    • Blueprint Medicines (BPMC) initiated with a Buy at Deutsche Bank; tgt $110
    • Deciphera Pharmaceuticals (DCPH) initiated with a Buy at Deutsche Bank; tgt $42
    • Ingevity (NGVT) initiated with an Outperform at BMO Capital Markets
    • Kura Oncology (KURA) initiated with a Buy at Deutsche Bank; tgt $28
    • Mirati Therapeutics (MRTX) initiated with a Hold at Deutsche Bank; tgt $86
    • Seattle Genetics (SGEN) initiated with a Hold at Deutsche Bank; tgt $79
    • Sonim Technologies (SONM) initiated with a Buy at B. Riley FBR; tgt $17
    • Sutro Biopharma (STRO) initiated with a Buy at Deutsche Bank; tgt $22
    • Zymeworks (ZYME) initiated with a Buy at Deutsche Bank; tgt $34

Upcoming Events:

  • Econ Data:
    • 08:30 ET: Initial Claims for week ending July 13 (Briefing.com consensus 215K; Prior 209K)
    • 08:30 ET: Continuing Claims for week ending July 6 (Prior 1723K)
    • 08:30 ET: Philadelphia Fed Index for July (Briefing.com consensus 5.0; Prior 0.3)
    • 10:00 ET: Leading Indicators for June (Briefing.com consensus 0.0%; Prior 0.0%)
    • 10:30 ET: EIA Natural Gas Inventories for week ending July 13 (Prior +81 bcf)
  • Earnings:
    • Monday (July 15)
      • Pre-Market: C, OGI
      • After-Hours: JBHT, WTFC
    • Tuesday (July 16)
      • Pre-Market: CP, CBSH, DPZ, FHN, FRC, GS, JNJ, JPM, PLD, SNV, WFC
      • After-Hours:  CTAS, CSX, FNF, FULT, HWC, HOPE, PNFP, SGEN, UAL
    • Wednesday (July 17)
      • Pre-Market:  ABT, ASML, BAC, BK, CMA, ERIC, OMC, PNC, PGR, TXT, USB, WIT
      • After-Hours: ADTN, AA, BXS, CATY, CNS, CCK, CCI, EGBN, EBAY, IBM, KMI, LLNW, NFLX, PLXS, SLG, TCBI, TBK ,UMPQ, URI
    • Thursday (July 18)
      • Pre-Market: ADS, ALLY, BMI, BBT, BX, GTLS, DHR, DOV, EWBC, GATX, GPC, HOMB, HON, IIIN, MTB, MS, NUE, PM, POOL, PPG, SASR, SAP, SNA, SON, STI, UNP, UNH, WBS, WNS
      • After the close: OZK, BEDU, COF, CHWY, CRWD, ETFC, EXPO, FFBC, ISRG, MRTN, MSFT, PBCT, RECN, SKX, WAL
    • Friday (July 19)
      • Pre-Market:  AXP, ALV, BLK, CFG, CLF, GNTX, IBKC, KSU, MAN, NVR, RF, SLB, SXT, STT, SYF
      • After-hours:  None of note

Asia & Europe detail:

Asia: Nikkei -2.0%, Hang Seng -0.5%, Shanghai -1.0%

Equity indices in the Asia-Pacific region ended Thursday on a lower note. Bank of Korea unexpectedly lowered its repurchase rate by 25 bps to 1.50%, largely due to weak trade. Central bank governor Lee Ju-yeol cautioned that the room for policy action is limited. Japan, meanwhile, reported its seventh consecutive month of falling exports. Taiwan Semiconductor Manufacturing beat Q2 expectations but its net profit was down 7.6% yr/yr. Bank Indonesia cut its repurchase rate by 25 bps to 5.75% and Governor, Perry Warjiyo, noted that more easing is likely in the future.

  • In economic data:
    • Japan’s June trade deficit JPY10 bln (expected deficit of JPY140 bln; last deficit of JPY620 bln). June Imports -5.2% yr/yr (expected -0.4%; last -1.5%) and Exports -6.7% yr/yr (expected -5.6%; last -7.8%). July Reuters Tankan Index 3 (last 6)
    • Australia’s June Employment Change 500 (expected 9,100; last 42,300) and Full Employment Change 21,100 (last 2,400). June Participation Rate 66.0%, as expected (last 66.0%) and Unemployment Rate 5.2%, as expected (last 5.2%). NAB Quarterly Business Confidence 6 (last 1)

—Equity Markets—

  • Japan’s Nikkei: -2.0%
  • Hong Kong’s Hang Seng: -0.5%
  • China’s Shanghai Composite: -1.0%
  • India’s Sensex: -0.8%
  • South Korea’s Kospi: -0.3%
  • Australia’s ASX All Ordinaries: -0.4%

—FX—

  • USD/JPY: -0.1% to 107.86
  • USD/CNH: +0.1% to 6.8842
  • USD/INR: +0.2% to 68.97

Europe: DAX -0.5%, FTSE  -0.4%, CAC +0.1%

Major European indices are mixed with Spain’s IBEX (-0.7%) showing relative weakness. Construction company, ACS, is the weakest component, falling nearly 5.0%, after its Australian subsidiary, CIMIC Group, reported weak results for the first half of 2019. British Prime Minister hopeful, Boris Johnson, said that the whole Brexit deal was “effectively defunct”, adding that the Irish backstop will not work. The euro slipped to a session low against the dollar after Bloomberg reported that the European Central Bank is considering a change to its inflation target. France and Spain sold 3- and 5-yr debt at negative rates.

  • In economic data:
    • U.K.’s June Retail Sales +1.0% m/m (expected -0.3%; last -0.6%); +3.8% yr/yr (expected 2.6%; last 2.2%). June Core Retail Sales +0.9% m/m (expected -0.2%; last -0.4%); +3.6% yr/yr (expected 2.7%; last 2.0%)
    • Swiss June trade surplus CHF.4.096 bln (expected CHF3.210 bln; last CHF3.398 bln)

—Equity Markets—

  • STOXX Europe 600: UNCH
  • Germany’s DAX: -0.5%
  • U.K.’s FTSE 100: -0.4%
  • France’s CAC 40: +0.1%
  • Italy’s FTSE MIB: +0.4%
  • Spain’s IBEX 35: -0.7%

—FX—

  • EUR/USD: -0.1% to 1.1213
  • GBP/USD: +0.4% to 1.2482
  • USD/CHF: +0.2% to 0.9886
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