US Morning Briefing for the 9th of July 2019

Morning Briefing – Stock market remains in downward drift

The S&P 500 futures trade 11 points, or 0.4%, below fair value in a continuation of yesterday’s decline. Today, investors will pay heed to the round of Fed officials scheduled to speak throughout the session. 

Fed Chair Powell will kick off the Fedspeak when he delivers the opening remarks at a conference on bank stress testing at 8:45 a.m. ET. Other speakers today will include St. Louis Fed President Bullard (FOMC voter) at 10:00 a.m. ET, Atlanta Fed President Bostic (non-voter) at 1:00 p.m. ET, and Fed Governor Quarles (FOMC voter) at 2:00 p.m. ET. 

Separately, the U.S. and China are set to continue trade talks over the phone this week, according to The Wall Street Journal. In the report, a U.S. official said that if the phone call involving senior officials is successful, then talks could advance in Beijing. At this point, though, there remains some uncertainty as the two sides remain conflicted on familiar issues such as forced technology transfers and the current tariffs on Chinese imports. 

On the data front, investors will receive the JOLTS – Job Openings and Labor Turnover Survey for May at 10:00 a.m. ET. Earlier, the NFIB Small Business Optimism Index for June decreased to 103.3 from 105.0 in May. 

U.S. Treasuries have edged lower, pushing yields higher. The 2-yr yield is up two basis points to 1.91%, and the 10-yr yield is up three basis points to 2.06%. The U.S. Dollar Index is up 0.2% to 97.55. WTI crude is up 0.5% to $57.96/bbl.

In U.S. Corporate news:

  • PepsiCo (PEP 133.40, +0.84): +0.6% after beating earnings estimates and reaffirming guidance. 
  • 3M (MMM 167.04, -2.15): -1.3% after the stock was downgraded to Sector Perform from Outperform at RBC Capital Mkts with a price target of $176.
  • Piper Jaffray (PJC 73.88, unch): unch after the Wall Street firm agreed to merge with Sandler O’Neill and Partners. The combined company will be named Piper Sandler Companies. 

Reviewing overnight developments:

  • Equity indices in the Asia-Pacific region ended Tuesday on a mostly lower note. Japan’s Nikkei +0.1%, Hong Kong’s Hang Seng -0.8%, China’s Shanghai Composite -0.2%, India’s Sensex UNCH, South Korea’s Kospi -0.6%, Australia’s ASX All Ordinaries -0.1%.
    • In economic data:
      • Japan’s May Average Cash Earnings -0.2% yr/yr (expected -0.6%; last -0.3%) and May Overtime Pay +0.8% yr/yr (last -1.1%). June Machine Tool Orders -38.0% yr/yr (last -27.3%)
      • Australia’s June NAB Business Confidence 2, as expected (last 7)
    • In news:
      • Mizuho lowered its long-term prime rates for the first time since 2016.
      • Japan’s Trade Minister Hiroshige Seko said his country is not thinking about withdrawing export restrictions on South Korea, adding that more restrictions could be added.
      • Japan’s Finance Minister Taro Aso reiterated that the only thing that could stop a sales tax hike in the fall is a Lehman-type crisis.
      • The U.S. approved the sale of $2.2 bln worth of tanks and surface-to-air missiles to Taiwan.
  • Major European indices trade on a mostly lower note. STOXX Europe 600 -0.5%, Germany’s DAX -0.9%, U.K.’s FTSE 100 UNCH, France’s CAC 40 -0.3%, Italy’s FTSE MIB UNCH, Spain’s IBEX 35 -0.3%.
    • In economic data:
      • Italy’s May Retail Sales -0.7% m/m (expected 0.2%; last -0.3%); -1.8% yr/yr (expected 3.8%; last 4.2%)
      • Swiss June Unemployment Rate 2.3% (expected 2.4%: last 2.4%)
    • In news:
      • BASF is approaching its December low after the chemical company cut its outlook for Q2 and FY19. Danske Bank lowered its outlook for the year due to pressure on margins.
      • Germany’s CDU leader, Annegret Kramp-Karrenbauer, said that the ECB’s interest rate policy is causing issues for savers and that its duration should be curbed.
      • In the U.K., Labour leader, Jeremy Corbyn, said that his party will call on the next prime minister to put the Brexit deal up for a referendum.

U.S. equity futures:

  • S&P 500 Futures -10 @ 2968
  • DJIA Futures -96 @ 26698
  • Nasdaq Futures -29 @ 7772

Overseas: 

  • Europe: DAX -0.9%, FTSE  unch, CAC -0.3%
  • Asia: Nikkei +0.1%, Hang Seng -0.8%, Shanghai -0.2%

Commodities: 

  • Crude Oil +0.33 @ 57.99
  • Nat Gas -0.018 @ 2.385
  • Gold -8.20 @ 1391.80
  • Silver -0.01 @ 15.04
  • Copper -0.03 @ 2.63

U.S. Summary:

  • Earnings/Guidance:
    • Lindsay Corp (LNN) misses by $0.26, misses on revs
    • PepsiCo (PEP) beats by $0.03, reports revs in-line; reaffirms FY19 EPS and organic revenue growth guidance; Q2 organic revs +4.5%
  • General News:
    • US and China are set to continue trade talks this week, but key differences remain, according to The Wall Street Journal
    • Iran has threatened to further breach JCPOA limits if they do not get sanctions relief, according to The Wall Street Journal
    • A federal judge has ruled that drug companies do not need to disclose prices in TV ads, according to New York Times
    • President Trump is planning to unveil initiative aimed at ‘shaking up’ the kidney care market, according to Politico
    • Boeing (BA) and Airbus (EADSY) could pull out of Canadian fighter jet bidding process, according to Reuters
    • Cohu (COHU) to implement temporary salary reduction program effective July 29
    • Etsy, Inc. (ETSY) announced plans to make free shipping a core part of the Etsy shopping experience
  • M&A:
    • Bright Scholar Education (BEDU) agrees to acquire all the equity interests in CATS Colleges Holdings Limited in a total consideration of approx. US$192 mln
    • Coty (COTY) is in discussions to purchase majority stake of Kylie Cosmetics, according to WWD
    • Piper Jaffray (PJC) to acquire Sandler O’Neill for $485 million in cash and stock
    • Social Capital Hedosophia and Virgin Galactic to merge, creating the world’s first and only publicly traded commercial human spaceflight company
    • TreeHouse Foods (THS) announces agreement to sell its snack division to Atlas Holdings for $90 mln
    • WPP (WPP) aims to sell Kantar unit to Bain Capital, according to Bloomberg
  • Syndicate:
    • AquaVenture (WAAS) announces 4.1 mln share common stock offering
    • BrightView (BV) files for $500 mln mixed securities shelf offering and 72,048,608 shares common stock offering by selling stockholders
    • Danaher (DHR) files to withdraw Registration Statement on Form S-3ASR due to filing error; intended to file as POSASR
    • HealthEquity (HQY) announces $410 mln common stock offering
    • Liberty Oilfield Services (LBRT) prices secondary offering of 8 mln shares of its Class A common stock by selling shareholders
  • IPOs:
    • Expected this week:
      • None at this time

Gapping Up/Down

  • Gapping up: MR +3.5%, OSTK +3.4%, OGI +3.2%, CTST +1.6%, LIQT +1.5%, PEP +0.7%
  • Gapping down: MFGP -8.7%, WAAS -5.5%, NMFC -3.4%, ABB -2.4%, SOLY -2.2%, HQY -1.6%, THS -0.5%, LYFT -0.5%

Analyst Research:

  • Upgrades:
    • ConnectOne Bancorp (CNOB) upgraded to Overweight from Equal-Weight at Stephens; tgt $27
    • FB Financial (FBK) upgraded to Overweight from Equal-Weight at Stephens; tgt $42
    • Square (SQ) upgraded to Mkt Perform from Underperform at Raymond James
    • Vornado Rlty Trust (VNO) upgraded to Sector Perform from Underperform at Scotia
  • Downgrades:
    • Business First Bancshares (BFST) downgraded to Equal-Weight from Overweight at Stephens; tgt $27
    • Cadence Bancorp (CADE) downgraded to Equal-Weight from Overweight at Stephens; tgt $23
    • CorePoint Lodging (CPLG) downgraded to Underweight from Neutral at JP Morgan; tgt lowered to $11
    • First Bancshares (FBMS) downgraded to Equal-Weight from Overweight at Stephens; tgt $34
    • First Busey Corp (BUSE) downgraded to Equal-Weight from Overweight at Stephens; tgt lowered to $29
    • First Merchants (FRME) upgraded to Overweight from Equal-Weight at Stephens; tgt $44
    • Hilton (HLT) downgraded to Neutral from Overweight at JP Morgan; tgt $102
    • Hancock Whitney (HWC) downgraded to Equal-Weight from Overweight at Stephens; tgt $42
    • Marriott (MAR) downgraded to Neutral from Overweight at JP Morgan; tgt $138
    • 3M (MMM) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt lowered to $176
    • Myriad Genetics (MYGN) downgraded to Market Perform from Outperform at Cowen
    • Pinnacle Finl (PNFP) downgraded to Equal-Weight from Overweight at Stephens; tgt $62
    • QEP Resources (QEP) downgraded to Perform from Outperform at Oppenheimer
    • Ryman Hospitality (RHP) downgraded to Underweight from Neutral at JP Morgan; tgt lowered to $77
    • Triumph Bancorp (TBK) downgraded to Equal-Weight from Overweight at Stephens; tgt $30
    • TriCo Bancshares (TCBK) downgraded to Equal-Weight from Overweight at Stephens; tgt $40
  • Others:
    • Apple (AAPL) target raised to $239 from $233 at JPMorgan
    • Chewy (CHWY):
      • initiated with an Outperform at William Blair
      • initiated with a Buy at BofA/Merrill Lynch; tgt $40
      • initiated with an Equal Weight at Barclays; tgt $32
    • L3Harris (LHX) added to the Conviction Buy List at Goldman Sachs; tgt $240
    • Microchip (MCHP) initiated with a Neutral at Longbow
    • NextCure (NXTC) initiated with a Buy at BofA/Merrill Lynch; tgt $25
    • Slack (WORK) initiated with Perform rating at Oppenheimer

Upcoming Events:

  • Econ Data:
    • 06:00 ET: NFIB Small Business Optimism Index for June (Actual 103.3; Prior 105.0)
    • 10:00 ET: JOLTS – Job Openings for May (Prior 7.449M)
  • 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 +0.1%, Hang Seng -0.8%, Shanghai -0.2%

Equity indices in the Asia-Pacific region ended Tuesday on a mostly lower note. Mizuho lowered its long-term prime rates for the first time since 2016. Japan’s Trade Minister, Hiroshige Seko, said his country is not thinking about withdrawing export restrictions on South Korea, adding that more restrictions could be added. Japan’s Finance Minister, Taro Aso, reiterated that the only thing that could stop a sales tax hike in the fall is a Lehman-type crisis. The U.S. approved the sale of $2.2 bln worth of tanks and surface-to-air missiles to Taiwan.

  • In economic data:
    • Japan’s May Average Cash Earnings -0.2% yr/yr (expected -0.6%; last -0.3%) and May Overtime Pay +0.8% yr/yr (last -1.1%). June Machine Tool Orders -38.0% yr/yr (last -27.3%)
    • Australia’s June NAB Business Confidence 2, as expected (last 7)

—Equity Markets—

  • Japan’s Nikkei: +0.1%
  • Hong Kong’s Hang Seng: -0.8%
  • China’s Shanghai Composite: -0.2%
  • India’s Sensex: UNCH
  • South Korea’s Kospi: -0.6%
  • Australia’s ASX All Ordinaries: -0.1%

—FX—

  • USD/JPY: +0.1% to 108.79
  • USD/CNH: +0.1% to 6.8928
  • USD/INR: -0.1% to 68.54

Europe: DAX -0.9%, FTSE  unch, CAC -0.3%

Major European indices trade on a mostly lower note. BASF is approaching its December low after the chemical company cut its outlook for Q2 and FY19. Danske Bank lowered its outlook for the year due to pressure on margins. Germany’s CDU leader, Annegret Kramp-Karrenbauer, said that the ECB’s interest rate policy is causing issues for savers and that its duration should be curbed. In the U.K., Labour leader, Jeremy Corbyn, said that his party will call on the next prime minister to put the Brexit deal up for a referendum.

  • In economic data:
    • Italy’s May Retail Sales -0.7% m/m (expected 0.2%; last -0.3%); -1.8% yr/yr (expected 3.8%; last 4.2%)
    • Swiss June Unemployment Rate 2.3% (expected 2.4%; last 2.4%)

—Equity Markets—

  • STOXX Europe 600: -0.5%
  • Germany’s DAX: -0.9%
  • U.K.’s FTSE 100: UNCH
  • France’s CAC 40: -0.3%
  • Italy’s FTSE MIB: UNCH
  • Spain’s IBEX 35: -0.3%

—FX—

  • EUR/USD: -0.1% to 1.1201
  • GBP/USD: -0.5% to 1.2454
  • USD/CHF: +0.1% to 0.9946
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