US Morning Briefing July 1st 2019

U.S.-China trade truce to drive opening rally effort

U.S. equity futures hold solid pre-market gains with futures on the S&P 500 trading 32 points above fair value.

The upbeat showing follows the past weekend’s G-20 Summit in Osaka, during which President Trump met with China’s President Xi. President Trump agreed to lift the ban on sales of components to Huawei while also agreeing not to impose additional tariffs at this time. President Trump said that the meeting was “as good as it was going to be.” On Sunday, President Trump visited South Korea and made a stop at the border with North Korea, where he met with North Korea’s Chairman Kim Jong-un.

Like U.S. futures, equity markets across Asia started the week on an upbeat note, overshadowing the release of more weak economic data. South Korea’s balance of trade showed a 13.5% yr/yr decrease in exports in June while China’s Manufacturing PMI remained at 49.4 in the final June reading.

Final June Manufacturing PMI readings from Germany (actual 45.0; expected 45.5), France (actual 51.9; expected 52.0), Italy (actual 48.4; expected 48.8), and Spain (actual 47.9; expected 49.5) also disappointed, but markets across Europe trade with gains.

Semiconductor names are on track for a strong start following the weekend G-20 Summit, with the likes of AMD (AMD 31.81, +1.44, +4.7%), Intel (INTC 49.36, +1.49, +3.1%), NVIDIA (NVDA 171.90, +7.67, +4.7%), and Micron (MU 41.00, +2.41, +6.3%) up between 3.1% and 6.3% in pre-market.

Today’s economic data will be limited to the 10:00 ET release of May Construction Spending (Briefing.com consensus 0.0%) and the June ISM Manufacturing Index (Briefing.com consensus 51.5).

Treasuries trade in the red with the 10-yr yield rising two basis points to 2.02%. The U.S. Dollar Index is up 0.4% at 96.49. Crude oil has climbed 2.2% to $59.77/bbl.

In U.S. corporate news:

  • Semiconductor and technology names trade broadly higher after a weekend “trade truce” between the United States and China. AMD (AMD 31.81, +1.44, +4.7%), Intel (INTC 49.36, +1.49, +3.1%), NVIDIA (NVDA 171.90, +7.67, +4.7%), and Micron (MU 41.00, +2.41, +6.3%), Qualcomm (QCOM 80.25, +4.18, +5.5%), and Broadcom (AVGO 302.80, +14.94, +5.2%) up between 3.1% and 6.3%.

Reviewing overnight developments:

  • Asian markets ended on a higher note. Japan’s Nikkei +2.1%, China’s Shanghai Composite +2.2%, and Hong Kong’s Hang Seng was closed for a holiday.
    • In economic data:
      • China’s Official Manufacturing PMI for June 49.4 (expected 49.5; last 49.4); Official Non-Manufacturing PMI for June 54.2 (expected 54.1; last 54.3); Caixin Manufacturing PMI for June 49.4 (expected 50.0; last 50.2)
      • Japan’s Q2 Tankan All Big Industry Capex 7.4% (expected 8.9%; last 1.2%); June Bank Lending 2.6% yr/yr (last 2.6%); June Household Confidence 38.7 (expected 39.2; last 39.4); June Manufacturing PMI 49.3 (expected 49.5; last 49.5)
      • Australia’s June Manufacturing PMI 52.0 (expected 51.7; last 51.7)
      • South Korea’s June Trade Balance $4.17 bln (last $2.27 bln); exports -13.5% (expected -12.0%; last -9.5%); imports -11.1% (expected -10.1%; last -1.8%)
    • In news:
      • Japan is reportedly implementing stronger controls over key technology exports to South Korea as a result of heightened tension between the two countries.
      • President Trump had an historic, and rather impromptu, meeting with North Korean Chairman Kim Jong-un in the demilitarized zone and became the first U.S. president to step into North Korea.
  • European markets trade in the green. Germany’s DAX +1.2%, U.K.’s FTSE +1.3%, and France’s CAC +0.8%.
    • In economic data:
      • Eurozone’s June Manufacturing PMI 47.6 (expected 47.8; last 47.8); May Unemployment Rate 7.5% (expected 7.6%; last 7.6%)
      • Germany’s June Manufacturing PMI 45.0 (expected 45.4; last 45.4)
      • France’s June Manufacturing PMI 51.9 (expected 52.0; last 52.0)
      • Italy’s June Manufacturing PMI 48.4 (expected 48.8; last 49.7); May Unemployment Rate 9.9% (expected 10.3%; last 10.1%)
      • Spain’s June Manufacturing PMI 47.9 (expected 49.5; last 50.1)
      • UK’s June Manufacturing PMI 48.0 (expected 49.2; last 49.4)
      • Switzerland’s May Retail Sales -1.7% (expected 0.6%; last -0.8%)
    • In news:
      • European leaders once again failed to name candidates to top EU jobs, prompting another meeting tomorrow.

U.S. equity futures:

  • S&P 500 Futures +34 @ 2978
  • DJIA Futures +261 @ 26853
  • Nasdaq Futures +138 @ 7832

Overseas: 

  • Europe: DAX +1.2%, FTSE +1.3%, CAC +0.8%
  • Asia: Nikkei +2.1%, Hang Seng closed, Shanghai +2.2%

Commodities: 

  • Crude Oil +1.59 @ 60.06
  • Nat Gas -0.038 @ 2.270
  • Gold -18.30 @ 1395.40
  • Silver -0.01 @ 15.34
  • Copper +0.01 @ 2.73

U.S. Summary:

  • Earnings/Guidance:
    • Performance Food Group (PFGC) reaffirms FY 19 adj. EPS outlook
    • Westlake Chemical (WLK) sees Q2/FY19 EPS below consensus; sees Q2/FY19 revs in line
  • General News:
    • US and China agree to restart trade talks and hold off imposing new tariffs for an unspecified period of time; $250 bln in existing tariffs remain in place at 25%; U.S. to relax restrictions on U.S. companies doing business with Huawei; NEC Director Kudlow says trade talks talks ‘could go on for quite some time”
    • President Trump becomes first sitting US President to cross into North Korea as nuclear talks resume, according to New York Times
    • OPEC and allies agree to extend oil output reductions until end of this year, according to Reuters
    • Iran will likely breach uranium stockpile limits soon as EU efforts to limit stockpiles have not been sufficient, according to Washington Post
    • Japan has restricted technology material exports to South Korea, according to The Wall Street Journal
    • DOJ aims to expand Boeing (BA) investigation to include 787 Dreamliner, according to Seattle Times
    • Warren E. Buffett to convert 11,250 of Class A Berkshire Hathaway (BRK.A/B) shares into 16,875,000 Class B shares; 16,811,941 of those Class B shares to be donated to five foundations
    • Chubb (CB) imposes new restrictions on underwriting of coal companies, according to FT
    • Sony’s (SNE) next PlayStation system will focus on hard core gaming players, according to The Wall Street Journal
  • M&A:
    • Applied Materials (AMAT) to acquire Kokusai Electric Corporation for $2.2 bln in cash from KKR (KKR)
    • Genesee & Wyoming (GWR) to be acquired by Brookfield Infrastructure (BIP) and GIC for $112/share in cash, or approximately $8.4 bln
    • Performance Food Group (PFGC) to acquire Reinhart Foodservice from Reyes Holdings, L.L.C. in a transaction valued at $2.0 billion
  • Syndicate:
    • Genesis Energy, L.P. (GEL) files for 25,336,778 common unit offering upon the conversion of Class A Convertible Preferred Units by holders
  • IPOs:
    • Expected this week:
      • None at this time

Gapping Up/Down

  • Gapping up: NPTN +24.4%, IPHI +10.1%, LITE +7.5%, SWKS +7.4%, STM +5.8%, MRVL +5.6%, MU +5.5%, XLNX +5.5%, WYNN +5.5%, WDC +5.4%, QCOM +5.2%, CHK +5.1%, LVS +5%, AMD +4.9%, FNSR +4.9%, AVGO +4.9%, TSM +4.7%, BZUN +4.5%, MOMO +4.2%, NVDA +4.1%, JD +4%, WB +4%, BITA +3.9%, BIDU +3.8%, CTRP +3.7%, ASML +3.4%,MLCO +3.3%, LRCX +3.3%, INTC +3.2%, BABA +3.2%, AMAT +3.2%, VIPS +3.1%, TSLA +2.9%, AAPL +2.8%, DB +2.8%, TXN +2.8%, FCEL +2.7%, PLUG +2.7%, STX +2.5%,EDU +2.5%, MT +2.3%, CMCM +2.3%, NFLX +2.2%, CAT +2.2%, BHP +1.2%
  • Gapping down: HMY -6.2%, AG -5.2%, AU -5.2%, KGC -4.6%, SBGL -4.4%, GOLD -4.1%, AUY -4%, FSM -3.5%, GFI -3.1%, NEM -2.9%, GDX -2.9%, PAAS -1.6%, GLD -1.6%, SSYS -1.5%,BUD -0.5%

Analyst Research:

  • Upgrades:
    • Anaplan (PLAN) upgraded to Buy from Neutral at Goldman Sachs; tgt raised to $62
    • Callon Petroleum (CPE) upgraded to Overweight from Equal Weight at Barclays; tgt $9
    • Generac (GNRC) upgraded to Outperform from Neutral at Robert W. Baird; tgt raised to $86
    • KB Home (KBH) upgraded to Neutral from Sell at BTIG Research
    • Six Flags (SIX) upgraded to Overweight from Sector Weight at KeyBanc Capital Markets; tgt $62
    • Tutor Perini (TPC) upgraded to Buy from Neutral at DA Davidson; tgt $22
    • United Therapeutics (UTHR) upgraded to Outperform from Neutral at Credit Suisse; tgt raised to $101
    • Western Digital (WDC) upgraded to Buy from Neutral at Mizuho; tgt $55
  • Downgrades:
    • Brunswick (BC) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt lowered to $47
    • Carnival (CCL) downgraded to Hold from Buy at Berenberg; tgt lowered to $48
    • Fox Corporation (FOXA) downgraded to Neutral from Buy at Guggenheim; tgt lowered to $38
    • SolarWinds (SWI) downgraded to Sell from Neutral at Goldman Sachs; tgt lowered to $17.50
    • Yum! Brands (YUM) downgraded to Underperform from Neutral at Longbow; tgt $91
    • Zoom Video (ZM) downgraded to Sell from Neutral at Goldman Sachs; tgt raised to $66
    • Zoetis (ZTS) downgraded to Neutral from Buy at BofA/Merrill Lynch; tgt raised to $120
  • Others:
    • Americold Realty Trust (COLD) initiated with a Buy at Citigroup; tgt $38
    • Corteva (CTVA) initiated with an Equal Weight at Barclays; tgt $32
    • Five Below (FIVE) resumed with an Overweight at Morgan Stanley; tgt $135
    • Stitch Fix (SFIX) initiated with a Hold at Needham

Upcoming Events:

  • Econ Data:
    • 10:00 ET: ISM Manufacturing index for June (Briefing.com consensus 51.5; Prior 52.1)
    • 10:00 ET: Construction Spending for May (Briefing.com consensus 0.0%; Prior 0.0%)
  • 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 +2.1%, Hang Seng closed, Shanghai +2.2%

Equity indices in the Asia-Pacific region started the week mostly higher, lifted by the news that Presidents Trump and Xi agreed to avoid new tariffs (for now) and that certain U.S. companies would be able to start selling products to Huawei again. That news overshadowed disappointing manufacturing PMI data for June, protests in Hong Kong on the anniversary of Chinese rule, and reports Japan is implementing stronger controls over key technology exports to South Korea as a result of heightened tension between the two countries. Separately, President Trump had an historic, and rather impromptu, meeting with North Korean President Kim Jong Un in the demilitarized zone and became the first U.S. president to step into North Korea.

  • In economic data:
    • China’s Official Manufacturing PMI for June 49.4 (expected 49.5; last 49.4); Official Non-Manufacturing PMI for June 54.2 (expected 54.1; last 54.3); Caixin Manufacturing PMI for June 49.4 (expected 50.0; last 50.2)
    • Japan’s Q2 Tankan All Big Industry Capex 7.4% (expected 8.9%; last 1.2%); June Bank Lending 2.6% yr/yr (last 2.6%); June Household Confidence 38.7 (expected 39.2; last 39.4); June Manufacturing PMI 49.3 (expected 49.5; last 49.5)
    • Australia’s June Manufacturing PMI 52.0 (expected 51.7; last 51.7)
    • South Korea’s June Trade Balance $4.17 bln (last $2.27 bln); exports -13.5% (expected -12.0%; last -9.5%); imports -11.1% (expected -10.1%; last -1.8%)

—Equity Markets—

  • Japan’s Nikkei: +2.1%
  • Hong Kong’s Hang Seng: closed for holiday
  • China’s Shanghai Composite: +2.2%
  • India’s Sensex: +0.7%
  • South Korea’s Kospi: -0.04%
  • Australia’s ASX All Ordinaries: +0.5%

—FX—

  • USD/JPY: +0.3% to 108.22
  • USD/CNH: -0.4% to 6.8444
  • USD/INR: +0.1% at 68.996

Europe: DAX +1.2%, FTSE +1.3%, CAC +0.8%

Major European indices are trading higher, bolstered by the “trade truce” between the U.S. and China that was agreed to over the weekend by Presidents Trump and Xi at the G-20 meeting. Both sides will hold off on imposing new tariffs (for now) and President Trump said he would relax restrictions on U.S. companies selling products to Huawei. Early gains for European markets, however, were tempered by broad-based disappointments in June manufacturing PMI data, which featured contractionary readings (below 50.0) for the eurozone, Germany, Italy, Spain, and the U.K.

  • In economic data:
    • Eurozone’s June Manufacturing PMI 47.6 (expected 47.8; last 47.8); May Unemployment Rate 7.5% (expected 7.6%; last 7.6%)
    • Germany’s June Manufacturing PMI 45.0 (expected 45.4; last 45.4)
    • France’s June Manufacturing PMI 51.9 (expected 52.0; last 52.0)
    • Italy’s June Manufacturing PMI 48.4 (expected 48.8; last 49.7); May Unemployment Rate 9.9% (expected 10.3%; last 10.1%)
    • Spain’s June Manufacturing PMI 47.9 (expected 49.5; last 50.1)
    • UK’s June Manufacturing PMI 48.0 (expected 49.2; last 49.4)
    • Switzerland’s May Retail Sales -1.7% (expected 0.6%; last -0.8%)

—Equity Markets—

  • STOXX Europe 600: +0.8%
  • Germany’s DAX: +1.2%
  • U.K.’s FTSE 100: +1.3%
  • France’s CAC 40: +0.8%
  • Italy’s FTSE MIB: +0.3%
  • Spain’s IBEX 35: +0.4%

—FX—

  • EUR/USD: -0.1% to 1.1351
  • GBP/USD: -0.4% to 1.2644
  • USD/CHF: +0.6% to 0.9814
Please follow and like us:
error