US Morning Prep16th of July 2019

Morning Briefing – Holding bullish ground with financials reporting

After the major averages set new record closes yesterday, U.S. equity futures are little changed amid mixed responses to earnings reports. The S&P 500 futures trade two points, or 0.1%, above fair value. 

Financial Dow components JPMorgan Chase (JPM 113.00, -0.90, -0.8%) and Goldman Sachs (GS 213.35, +1.77, +0.8%) both beat top and bottom-line estimates, but shares have taken different directions in pre-market action. JPM is being pressured by softness in its net interest margin and by a lower FY19 outlook for net interest income.

Fellow Dow component Johnson & Johnson (JNJ 135.97, +1.26, +0.9%) beat earnings estimates and raised its FY19 revenue outlook. 

In addition to earnings reports, investors will receive a good amount of economic data. The one with the highest trading impact, Retail Sales for June (Briefing.com consensus 0.2%), will be released at 8:30 a.m. ET along with Import and Export prices for June. 

Later, investors will receive Industrial Production (Briefing.com consensus 0.2%) and Capacity Utilization (Briefing.com consensus 78.2%) at 9:15 a.m. ET; Business Inventories for May (Briefing.com consensus 0.4%) and the NAHB Housing Market Index for July (Briefing.com consensus 62) at 10:00 a.m. ET; and Net Long-Term TIC Flows for May at 4:00 p.m. ET. 

U.S. Treasuries remain little changed. The 2-yr yield is up one basis point to 1.84%, and the 10-yr yield is unchanged at 2.09%. The U.S. Dollar Index is up 0.3% to 97.21. WTI crude is down 0.2% to $59.49/bbl. 

In U.S. Corporate news:

  • JPMorgan Chase (JPM 113.00, -0.90): -0.8% despite beating top and bottom-line estimates. Net interest margin was down eight basis points qtr/qtr, and JPMorgan lowered its FY19 Net interest income outlook. 
  • Goldman Sachs (GS 213.35, +1.77): +0.8% after beating top and bottom-line estimates. 
  • Johnson & Johnson (JNJ 135.97, +1.26): +0.9% after beating earnings estimates and raising its FY19 revenue outlook.
  • Alphabet (GOOG 1140.04, -10.47): -0.9% after President Trump said his administration “will take a look” into Google’s business practices following comments from entrepreneur Peter Thiel. 
  • JB Hunt Transport Services (JBHT 99.13, +6.55): +7.1% after the CEO said he expects volume to increase in the second half of the year. JB Hunt missed earnings estimates. 

Reviewing overnight developments:

  • Equity indices in the Asia-Pacific region had a mixed session on Tuesday. Japan’s Nikkei -0.7%, Hong Kong’s Hang Seng +0.2%, China’s Shanghai Composite -0.2%, India’s Sensex +0.6%, South Korea’s Kospi +0.5%, Australia’s ASX All Ordinaries -0.2%.
    • In economic data:
      • New Zealand’s Q2 CPI 0.6% qtr/qtr (expected 0.6%; last 0.1%) and 1.7% yr/yr (expected 1.7%; last 1.5%)
    • In news:
      • Japan’s Nikkei paced the losers with a 0.7% decline coming off the Monday holiday while India’s Sensex paced the winners.
      • There was little change in Australia after the RBA Minutes indicated a willingness to cut the policy rate again if necessary.
      • Separately, the trade row between Japan and South Korea remains tense with both sides accusing the other of misrepresenting matters.
      • The PBOC reportedly injected CNY160B in an open-market operation via 7-day reverse repos, coming on the heels of yesterday’s report that China’s 6.2% growth rate in the second quarter was the lowest in 27 years.
  • Major European indices are mixed in Tuesday’s trading without much change across the board. STOXX Europe 600 +0.04%, Germany’s DAX -0.02%, U.K.’s FTSE 100 +0.4%, France’s CAC 40 +0.2%, Italy’s FTSE MIB -0.02%, Spain’s IBEX 35 +0.3%.
    • In economic data:
      • Eurozone’s May Trade Balance EUR 23.0B (expected EUR 16.3B; last EUR 15.7B); ZEW Economic Sentiment -20.3 (expected -20.9; last -20.2)
      • Germany’s July ZEW Economic Sentiment -24.5 (expected -22.1; last -21.1)
      • Italy’s June CPI 0.1% m/m (expected 0.2%; last 0.2%) and 0.7% yr/yr (expected 0.8%; last 0.8%); May Trade Balance EUR 5.35B (expected EUR 2.91 B; last EUR 2.85 B)
      • UK’s May Unemployment rate 3.8% (expected 3.8%; last 3.8%); May Avg. Earnings Index + Bonus 3.4% (expected 3.1%; last 3.2%); June Claimant Count Change 38.0K (expected 18.9K; last 24.5K)
    • In news:
      • In today’s data releases, attention has shifted mostly between a disappointing economic sentiment number for July out of Germany and stronger-than-expected wage data for May out of the UK.
      • The UK’s FTSE 100 is up 0.4% following the jobs report, and capitalizing as well from a large gain in Burberry after the luxury goods company posted some encouraging sales results.
      • The euro is down 0.3% against the dollar after ECB official Villeroy reaffirms that the ECB will cut rates if necessary at coming meetings; British pound also weak as Brexit uncertainty continues to weigh.

U.S. equity futures:

  • S&P 500 Futures +3 @ 3020
  • DJIA Futures +43 @ 27386
  • Nasdaq Futures +6 @ 7992

Overseas: 

  • Europe: DAX -0.02%, FTSE +0.4%, CAC +0.2%
  • Asia: Nikkei -0.7%, Hang Seng +0.2%, Shanghai -0.2%

Commodities: 

  • Crude Oil -0.03 @ 59.54
  • Nat Gas -0.056 @ 2.352
  • Gold +3.20 @ 1416.60
  • Silver +0.10 @ 15.46
  • Copper unch @ 2.71

U.S. Summary:

  • Earnings/Guidance:
    • Commerce Bancshares (CBSH) beats by $0.02, reports revs in-line
    • Domino’s Pizza (DPZ) beats by $0.16, misses on revs
    • First Horizon (FHN) beats by $0.06, beats on revs
    • Goldman Sachs (GS) beats by $0.78, beats on revs; raises quarterly dividend to $1.25/share from $0.85/share
    • J.B. Hunt Transport (JBHT) misses by $0.12, reports revs in-line
    • Johnson & Johnson (JNJ) beats by $0.14, reports revs in-line; reaffirms FY19 EPS guidance, raises FY19 revs outlook
    • JPMorgan Chase (JPM) beats by $0.33, beats on revs, net Income better than expected; lowers FY19 net interest income outlook; Reaffirms expense, NCO outlook
    • PacWest Bancorp (PACW) beats by $0.13
    • Prologis (PLD) beats by $0.01, reports revs in-line; raises FY19 FFO above consensus
    • Rio Tinto (RIO) reports Q2 production shipments and repeats that it lowered its FY19 production guidance
    • Synovus (SNV) beats by $0.01, beats on revs
    • Wintrust Fin (WTFC) misses by $0.27
  • General News:
    • House Speaker Nancy Pelosi (D-CA) rejected Treasury Secretary Steven Mnuchin’s request for a short term debt ceiling increase and would rather connect it to budget talks, according to Washington Post
    • China’s Foreign Ministry suggests it is misleading to say the country needs trade deal because of a slowing economy, according to Reuters
    • Amazon (AMZN) says worldwide sellers saw the biggest 24-hour sales day in Amazon history during day one of Prime Day
    • President Trump says his administration “will take a look” at investigating Google (GOOG) following comments from Peter Thiel
    • KeyCorp (KEY) discovers fraudulent activity associated with transactions conducted in the third quarter of 2019 by a business customer of KeyBank National Association
    • Tesla (TSLA) has eliminated some Model X and S variants and lowered prices of other vehicles, according to Reuters; employees claim they worked through poor conditions to meet Model 3 production goals, according to CNBC
  • M&A:
    • AquaVenture (WAAS) acquires substantially all of the assets of Carolina Pure Water Systems; terms not disclosed
    • CRH (CRH) announces divestment of Europe Distribution business for EUR 1.64 bln in cash
    • Energy Transfer (ET) considering 33% stake sale of Rover Pipeline, according to Bloomberg
    • Intuitive Surgical (ISRG) acquires Schlly Fiberoptic’s robotic endoscope business; terms not disclosed
    • Lamar Advertising (LAMR) acquires Ashby Street Outdoor Holdings; terms not disclosed
    • Medical Properties Trust (MPW) enters into definitive agreements involving 24 hospital facilities for total investment of $1.75 bln
    • Prologis (PLD) to acquire Industrial Property Trust for approximately $3.99 bln cash
    • United Financial (UBNK) to be acquired by People’s United Financial (PBCT) in stock transaction valued at approx. $759 mln
    • Viacom (VIAB) and CBS (CBS) have set an August 8 deadline for reaching a merger agreement; price won’t be adressed until all strategic and leadership issues have been sorted out, according to CNBC
  • Syndicate:
    • Anterix (ATEX) launches $85 mln offering of common stock
    • Essential Properties Realty Trust (EPRT) announces 17.25 mln share offering by selling stockholders
    • Medical Properties Trust (MPW) prices underwritten public offering of 45 mln shares of its common stock at a public offering price of $17.29 per share
    • Repligen (RGEN) commences public offering of $100 mln in common stock and $250 mln of convertible senior notes
  • IPOs:
    • Expected this week:
      • Afya (Nasdaq: AFYA): Major education company based in Brazil. 13.7 million initial shares. Initial price range $16.00-18.00.
      • Fulcrum Therapeutics (Nasdaq: FULC): Clinical-stage biopharmaceutical company developing treatments for rare diseases. 4.5 million initial shares. Initial price range $16.00-18.00.
      • Genmab (Nasdaq: GMAB): Denmark-based biotech company specializing in antibody therapeutics for treatment of cancer. 27.8 million initial slares. Initial price range $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.
      • Mirum Pharmaceuticals (Nasdaq: MIRM):  Biopharmaceutical company commercializing late-stage pipeline of therapies for liver diseases. 5.0 million initial shares. Initial price range $14.00-16.00.
      • Sunnova Energy (NYSSE: NOVA): Residential solar and energy story service provider. 17.7 million initial shares. Initial price range $16.00-18.00.
      • Phreesia (NYSE: PHR): Developer of technology platform that enables healthcare providers to optimize efficiency and profitability. 7.8 million initial shares. Initial price range $15.00-17.00.

Gapping Up/Down

  • Gapping up: JBHT +8%, ABUS +2.6%, CPE +2.2%, VKTX +1.8%, SNV +1.7%, JNJ +0.8%
  • Gapping down: ATEX -6%, ARW -5%, QTT -4.2%, MPW -3.8%, RGEN -3.4%, EPRT -3.1%, TRQ -2.8%, WTFC -1.5%, PBCT -1.2%, RIO -1.2%

Analyst Research:

  • Upgrades:
    • Freeport-McMoRan (FCX) upgraded to Equal Weight from Underweight at Barclays; tgt $12
    • Laboratory Corp (LH) upgraded to Neutral from Underperform at BofA/Merrill Lynch
    • OneMain Holdings (OMF) upgraded to Overweight from Neutral at JP Morgan; tgt raised to $41
    • Timken (TKR) upgraded to Buy from Neutral at Goldman Sachs; tgt raised to $56
    • Wheaton Precious Metals (WPM) upgraded to Overweight from Equal Weight at Barclays; tgt raised to $28
  • Downgrades:
    • Aflac (AFL) downgraded to Underperform from In-line at Evercore ISI
    • Agilent (A) downgraded to Neutral from Buy at BofA/Merrill Lynch; tgt $76
    • Cognex (CGNX) downgraded to Sell from Neutral at Goldman Sachs; tgt lowered to $36
    • FactSet (FDS) downgraded to Underweight from Equal-Weight at Morgan Stanley; tgt lowered to $263
    • Hilton (HLT) downgraded to Hold from Buy at SunTrust; tgt $101
    • Kennametal (KMT) downgraded to Sell from Buy at Goldman Sachs; tgt lowered to $30
    • MetLife (MET) downgraded to In-line from Outperform at Evercore ISI
    • Parker-Hannifin (PH) downgraded to Sell from Neutral at Goldman Sachs; tgt lowered to $150
    • RenaissanceRe (RNR) downgraded to Hold from Buy at Deutsche Bank; tgt $186
    • RLJ Lodging Trust (RLJ) downgraded to Sell from Hold at SunTrust; tgt lowered to $15
    • Royal Gold (RGLD) downgraded to Mkt Perform from Outperform at Raymond James; downgraded to Underweight from Equal Weight at Barclays; tgt raised to $105
    • Sonoco Products (SON) downgraded to Underperform from Market Perform at BMO Capital Markets; tgt lowered to $56
    • Thermo Fisher (TMO) downgraded to Buy from Strong Buy at Needham; tgt $315
    • Waters (WAT) downgraded to Underperform from Neutral at BofA/Merrill Lynch
    • Wingstop (WING) downgraded to Neutral from Outperform at Wedbush; tgt raised to $92
  • Others:
    • Eagle Bancorp (EGBN) initiated with an Overweight at Piper Jaffray
    • ForeScout Technologies (FSCT) initiated with a Neutral at Macquarie; tgt $41
    • Millendo Therapeutics (MLND) initiated with an Outperform at Oppenheimer; tgt $26
    • Slack (WORK) initiated with a Neutral at Goldman Sachs; tgt $34
    • Sterling Bancorp (STL) initiated with a Buy at B. Riley FBR; tgt $26
    • Tenable (TENB) initiated with a Neutral at Macquarie; tgt $35
    • Towne Bank (TOWN) resumed with a Neutral at Piper Jaffray
    • Viking Therapeutics (VKTX) initiated with an Outperform at Oppenheimer; tgt $12
    • WSFS Financial (WSFS) initiated with a Neutral at Piper Jaffray

Upcoming Events:

  • Econ Data:
    • 08:30 ET: Retail Sales for June (Briefing.com consensus +0.2%; Prior +0.5%)
    • 08:30 ET: Retail Sales, Ex-Auto, for June (Briefing.com consensus +0.2%; Prior +0.5%)
    • 08:30 ET: Import Price Index for June (Prior -0.3%)
    • 08:30 ET: Export Price Index for June (Prior -0.2%)
    • 09:15 ET: Industrial Production for June (Briefing.com consensus +0.2%; Prior +0.4%)
    • 09:15 ET: Capacity Utilization for June (Briefing.com consensus 78.2%; Prior 78.1%)
    • 10:00 ET: Business Inventories for May (Briefing.com consensus +0.4%; Prior +0.5%)
    • 10:00 ET: NAHB Housing Market Index for July (Briefing.com consensus 62; Prior 64)
    • 16:00 ET: Net Long-Term TIC Flows for May (Prior $46.9B)
  • 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
    • Full Earnings Calendar

Asia & Europe detail:

Asia: Nikkei -0.7%, Hang Seng +0.2%, Shanghai -0.2%

Equity indices in the Asia-Pacific region had a mixed session on Tuesday. Japan’s Nikkei paced the losers with a 0.7% decline coming off the Monday holiday while India’s Sensex paced the winners. There was little change in Australia after the RBA Minutes indicated a willingness to cut the policy rate again if necessary. Separately, the trade row between Japan and South Korea remains tense with both sides accusing the other of misrepresenting matters. The PBOC reportedly injected CNY160B in an open-market operation via 7-day reverse repos, coming on the heels of yesterday’s report that China’s 6.2% growth rate in the second quarter was the lowest in 27 years.

  • In economic data:
    • New Zealand’s Q2 CPI 0.6% qtr/qtr (expected 0.6%; last 0.1%) and 1.7% yr/yr (expected 1.7%; last 1.5%)

—Equity Markets—

  • Japan’s Nikkei: -0.7%
  • Hong Kong’s Hang Seng: +0.2%
  • China’s Shanghai Composite: -0.2%
  • India’s Sensex: +0.6%
  • South Korea’s Kospi: +0.5%
  • Australia’s ASX All Ordinaries: -0.2%

—FX—

  • USD/JPY: +0.1% to 107.97
  • USD/CNH: +0.1% to 6.8783
  • USD/INR: +0.3% to 68.73

Europe: DAX -0.02%, FTSE  +0.4%, CAC +0.2%

Major European indices are mixed in Tuesday’s trading without much change across the board. A wait-and-see attitude in front of key earnings reports out of the U.S. has contributed to the lack of conviction. In today’s data releases, attention has shifted mostly between a disappointing economic sentiment number for July out of Germany and stronger-than-expected wage data for May out of the UK. The UK’s FTSE 100 is up 0.4% following the jobs report, and capitalizing as well from a large gain in Burberry after the luxury goods company posted some encouraging sales results. The euro is down 0.3% against the dollar after ECB official Villeroy reaffirms that the ECB will cut rates if necessary at coming meetings; British pound also weak as Brexit uncertainty continues to weigh.

  • Economic data was limited:
    • Eurozone’s May Trade Balance EUR 23.0B (expected EUR 16.3B; last EUR 15.7B); ZEW Economic Sentiment -20.3 (expected -20.9; last -20.2)
    • Germany’s July ZEW Economic Sentiment -24.5 (expected -22.1; last -21.1)
    • Italy’s June CPI 0.1% m/m (expected 0.2%; last 0.2%) and 0.7% yr/yr (expected 0.8%; last 0.8%); May Trade Balance EUR 5.35B (expected EUR 2.91 B; last EUR 2.85 B)
    • UK’s May Unemployment rate 3.8% (expected 3.8%; last 3.8%); May Avg. Earnings Index + Bonus 3.4% (expected 3.1%; last 3.2%); June Claimant Count Change 38.0K (expected 18.9K; last 24.5K)

—Equity Markets—

  • STOXX Europe 600: +0.04%
  • Germany’s DAX: -0.02%
  • U.K.’s FTSE 100: +0.4%
  • France’s CAC 40: +0.2%
  • Italy’s FTSE MIB: -0.02%
  • Spain’s IBEX 35: +0.3%

—FX—

  • EUR/USD: -0.3% to 1.1222
  • GBP/USD: -0.7% to 1.2425
  • USD/CHF: +0.2% to 0.9864
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