>>> US Close. Dow -1.74% S&P +1.04% Nasdaq +1.64% Russell +0.48%


Closing Market Summary: Tech Shares Lead Broad-Based Rebound

Stocks rallied on Thursday, recouping just about all of their weekly losses, as investors cheered the latest batch of first quarter earnings. The S&P 500 and the Dow Jones Industrial Average advanced 1.0% apiece, while the tech-heavy Nasdaq Composite did even better, jumping 1.6%, as technology shares set the pace.

The most influential S&P 500 sector -- information technology -- advanced 2.3% on Thursday, finishing atop the day's sector standings by a comfortable margin. Tech giant Facebook (FB 174.16, +14.47) soared 9.1% after reporting a blowout first quarter, easily topping earnings and revenue estimates and also reporting double-digit growth in daily active users (DAUs). Visa (V 127.08, +5.87) and Advanced Micro (AMD 11.04, +1.33) contributed to the tech rally as well, adding 4.8% and 13.7%, respectively, after reporting above-consensus earnings and revenues for the first quarter and issuing upbeat guidance.

Chipotle Mexican Grill (CMG 422.50, +82.98) was perhaps the most notable post-earnings mover, surging 24.4% to its highest level in nearly a year. The burrito chain reported an impressive first quarter, handily beating earnings estimates on above-consensus growth in same-store sales. The S&P 500 sector that houses Chipotle -- consumer discretionary -- finished in second place in the sector standings with a gain of 1.6%, while most other advancing groups added between 0.6% and 1.5%.

The heavily-weighted financial sector was an exception, finishing just a tick above its flat line. The group underperformed as Treasury yields slipped from multi-year highs; the yield on the benchmark 10-yr Treasury note slipped below the psychologically important 3.0% mark, ending three basis points below its Wednesday close at 2.99%. The 2-yr yield, meanwhile, finished unchanged at 2.49%.

Telecom services was easily the worst-performing sector, tumbling 3.2%, after AT&T (T 33.10, -2.10) reported lower-than-expected earnings and revenues for the first quarter -- T shares dropped 6.0%. The industrial sector was the only other space to close in the red, losing 0.4% and extending its weekly decline to 3.0%; for comparison, the S&P 500 is down just 0.1% week to date. Within the industrial group, transports showed particular weakness, with American Airlines (AAL 42.37, -2.88) dropping 6.4% after lowering its guidance due to higher fuel prices.

Overseas, the European Central Bank released its latest policy directive on Thursday morning, which -- as expected -- left interest rates unchanged and confirmed that net asset purchases will remain at the current monthly pace of EUR30 billion until the end of September 2018, or beyond, if necessary. The euro declined 0.5% against the U.S. dollar to 1.2105 -- its lowest level since early January -- following the release and a dovish-sounding press conference from ECB President Mario Draghi.

Reviewing Thursday's economic data, which included Durable Goods Orders for March, weekly Initial Claims, Advance International Trade in Goods for March, and Advance Wholesale Inventories for March:

  • March durable goods orders climbed 2.6%, which is more than the 1.9% increase expected by the Briefing.com consensus. The prior month's reading was revised to +3.5% (from +3.1%). Excluding transportation, durable orders were flat (Briefing.com consensus +0.6%) to follow the prior month's revised increase of 0.9% (from +1.2%).
    • The key takeaway from the report was that business spending was soft, evidenced by a 0.1% decline in orders of nondefense capital goods excluding aircraft. Shipments of those goods, which factor into GDP forecasts, were down 0.7% after increasing 1.0% in February.
  • The latest weekly initial jobless claims count totaled 209,000, while the consensus expected a reading of 225,000. Today's tally was below the revised prior week count of 233,000 (from 232,000). As for continuing claims, they declined to 1.837 million from a revised count of 1.866 million (from 1.863 million).
    • The key takeaway from the initial claims report is that it will feed concerns about a tightening in labor supply and a potential pickup in wage-based inflation pressure as a result of it.
  • The Advance report for International Trade in Goods for March showed a deficit of $68.0 billion.
  • The Advance report for Wholesale Inventories for March showed an increase of 0.5%.

On Friday, investors will receive the advance estimate of first quarter GDP (consensus +2.1%) at 8:30 AM ET. The first quarter Employment Cost Index (consensus +0.7%) will also be released at 8:30 AM ET, while the Chicago PMI for April (consensus 56.3) and the final reading of the University of Michigan Consumer Sentiment Index for April (Briefing.com consensus 98.0) will cross the wires at 9:45 AM ET and 10:00 AM ET, respectively.

  • Nasdaq Composite: +3.1% YTD
  • Russell 2000: +1.5% YTD
  • S&P 500: -0.3% YTD
  • Dow Jones Industrial Average: -1.6% YTD

>>> US Gapping down


Gapping down
In reaction to disappointing earnings/guidance:

  • FARO -11.6%, BGG -11%, LMAT -10.7%, NGD -7.6%, NTGR -7.5%, CRI -6.8%, SPB -6.6%, UHS -5.8%, NOK -5.7%, EBAY -5.5%, LUV -5.3%, Aan -4.7%, LKQ -4.5%, T -4.3%, ESV -4%, NVCR -3.9%, AAL -3.9%, CRR -3.5%, MGLN -2.9%, RDS.A -2.5%, DB -2.2%, CINF -1.8%, QEP -1.6%, IRDM -1.6%, BMRN -1.4%, CME -1.3%, ARCH -1.2%, SCI -1.1%, AFL -1.1%, VALE -1%, ZBH -1%

M&A news:

  • QCP -7.8% (to be acquired by Welltower for $20.75 per share)

Other news:

  • SGMO -2.6% (prices offering of 12,310,000 shares of common stock at $16.25 per share)
  • CASA -2.6% (prices offering by selling shareholders of 7,350,000 shares of common stock at a public offering price of $25.00 per share)
  • CVNA -1.5% (prices and announces upsize follow-on offering of 11,000,000 shares of Class A common Stock at $27.50/share)
  • CRTO -1.3% (announces that founder and chairman JB Rudelle will return to the role of Chief Executive Officer )

Analyst comments:

  • N/A.

>>> US Gapping up


Gapping up
In reaction to strong earnings/guidance:

  • CMG +13.4%, ORLY +12%, PENN +11.4%, BEAT +11.1%, UCTT +11%, PCMI +10.9%, AMD +9.5%, JAKK +9.5%, GNC +8.8%, DPZ +7.5%, FB +6.7%, CYS +6.6%, ALXN +6.5%, XLNX +6.1%, CETV +6.1%, ECHO +5.9%, SJW +5.8%, HZO +4.8%, RDN +4.8%, INTU +4.7%, (reports 6% increase in turbotax online units: raises full-year consumer group guidance range), TAL +4.5%, MMSI +4.3%, RRC +4.1%, PYPL +4.1%, LODE +4.1%, WPG +3.7%, CTXS +3.4%, MTH +3.3%, ALGT +3.2%, NS +3%, RS +2.8%, V +2.7%, AXTI +2.5%, BAX +2.2%, KNX +2.1%, RTN +2%, NOW +1.9%, WB +1.8%, EQT +1.7%, LVS +1.6%, F +1.6%, MCK +1.5%, (McKesson launches multi-year strategic growth initiative; reaffirms fiscal 2018 outlook and provides preliminary fiscal 2019 outlook; to acquire Medical Specialties Distributors), TRN +1.5%, COP +1.4%, VLO +1.2%, UPS +1.2%, SAVE +1%

M&A news:

  • MATR +25.3% (NICE to acquire MATR for $2.70/share)

Select chip related names showing strength:

  • MU +2.7%, INTC +2%, CY +2%, SMH +1.6%, SOXX +1.6%, ADI +0.6%, . 

Other news:

  • AZO +4% (following ORLY results)
  • AAP +3.6% (following ORLY results)
  • FMI +2.9% (FDA granted a Breakthrough Device designation for its new liquid biopsy assay)
  • NVDA +2.5% (following AMD results)
  • MSFT +1.5% (following AMD results)
  • RESN +1.4% (continued strength)
  • MA +1.3% (following Visa results)
  • SNAP +1.2% (FB sympathy)
  • KL +1.1% (reports drill intersections that provide 'significant' results at all three of its key exploration targets at Taylor mine), . 

Analyst comments:

  • TWTR +1.9% (upgraded to Outperform from Neutral at Macquarie)
  • ANTM +0.9% (upgraded to Overweight from Neutral at JP Morgan)
  • BA +0.8% (upgraded to Buy from Hold at Societe Generale)


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Portfolio Ticker Matches:  AMD



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>>> US Early premarket gappers


Early premarket gappers

Gapping up:

  • CMG +11.2%, PCMI +10.9%, UCTT +10.9%, ORLY +10.7%, JAKK +9.5%, AMD +9.2%, BEAT +8%, FB +6.3%, CETV +6.1%, ECHO +5.9%, XLNX +5.8%, SJW +5.8%, TAL +5.2%, HZO +4.8%, RDN +4.8%, AZO +4.5%, PYPL +4.5%, MMSI +4.3%, LODE +4.1%, WPG +3.7%, AAP +3.6%, F +3.3%, INTU +3.3%, MTH +3.3%, SNAP +3%, NS +3%, RS +2.8%, RRC +2.7%, MU +2.6%, CY +2.5%, AXTI +2.5%, CTXS +2.4%, V +2.3%, NVDA +2%, INTC +1.8%, DNKN +1.8%, KL +1.7%, TWTR +1.7%, QCOM +1.7%, ALXN +1.7%, EQT +1.7%, SMH +1.6%, SOXX +1.6%, MCK +1.5%, TRN +1.5%, RESN +1.4%, HLT +1.4%, MSFT +1.3%, LVS +1.3%, SAVE +1%, MA +0.9%

Gapping down:

  • FARO -11.6%, BGG -11%, LMAT -10.7%, NGD -7.6%, NTGR -7.5%, UHS -5.8%, NOK -5.7%, CRI -5.4%, EBAY -5.1%, ESV -4.8%, T -3.9%, RDS.B -2.7%, LUV -2.2%, CYS -1.7%, QEP -1.6%, GG -1.4%, BMRN -1.4%, CRTO -1.3%, ARCH -1.2%, MNKD -1.1%, SCI -1.1%, FENG -0.9%, KEX -0.8%, CSTM -0.8%, PDS -0.8%, DHI -0.7%, VLO -0.6%, VALE -0.5%

(UBS) Shire- Takeda : The process from here and the Major Risks to a deal

* Takeda's bid for Shire is deemed "satisfactory" subject to conditions
On the 24th of April, Shire received a proposal from Takeda to acquire Shire for $30.33 in cash and 0.839 Takeda shares per Shire share. As we write this note, this corresponded to ~£46.50 per Shire share (dependent, of course, on Takeda's share price). Shire's Board said that it was willing to recommend this proposal to shareholders provided certain conditions were met (e.g., due diligence by Shire on Takeda).

* The process from here
If all goes as Takeda hopes, there will agreement by the Takeda Board and a binding offer to acquire Shire by the 8th of May (29th April to 6th May is the Golden Week holiday in Japan, and 7th May is UK bank holiday). Shire will make a Rule 27 announcement immediately after, recommending the offer to its shareholders. At this point timing becomes less certain (but see Figure 1 for provisional timetable thoughts) given interdependencies between the Shire and Takeda processes. Shire will issue a shareholder circular setting out the offer, and three or more weeks later, Shire's shareholders will vote on the offer at an Extraordinary General Meeting (EGM, with 75% of votes required for acceptance). But the Shire shareholder vote will likely depend on a vote by Takeda shareholders to issue new shares (requiring a 2/3 majority). Takeda’s AGM is scheduled for late June, but a separate, and later, EGM could be required, which would likely delay the Shire shareholder vote. After the votes, there remains regulatory and anti-trust clearance before the deal can close. The timing here is again uncertain, but it seems reasonable to assume 6 months.

* We see four main categories of risk to the deal
First, there could be another bidder (see here). For practical purposes, any bid would have to precede the Shire shareholder vote. Second, Takeda could fail to secure shareholder approval. It seems the deal is unpopular (e.g., 18% fall in Takeda's share price since 28th March) and the more Takeda falls, the worse the offer is for Shire. Third, less likely in our view, Shire could find its conditions are not met or its shareholders could vote down the deal if Takeda's price falls too far. Fourth are delays from regulatory and competition agencies. However, we doubt material competitionrelated problem as few (no?) Shire drugs have therapeutic substitutes from Takeda.