Closing Market Summary: Late Rally Following Trump Signature on TariffsU.S. equities ticked higher on Thursday as investors awaited President Trump's official approval of tariffs on steel and aluminum imports, which he gave minutes before the closing bell. The S&P 500 finished with a gain of 0.5%, closing at its best mark of the day, while the Dow and the Nasdaq added 0.4% apiece.
The market drifted near its unchanged mark through most of Thursday's session, but volatility started to pick up in the afternoon following an Associated Press report that Canada and Mexico will be exempt indefinitely from the president's proposed tariffs; earlier reports said that the two countries would be exempt initially, but a continuation of that status was based on their willingness to renegotiate the North American Free Trade Agreement (NAFTA).
From there, equities bounced around during President Trump's press conference, which began just 30 minutes before the closing bell. The president signed two proclamations that implemented the tariffs on steel and aluminium imports, but exempted Mexico and Canada. However, Mr. Trump said he will give other nations the opportunity to justify why they should also not be included, emphasizing that he is seeking "fairness."
10 of 11 S&P sectors finished in positive territory, with countercyclical groups like health care (+0.7%), consumer staples (+0.9%), and utilities (+0.7%) closing at the top of the leaderboard. The energy sector (-0.1%) was the one declining group.
In corporate news, Express Scripts (ESRX 79.72, +6.30) jumped 8.6% after agreeing to be acquired by Cigna (CI 172.00, -22.25) for approximately $67 billion in cash and stock; conversely, Cigna dropped 11.5%. Meanwhile, Kroger (KR 22.98, -3.25) tumbled 12.4% to a three-month low after issuing disappointing profit guidance, and Costco (COST 185.69, -1.67) lost 0.9% after missing earnings estimates for its fiscal second quarter.
Meanwhile, Treasury yields settled Thursday a tick lower, with the benchmark 10-yr yield slipping one basis point to 2.87%.
In Europe, the European Central Bank left its key policy rates unchanged on Thursday, as expected, and removed from its policy statement a promise to increase its bond purchases if needed. The latter move was seen as a small step towards normalization following years of ultra-accommodative policy. In addition, the ECB reaffirmed that its net asset purchases will remain at a monthly pace of EUR30 billion until the end of September 2018, or beyond, if necessary.
The euro dropped 0.9% against the U.S. dollar to 1.2303 following the ECB decision, hitting a one-week low, while European equities rallied to new session highs. France's CAC led the charge, finishing Thursday with a gain of 1.3%, while Germany's DAX and the UK's FTSE added 0.9% and 0.6%, respectively.
In Asia, equity indices also ended Thursday in positive territory, adding between 0.5% and 1.5%.
Investors received just one economic report on Thursday, weekly Initial Claims, which came in higher than expected (231K actual vs 220K consensus). As for continuing claims, they declined to 1.870 million from a revised count of 1.934 million (from 1.931 million). The report will likely be glossed over as it doesn't alter the market's perspective on the claims trend, and it comes just one day ahead of the much more influential Employment Situation Report for February.
The Employment Situation Report for February will be released at 8:30 AM ET on Friday, and the Briefing.com consensus expects that it will show the addition of 210,000 nonfarm payrolls, an increase of 0.2% in average hourly earnings, and an unemployment rate of 4.0% (down from 4.1% in January).
Report: Poisoned Russian Spy May Have Worked on Trump Dossier
The mystery of the former Russian agent who was poisoned with a nerve agent in a small English city on Sunday is getting more complex by the day. The Telegraph reported Thursday that Sergei Skripal—who remains in a critical condition in hospital alongside his daughter and a British police officer—was in close contact with a security consultant who worked for Christopher Steele, the former British agent who compiled the infamous Trump dossier. The newspaper refused to name the consultant, but reported that a LinkedIn page deleted in the past few days stated that he was based in Salisbury—where the attempted murder took place—and had previously done work for Orbis Business Intelligence, which is run by Steele. The Telegraph report states: “If the Kremlin believed that Col. Skripal might have helped with the compilation of the dossier, it could explain the motive for the assassination attempt in Salisbury town center.” On Wednesday, Valery Morozov—a former construction magnate who fled Russia—told Channel 4 News that Skripal was not retired and met with military intelligence officers every month.
Telecom Italia chief to meet with Elliott after call for board shake-up
The chief executive of Telecom Italia will meet representatives of Elliott Management, the activist investor, in London on Friday as the company looks to defend its strategy.
Elliott has built a position in Telecom Italia, which is controlled by France’s Vivendi. It said this week that “governance, valuation, strategic direction and relationships with Italian authorities would be improved by replacing certain members of the board”.
Amos Genish, chief executive of Telecom Italia, argued that a board shake-up would not be in the interest of its shareholders and that he would resist any attempts to force the business to merge its Brazilian phone network with that of Oi, which he said is a likely motivation for Elliott’s move.
He also said that any move to force it to float its network, which is being split into a separately owned company, would be premature and risk antagonising its bondholders.
Telecom Italia has presented its own recovery plan for the next three years, which includes a resumption of dividend payments in 2019 or 2020. That payout would be jeopardised by any move to merge with Oi, which is in bankruptcy protection, according to Mr Genish, who said such a deal would be “extremely irresponsible”.
He said that the company’s growth plan has been developed after lengthy discussions with shareholders, who will vote on it at a meeting in April. “(Shareholders will have to decide) on the American hedge fund view — the sausage factory — or to take the serious industrial approach,” he said.
Elliott was unavailable for comment.
ECB drops pledge to buy more bonds if needed
The European Central Bank has dropped its easing bias on its asset purchase programme as it holds rates again following its governing council meeting
* Main rate held at 0.00%, deposit facility at -0.4%
* QE programme runs until end of September
* Euro bounces back against dollar
The European Central Bank has taken a further step towards ending its crisis-era stimulus measures, dropping an explicit commitment to buy more bonds and expand its quantitative easing programme if necessary.
The ECB’s governing council removed the explicit aim to intervene more aggressively in bond markets should growth disappoint, the so-called “easing bias”, from its regular statements. This came after mounting evidence that the bank’s measures have worked in spurring growth.
The move, which follows decisions to scale down QE from €80bn to €60bn and ultimately €30bn a month, indicates the bank is becoming increasingly confident that growth in the region can survive without its extraordinary monetary support.
The ECB is expected to call time on buying new bonds under the €2.3tn QE programme later this year, possibly as soon as September. However, it is expected to maintain interest rates at record lows until mid-2019.
The euro rose after the announcement and extended its gains during a press conference by Mario Draghi, ECB president. The currency hit a day high of $1.2466 as he was speaking, up 0.3 per cent on the session. The move took its year-to-date rally against the dollar to 3.6 per cent. Eurozone government debt yields also rose as the ECB moved away from the QE programme.
In the text of the “easing bias”, included in previous monetary policy statements, the ECB’s governing council declared itself ready to increase the asset purchase programme “in terms of size and/or duration” in the event of a downturn in the economic outlook or turmoil in financial markets.
Hawks on the 25-member council have long complained that economic improvements had made such language redundant and argued that its inclusion in the ECB’s forward guidance appeared outdated.
Mr Draghi said last year that the bank had defeated the threat of deflation. In December, policymakers declared that the eurozone’s economy was no longer merely recovering but in a stronger, expansionary phase.
Mr Draghi said that ECB staff had revised the forecast for eurozone 2018 growth upwards to 2.4 per cent, compared with the 2.3 per cent estimated in December. Growth estimates of 1.9 per cent for 2019 and 1.7 per cent for 2020 were unchanged from the December figures.
The ECB staff still expects inflation of 1.4 per cent this year, but revised the inflation estimate for 2019 downwards from 1.5 per cent to 1.4 per cent. It still expects 2020 inflation of 1.7 per cent.
Doves on the council argued that the prevalence of low inflation meant the easing bias should remain in place — especially in an environment in which political risks to growth remain.
In his press conference, Mr Draghi referred to “rising protectionism” alongside currency appreciation as one of the threats to the eurozone’s otherwise balanced growth prospects.
The ECB president was also likely to be quizzed on scandals in Latvia, which have ensnared the country’s central bank governor and ECB governing council member Ilmars Rimsevics, raising doubts about the central bank’s supervision of the Baltic state’s lenders.
The ECB eventually forced the closure of the country’s third-largest bank ABLV after US Treasury allegations that the lender had helped facilitate the funding of North Korea’s missile programme — allegations the bank denies. Mr Rimsevics, who denies separate allegations of bribery, did not attend Thursday’s council meeting.
The bank kept the benchmark main refinancing rate at zero. The deposit rate remains at -0.4 per cent
Gapping down
In reaction to disappointing earnings/guidance:
- MEET -13.2%, ZAGG -10%, (also Randy Hales will retire as ZAGG's President and CEO), HDSN -6%, TECD -5.2%, KR -4.7%, FMSA -4.5%, ERII -3.3%, NIHD -2.8%, TRNC -2.2%, CRY -2%, FNV -1.8%, WRD -1.7%, VKTX -1.7%, (also VK2809 Phase 2 fatty liver and hypercholesterolemia study proceeding, results expected 2H18 ), VSLR -1.7%, FMI -1.1%, DVAX -1.1%, FGP -0.8%
M&A news:
- CI -5.3% (to acquire ESRX for ~$67 bln)
Other news:
- VBLT -64% (announces top-line results from pivotal Phase 3 GLOBE study in patients with recurrent glioblastoma; study did not meet its pre-specified primary endpoint of overall survival)
- CRVS -12.5% ( commences an underwritten public offering of up to $50 mln shares of its common stock )
- CKPT -12% (proposes to offer and sell shares of its common stock in an underwritten public offering)
- GWRE -2.5% (announces proposed public offerings of $200 mln of common stock and $300 mln of convertible Senior Notes and files mixed shelf)
- CLSD -1% (priced public offering of 6,538,462 shares of its common stock at $13.00/share)
Analyst comments:
- CF -1.9% (downgraded to Underperform from Buy at BofA/Merrill)
- OAS -0.5% (downgraded to Underperform from Neutral at BofA/Merrill )
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Gapping up
In reaction to strong earnings/guidance:
- RWLK +18.2%, COLL +11.5%, PCMI +11.1%, EYES +10.8%, BURL +9.7%, OCUL +8.9%, SSI +7.9%, SHLO +7.9%, CMTL +7.7%, CZR +6.4%, IGT +6.3%, CTMX +4.7%, XENE +4.7%, (also collaborative development and license agreement with Teva terminated), WYNN +4.2%, (provides recent operational and financial results -- update following first month since the appointment of Matt Maddox as new CEO), THO +4.2%, WUBA +3.5%, RVLT +3.4%, GNE +3.2%, PGNX +2.5%, REVG +2.4%, HRTG +2.3%, OKTA +2.2%, BKCC +2.2%, CLDX +2%, LB +1%, (March comps +3%, announces new $250 million share repurchase plan) WTTR +0.8%, MTN +0.8%, .
M&A news:
- ESRX +16.5% (to be acquired by Cigna (CI) for approximately $67 bln in cash & stock ($48.75/share in cash, 0.2434/share in stock) )
- BBRG +14.2% ( to be acquired by Spice Private Equity, an affiliate of GP Investments; BBRG's shareholders will receive $4.05/share in cash)
Other news:
- RWLK +18.2% (announces $20 mln strategic investment from Timwell Corporation at $1.25/share)
- WGO +2.3% (following THO results)
- DVN +2.3% (Devon Energy increases quarterly dividend to $0.08/share from $0.06/share; board authorizes a $1.0 bln share-repurchase program of common stock over the next year; enters into an agreement to sell the southern portion of its Barnett Shale position for $553 mln)
- MDRX +2.1% (provides update in response to certain inaccurate information introduced into the market regarding Allscripts' business in Singapore)
- LVS +1.5% (higher with WYNN / CZR)
Analyst comments:
- MCHP +3.1% (upgraded to Buy from Neutral at Goldman)
- WEN +1.9% (upgraded to Buy from Neutral at Longbow)
- BHGE +1.7% (upgraded to Buy from Neutral at UBS)
- PH +0.9% (upgraded to Outperform from Neutral at Robert W. Baird)
- WLL +0.7% (upgraded to Neutral at BofA/Merrill)
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Early premarket gappersGapping up:
- RWLK +18.2%, EYES +15.1%, COLL +11.5%, RCII +11.1%, CMTL +7.7%, CZR +7.2%, SSI +6.3%, NAV +6%, CTMX +4.7%, XENE +4.7%, WYNN +3.8%, THO +3.7%, WUBA +3.6%, BURL +3.4%, DVN +2.4%, REVG +2.4%, PCMI +2.4%, IGT +2.4%, HRTG +2.3%, BKCC +2.2%, TECD +2.2%, CLDX +2%, WGO +1.8%, OKTA +1.2%, WTTR +0.8%
Gapping down:
- VBLT -55.9%, ZAGG -11.6%, MEET -10.3%, CRVS -8.6%, CKPT -7.5%, HDSN -6%, VKTX -3.3%, ERII -3.3%, GWRE -2.5%, TRNC -2.2%, CRY -2%, FNV -1.8%, WRD -1.7%, VSLR -1.7%, COST -1.3%, FMI -1.1%
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