Sales growth divergence to continue into 2Q
CS expect the divergence in terms of sales growth in soft luxury to have continued through 2Q with the mega brands of LVMH and Kering gaining shares over the mono-brand companies. We believe a sales growth deceleration is widely anticipated by the market but high valuation multiples relative to European equities seem to suggest that earnings upgrades are needed for most stocks to perform on results. We like Kering (N) and LVMH (O/P) into results.
US was mixed - cyclical sectors outperformed their countercyclical peers with growth-sensitive groups like technology (+0.8%), materials (+0.6%), energy (+0.3%), industrials (+0.2%), and consumer discretionary (+0.2%) settling in the green and defensive-oriented groups like health care (-0.3%), consumer staples (-0.7%), utilities (-0.2%), and telecom services (-0.5%) finishing in the red. Big Financials Weak ahead of numbers this week. US After Hours SLP +8.5%, VOXX -23%, CUDA -5% following earnings/guidance, RCII +17% on potential Vintage Capital bid. ASIAN EQUITIES – ARE MIXED on Tuesday. The Hang Seng is leading Chinese equities with the major banks outperforming. The PBoC resumed open market operations after a 12-day hiatus, injecting a modest amount via 7- and 14-reverse repos. Liquidity is expected to tighten as shorter-term loans mature and tax payments drain funds around mid-July. Press have noted the PBoC is expected to dial back recent cash drains after toning down its previous assessment of “relatively high” liquidity conditions. The Nikkei is picking up strength with the dollar-yen holding near its mid-May highs. Monetary policy divergence was cited as a factor behind expectations of yen depreciation in the latest Nikkei poll. Meanwhile the political travails of Shinzo Abe have resulted in more loss of public support for the prime minister. Elsewhere the latest Iron ore rally has helped underpin the ASX's miners. The Aussie dollar has lifted following data showing Australian business conditions rising to pre-GFC highs. However, the kiwi dollar has underperformed after New Zealand spending data underwhelmed expectations.
Nikkei +0.59% Hang Seng +1.44% CSI +0.97% Shanghai +0.13%
Eur$ 1.1384 CNH 6.8067 CNY 6.8054 JPY 144.40 GBP 1.2874 CHF 0.9675 RUB 60.3353 WTI$ 44.51
S&P +0.11% EuroStoxx +0.20% FTSE +0.10% Dax +0.29% SMI +0.13%
MAcro :
- Goldman Sachs Sees U.S. Earnings Growth at 9%, Moe Says
- Go Overweight on Construction, Be Cautious on Flow Firms: Wolfe
Keep an eye on :
- AED BB : Aedifica Buys Dutch Care Residence Project for About EU9m
- AKE FP : Arkema Confident on Targets Through 2020, Unveils 2023 Forecasts
- ANTO LN : London Copper Halts Decline as Strike Looms at Antofagasta Mine
- CI US : Cigna Names Arthur Cozad as CEO of Zurich Insurance Middle East
- COMH SS : Com Hem 2Q Revenue Matches Est.
- DBK GY : HNA Chief Sees Deutsche Bank Investment as ‘Historic Chance’: HB
- DB1 GY : Deutsche Boerse Buys Stake in Soros-Backed Bond Platform Trumid
- GIVN VX : Givaudan Buys Dutch Dairy Producer Vika; No Terms Disclosed
- HNB NO : Hafslund Board Recommends Not to Accept Offer From Oslo City
- ING NA : ING Negotiating Deutsche Bank Spain Business Deal: Expansion
- DEC FP : JCDecaux Gets 10-Yr Ad Contract for São Paulo Guarulhos Airport
- KNEBV FH : Kone Delhi Tube Deal in Risk as Govt Prefers Indian: Kauppalehti
- RFRG NA : Refresco CEO Says Didn’t Get Sweetened Offer From PAI:Telegraaf
- REP SM : Repsol 2Q Output 676,000 BOE/Day
- RYA LN : Ryanair Drops Plan to Serve Ukraine Amid Kiev Airport Dispute
- SAN FP : Sanofi to Buy Protein Sciences for Upfront Payment of $650M
- SFR FP : SFR to Start Altice Studio Film Channel on Internet in August
- SIE GY : Siemens Says Gas Turbines Moved to Crimea Against Its Will
- TRYG DC : Tryg 2Q Pretax Profit Beats Est.
- TU1 GY : TUI Agrees to Dispose All Remaining Hapag-Lloyd Shares (July 10)
- VOW3 GY : Ex-Audi Manager Arrested in Diesel Scandal Talks to Prosecutors
>>> Up
*Exxon Raised to Overweight at Barclays, PT $94
*Mediaset Raised to Outperform at Macquarie
*Sandvik Raised to Buy at HSBC, PT SEK150
*Schneider Raised to Buy at Kepler Cheuvreux, PT EU76
*STMicroelectronics Raised to Overweight at JPMorgan, PT EU16.30
>>> Down
*Almirall Cut to Underperform at Credit Suisse
*Com Hem 2Q Revenue Matches Est.
*Equiniti Cut to Neutral at Citi
*Snap Cut to Equal-weight at Morgan Stanley, PT $16
*Whole Foods Cut to Market Perform at Wells Fargo, PT $42
>>> Initiation
*Boozt New Hold at Berenberg, PT SEK75
*Coach New Buy at MKM, PT $59
*Colony Starwood New Outperform at Raymond James, PT $38
Asia Mid-Session Market Update: PBOC returns to open market operations; Kiwi falls 0.5% to a 2-week low
***Asia Summary***
- Hong Kong banks led the market higher with the PBoC resuming open market operations after 12 consecutive skips, this was speculated in the press ahead of the announcement given that the government and policy banks needed to sell at least CNY483B in bonds this week and a high chance companies would start to hoard cash ahead of tax payments later this month. According to Chinese press going forward OMO’s are expected to remain more modest than prior to this latest hiatus.
- NZD/USD fell to a two-week low of 0.7237, attributed to a technical move that then triggered stop losses. The A$ gained slightly on stronger business confidence and conditions for the month of June. However, Australian miners remained under pressure and next week will kick off with results from Rio Tinto, July 11th and then BHP on July 19th.
***Key economic data***
- (AU) AUSTRALIA MAY HOME LOANS M/M: 1.0% V 1.5%E
- (NZ) NEW ZEALAND JUN CARD SPENDING RETAIL M/M: 0.0% V 0.8%E; TOTAL M/M: 0.1% V -0.2% PRIOR
- (UK) JUN BRC LFL SALES Y/Y: 1.2% V 0.8%E
- (UK) UK June Barclays Card Consumer Spending Y/Y: 2.5% v 2.8% prior (15-month low)
- (AU) AUSTRALIA JUN NAB BUSINESS CONFIDENCE: 9 V 8 PRIOR; CONDITIONS: 15 V 11 PRIOR
- (CN) China Passenger Car Association (PCA): Jun vehicle sales +4.6% y/y; YTD sales -0.2% y/y
***Speakers and Press***
China
- (CN) China may start to inject cash again through OMO due to Govt and policy banks need to sell at least CNY483B in bonds this week and companies may keep cash through July for tax payments - financial press
- (CN) China Investment Corporation (CIC) reports 2016 net return on overseas investment 6.22% v -2.96% y/y
Japan
- (JP) According to SMBC Nikko Securities analyst: BoJ is unlikely to be prompted into action by the rise in five-year yield unless it causes a spike in volatility or pushes 10-year yields higher
- (JP) According to latest Asahi poll 61% feel that Japan PM Abe cannot be trusted
Australia/New Zealand
- (NZ) New Zealand PM English: Government allocates NZ$1.0B to a housing infrastructure fund that will focus on 9 projects
US
- (US) US President Trump may name Randal Quarles as the Fed's supervision vice chair later today - US press
- (US) Fed's Williams (moderate, non-voter): US fiscal policy is on an unsustainable path; reasonable view to expect one more rate hike this year
***Asian Equity Indices/Futures (00:30ET)***
- Nikkei +0.5%, Hang Seng 1.1%, Shanghai Composite -0.2%, ASX200 -0.1%, Kospi +0.3%
- Equity Futures: S&P500 +0.1%; Nasdaq flat, Dax +0.2%, FTSE100 +0.1%
***FX ranges/Commodities/Fixed Income (00:30ET)***
- EUR 1.1398-1.1391; JPY 114.26-114.03; AUD 0.7620-0.7603; NZD 0.7272-0.7230
- Aug Gold -0.2% at 1,211/oz; Aug Crude Oil +0.4% at $44.58/brl; Sept Copper -0.2% at $2.65/lb
- GLD SPDR Gold Trust ETF daily holdings fall 2.96 tonnes to 832.4 tonnes
- (CN) PBOC SETS YUAN REFERENCE RATE AT 6.7983 V 6.7964 PRIOR
- (CN) PBoC injects combined CNY40B in 7-day and 14-day reverse repos (1st injection in 12 sessions)
- (TH) Thailand sells combined THB105B in 3-month, 6-month and 329-day bonds
- (JP) Japan MoF sells ¥21.80T v ¥2.2T indicated in 0.10% 5-year JGB bonds; avg yield -0.0350% v -0.065% prior; bid-to-cover: 4.85x v 4.71x prior
***Asia equities notable movers***
Australia
- Slater &Gordon, SGH.AU Reaches in-principle conditional agreement to settle Hall Proceeding; +12.2%
Japan
- Suzuki Motor , 7269.JP Netherlands Vehicle Authority said to investigate possible misuse of vehicle emissions software – press; -3%
Hong Kong/China
- Geely Automobile, 175.HK Positive profit alert: Guides H1 Net +100% v CNY1.91B y/y; Rev to substantially increase; +3.8%
Korea
- 005380.KR Hyundai and Kia said to discuss cutting China sales target - South Korean Press
***US Session Highlights***
- (UK) PM May met with Australian PM Turnbull, as she vows to create closer ties, especially on trade. Over the weekend, May had met with Pres Trump, who promised a fast track to a free trade agreement. PM May, weakened after the unneeded early election, has been active in garnering support from third parties in terms of trade to strengthen her position with the EU. But after last week's reports that the EU and Japan were to agree to free trade terms, Japan has said that may not be the case, and in fact the UK may take their front seat on trade talks.
- (US) US regulatory agency CFPB announced completion of a rule that would allow class action suits against banks. The rule would prevent banks and credit card companies from including class action bans in customer contracts. The new rules become effective in ~240 days, but under the Congressional Review Act, the GOP has 60 legislative days to block it.
-US Treasuries managed to hold some ground today, as investors continued to sell fixed income but at a slower pace. 10-year yield dropped 1.3bps to 2.37%, and the 10s/30s yield curve widen, rising to 55.5bps, with 30-year bond yield only slightly lower at 2.93%.
***US markets on close: Dow flat, S&P500 +0.1%, Nasdaq +0.4%***
- Best Sector in S&P500: IT
- Worst Sector in S&P500: Real Estate
- Biggest gainers: CF +6.6%; MOS +5.3%; FCX +5.2%
- Biggest losers: M -7.1%; GPS -6.3%; BBY -6.3%
- At the close: VIX 11.1 (-0.08pts); Treasuries: 2-yr 1.39% (-1.4%), 10-yr 2.37% (-0.8%), 30-yr 2.93% (-0.3%)
After Hours Summary: SLP +8.5%, VOXX -23%, CUDA -5% following earnings/guidance, RCII +17% on potential Vintage Capital bidAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: SLP +8.5%
Companies trading higher in after hours in reaction to news: ARNA +39.7% (announces 'positive' Phase 2 results for ralinepag for the treatment of pulmonary arterial hypertension), WMLP +17.2% (after spiking ~1 point/50% higher in late trade), RCII +17.1% (on reports that Vintage Capital sent letter with buyout proposal), NEOT +13.2% (to initiate process to explore and review strategic alternatives focusing on seeking an acquisition, business combination or partnership), OCUL +11.2% (Ocular Therapeutix submits details of a manufacturing equipment change as an amendment to the NDA resubmission for DEXTENZA 0.4 mg, for intracanalicular use, for the treatment of ocular pain following ophthalmic surgery currently under review by FDA), DRYS +8.2% (announces motion for temporary restraining order to suspend further issuances of common shares below a certain price was denied), PRTA +3% (initiated with Buy rating at Jefferies), KEY +0.8% (upgraded to Outperform from Market Perform at Keefe Bruyette after the close), KTWO +0.6% (signs new, long-term, exclusive agreement with Mitsubishi)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: VOXX -23.2%, CUDA -5.3%, CTXS -3.7% (announces leadership transition to accelerate cloud transformation, enhance profitability and return capital to shareholders; reaffirms Q2 guidance)
Companies trading lower in after hours in reaction to news: YUMA -8.1% (after closing near highs up 190% on the day), GTY -7.7% (launches underwritten registered public offering of 4.1 mln shares of its common stock), ZN -3.2% (continued weakness), SHLO -3% (commences 5 mln common stock offering), OMED -2.2% (OncoMed Pharma received a letter indicating that GSK was terminating Research and Development Collaboration), KN -2.1% (indicated lower on block trade pricing), JCP -1.3% (CFO Edward Record to step down effective July 11 to pursue other interests; company reaffirms expectation to report significantly improved top-line results this quarter versus the first quarter)
Closing Market Summary: S&P 500 Registers Slim Victory On MondayThe stock market kicked off the week with a rather uneventful, range-bound session that left the S&P 500 (+0.1%) just a step above its unchanged mark. The Nasdaq (+0.4%) outperformed the benchmark index while the Dow (unch) lagged, settling just a tick below its flat line. The major averages were hovering at their best marks of the day with less than 30 minutes to go in Monday's session, but a late bout of selling knocked them back to the middle of their trading ranges.
Sector movement was fairly modest throughout the first half of Monday's session, but things picked up a little bit in the afternoon. In general, cyclical sectors outperformed their countercyclical peers with growth-sensitive groups like technology (+0.8%), materials (+0.6%), energy (+0.3%), industrials (+0.2%), and consumer discretionary (+0.2%) settling in the green and defensive-oriented groups like health care (-0.3%), consumer staples (-0.7%), utilities (-0.2%), and telecom services (-0.5%) finishing in the red.
However, the cyclical vs countercyclical narrative doesn't fit Monday's session perfectly as the cyclical financial sector (-0.2%) struggled from the jump. The heavily-weighted group will remain a focal point this week as large-cap financial names like JPMorgan Chase (JPM 93.19, -0.66), Citigroup (C 67.65, -0.26), and Wells Fargo (WFC 55.59, -0.15) prepare to unofficially kick off earnings season with the release of their quarterly reports on Friday.
The top-weighted technology sector started the week with a solid performance that underpinned the broader market from virtually start to finish. The sector benefited from broad strength with chipmakers showing particular resolve, evidenced by the 1.2% increase in the PHLX Semiconductor Index. NVIDIA (NVDA 153.70, +6.94) led the semiconductor advance, jumping 4.7%, after the company's target price was raised to $200 at Needham.
Conversely, the consumer staples space registered a notable decline with Dow component Wal-Mart (WMT 73.23, -2.10) leading the retreat. The big-box retailer dropped 2.8% to a fresh three-month low with some traders citing Amazon's (AMZN 996.47, +17.71) third-annual Prime Day--a day in which the online retail giant offers Black Friday-types of deals to its Prime subscribers--as the catalyst to WMT's underperformance.
In the bond market, U.S. Treasuries settled Monday higher across the curve with the benchmark 10-yr yield dropping two basis points to 2.37%. Meanwhile, the U.S. Dollar Index (95.80, +0.02) finished flat.
Reviewing Monday's economic data, which was limited to May Consumer Credit:
- The Consumer Credit report for May showed an increase of $18.4 billion while the consensus expected growth of $12.7 billion. The prior month's credit growth was revised to $12.9 billion from $8.1 billion.
- Provided consumers weren't making greater use of revolving credit lines to cover basic needs due to a shortfall in income, this report can ostensibly be looked upon as a good sign for the economy since the expansion of credit is an integral contributor to economic growth. It is hard to say, though, because there isn't enough detail in the report and it tends to be subject to large revisions, which is why the market rarely shows much reaction to it.
Economic data will be limited again on Tuesday with investors receiving just two reports--May Wholesale Inventories (consensus 0.3%) and May JOLTS. Both reports will be released at 10:00 ET.
- Nasdaq Composite +14.7% YTD
- S&P 500 +8.4% YTD
- Dow Jones Industrial Average +8.3% YTD
- Russell 2000 +3.8% YTD
Gapping down
In reaction to disappointing earnings/guidance:
In reaction to disappointing earnings/guidance:
- N/A
Select oil/gas related names showing early weakness:
- SU -0.8%, RDS.A -0.6%, BP -0.6%, OXY -0.5%, RIG -0.5%
Other news:
- ITEK -47.8% (announces 'no meaningful clinical advantage in IOP reduction' from its Phase 2 trial of trabodenoson and latanoprost for the treatment of glaucoma, announces it is exploring strategic alternatives)
- NXTD -12.8% (enters into definitive agreements with existing institutional investors to purchase an aggregate of approximately $3,432,000 of shares of common stock in a registered direct offering and common stock purchase warrants in a concurrent private)
- USAT -3.8% (files for $40 mln offering of common stock)
- LUV -1.7% (June Traffic)
- SHPG -1.5% (obtained a preliminary injunction in a court of Hamburg against Roche (RHHBY) to address incomplete and misleading statements regarding Emicizumab)
- COOL -0.7% (files for $100 mln mixed securities shelf offering)
Analyst comments:
- KBH -2.3% (downgraded to Underperform at Mizuho)
- INTC -1.6% (downgraded to Underperform from Hold at Jefferies)
- COST -0.7% (downgraded to Market Perform from Outperform at BMO Capital)
- SUN -0.7% (downgraded to Underperform at Mizuho)