Mid-Morning Look: April 05, 2022

Mid-Morning Look

Tuesday, April 05, 2022

Index

Up/Down

%

Last

 

DJ Industrials

-55.77

0.16%

34,866

S&P 500

-22.65

0.49%

4,559

Nasdaq

-198.51

1.36%

14,332

Russell 2000

-26.00

1.24%

2,069

 

 

U.S. stocks down for the first time in three days, with stocks taking an about face around 10:00 after comments from Fed’s Brainard saying “combined impact of rate hikes, balance sheet reduction will bring monetary policy to more neutral position later this year and that the Fed is prepared to take stronger action if inflation and inflation expectation indicators suggest need for such action. She said the Fed will tighten monetary policy “methodically” through series of rate hikes, starting to reduce balance sheet at rapid pace as soon as may meeting and expects the balance sheet to shrink considerably more rapidly than previous recovery. None of these comments are much different than what other Fed members have said in recent week, but it was enough to turn markets lower for the day (for now) on fears of a more aggressive Fed hiking rates to fight inflation. European equities extend losses, knocked lower following reports that the European Union is planning to propose a mandatory phaseout on coal imports from Russia (coal stocks jumping). Treasury yields jump across the board, but the 2’s and 10’yr yield no longer inverted as 10-yr up 11 bps to 2.52% while 2-yr +7bps to 2.505%: the 3-yr higher at 2.7%. Oil prices volatile flipping between gains and losses early while the dollar remains strong. Early strength in the defensive sectors as Consumer Staples and Utilities lead, seeing a reversal of yesterday’s action when technology was the top sector gainer (now pressured this morning).

 

Economic Data

·     February International Trade in Goods and Services showed deficit -$89.2B vs. -$88.8B consensus, vs. January deficit of $89.23B; while international trade in goods deficit narrowed to $106.6B in February; U.S. Feb exports +1.8% vs Jan -1.7%, imports +1.3% vs Jan +1.1%; China Feb trade deficit $30.67 bln vs Jan deficit $36.37 bln

·     ISM report on U.S. Non-manufacturing sector shows PMI 58.3 in March vs 56.5 in February; the business activity index 55.5 in March vs 55.1 in February; prices paid index 83.8 in March vs 83.1 in February; new orders index 60.1 in March vs 56.1 in February; employment index 54.0 in March vs 48.5 in February

·     U.S. Markit Services PMI Final Actual 58 (Forecast 58.9, Previous 58.9) and US Markit Composite PMI Final Actual 57.7 (Forecast 58.5, Previous 58.5)

 

 

Macro

Up/Down

Last

 

WTI Crude

0.20

103.48

Brent

0.68

108.21

Gold

3.00

1,937.00

EUR/USD

-0.0033

1.0937

JPY/USD

0.53

123.33

10-Year Note

0.116

2.528%

 

 

Sector Movers Today

·     Healthcare Services; in managed care (UNH, HUM, CNC), CMS released FY2023 MA rates late Monday that implement a favorable increase of 5.0%, which was a modest improvement on the already strong 4.48% in the proposed rule. The improvement is due to benefits from the effective growth rate of 4.88% (4.75% proposed) and a 0.39% benefit from re-basing/re-pricing; UNH and CHNG agreed to extend the closing date of their merger by another nine months to Dec. 31, the companies said. Under the latest extension terms, UnitedHealth’s Optum unit, will pay a $650 million fee to Change if the deal is not completed due to the court’s decision

·     Utilities & Solar; coal stocks were strong early (HCC ) following reports that the European Union is planning to propose a mandatory phaseout on coal imports from Russia; in solar, FSLR downgraded to Underperform with $65.50 tgt at Bank America saying the stock has risen nearly 30% off a February low and “at the end of the day, expansion is not backed by fundamentals, leaving shares susceptible to significant derating; in renewables/clean energy, XYL upgraded to Market Perform at Raymond James and downgrading EVA (to MP), NEP (to UP) as part of a series of rating changes within an earnings update on the renewable energy and clean technology sector.

·     Bitcoin, FinTech & Payments; Wells Fargo initiates coverage with Overweight ratings in payments/FinTech on: ADYEN, BILL, FIS, FISV, FLT, FLYW, GPN, MQ, PAY, PYPL, SHOP, SQ, TOST and WEX – a bullish stance as see a $1.5T annual revenue opportunity for Fintech companies globally, and expect 6% annual growth over the ensuing decade; MARA produces a record 1,259 Bitcoin in Q1 2022, up 556% year-over-year from q1 2021 and up 15% sequentially from q4 2021; total Bitcoin Holdings Increase to 9,374 BTC; COIN tgt cut to $190 from $210 at Mizuho; MSTR said it bought about 4,167 bitcoins for ~$190.5 mln cash

·     Auto sector; GM and Honda will codevelop affordable EVs targeting the world’s most popular vehicle segments; electric vehicle stocks little weaker early after outperformance yesterday (TSLA, NIO, NKLA); CHPT said Antara Capital LP to invest $300 mln through purchase of convertible senior notes due 2027 to support co’s growth; CVNA downgraded from Outperform to Sector Perform w/ $138 PT from $155 at RBC Capital saying they are no longer able to justify the risk/reward as asymmetrically positive for CVNA and thus, downgrade to Sector Perform.

 

Stock GAINERS

·     BTU +6%; along with strength in coal producers HCC following reports that the EU is planning to propose a mandatory phaseout on coal imports from Russia

·     CCL +6%; said it had its busiest booking week in the company’s history, seeing a double-digit increase between March 28 and April 3 from the previous seven-day record, and is operating nearly at its pre-pandemic capacity as 22 of its 23 ships are back in operation

·     CHNG +7%; and UNH agreed to extend the closing date of their merger by another nine months to Dec. 31, the companies said.

·     GNRC +2%; upgraded to Buy from Neutral with $410 tgt at Goldman Sachs as see products that are in the early phases of the adoption curve

·     RCUS +10%; said it is set to join the S&P SmallCap 600 before the market opens on Thursday

·     TEVA +2%; upgraded to Overweight from Equal Weight at Barclays and up tgt to $13 saying the company is positioned to get $300M in revenue from Alvotech’s AVT02 over the next year

·     TWTR +5%; after the company said to appoint Elon Musk on board of directors; in agreement, said Musk to not own more than 14.9% of shares

 

Stock LAGGARDS

·     DHI -3%; as homebuilders slide following another spike in mortgage rates/Treasury yields

·     DNA -3%; files to sell 292M shares of common stock for holders

·     DWAC -14%; other social media platforms slide on news twitter to appoint Elon Musk on board of directors

·     FSLR -3%; downgraded to Underperform with $65.50 tgt at Bank America saying the stock has risen nearly 30% off a February low and “at the end of the day, expansion is not backed by fundamentals, leaving shares susceptible to significant derating

·     MRNA -3%; after the African Union and COVAX, the WHO-backed group, decided not to obtain more of its COVID vaccine as developing nations struggle to inoculate – Bloomberg

·     VOD -1%; was downgraded to Hold from Buy at Berenberg

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Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.