Can Scrapping `Worst Deal Ever' Be Priced In?: Taking Stock
(Bloomberg) -- Stock futures and crude oil have both dropped in the past couple hours, in an opposite move with the dollar, while Iran’s rial is reportedly getting hammered ahead of Trump’s decision on the nuclear accord (what he’s previously called "the worst deal ever") at 2pm.
The market had a puzzling response to Trump’s tweet on Monday about the timing of his decision on Iran, which swept the rug under the rally in crude, energy stocks and the overall tape. It’s not exactly clear how the knowledge of when this announcement will come to light implied that Trump was persuaded to come to some sort of an agreement, as the market’s reaction suggests. An announcement was expected this week anyway, given the deadline is just days away.
Evercore ISI’s Tom Cape said last night that based on their talks with contacts in Washington, the EU aimed to put together a "last minute deal" for Boris Johnson to present to Trump, but the tweet signals Trump and Bolton’s "intent to cut them off -- hence the early announcement tomorrow." In other words, crude and the market went the wrong way in the afternoon.
Perhaps it was just a classic sell-the-news reaction that was pushed forward by a few days. Regardless, energy traders are on watch until 2pm as things could get quite whippy with each incremental headline, report and tweet on whether this is a hard exit, a soft exit, or an exit at all.
Tech Leadership and Caterpillar’s Moment
Tech has resumed its market leadership ever since Apple’s better-than-feared report last week, with S5INFT up over 3% and NYFANG up more than 4% in that time frame vs the S&P 500 up small. Next big catalyst is Nvidia earnings on Thursday, which could spark a relief rally in the beaten-down semis space (SOX down >11% from its March peak), but the stock has already had a pretty sizable run up -- two cautious sell-side notes out today from MKM and Susquehanna with the stock soaring ~10% in three days -- plus any negative headline over China trade, especially in regards to antitrust regulation (Mofcom etc), would likely offset any sympathy move.
Industrials have been a weak link in this tape ever since Caterpillar waved the "high water mark" warning flag two weeks ago, where some sell-siders said the comment was misinterpreted as suggestive of a peak in the cycle. Emerson tried to throw cold water on that in their earnings call, but the damage was done -- not to mention CAT’s market cap is more than double the size of EMR and it has a wider global reach. Regardless, every industrial portfolio manager will probably be listening carefully to CAT’s presentation at the Wells Fargo Industrials Conference at 8:35am to see if their IR team aims to do any damage control, which could help the space get out of its rut.
Consumer staples have been a consistent underperformer since the beginning of earnings season, and yesterday was no different as the group was the weakest of all S&P groups (although SYY and TSN ended in the green post-results, interestingly enough). Both Dean Foods and US Foods reported beats this morning, but the big catalyst today will likely be Goldman Sachs Global Staples Forum with names ranging from Coca-Cola and Clorox to Estee Lauder and General Mills.
Notes From the Sell Side
The biggest calls so far...
Aside from the cautious calls ahead of Nvidia earnings mentioned above, there are some positive notes on Blue Apron after analysts toured the Linden facility (shares are up >20% in three days); RBC downgraded XL Group (very odd move in yesterday’s session along with another reinsurance deal stock, Validus), and Goldman made a bunch of changes to its conviction list, adding Northrop Grumman and Harris Corp. while removing Leidos and AGCO.
Goldman, in a Global Opportunity Asset Locator (GOAL) note, upgraded cash to overweight over the next three months to "reduce risk," though remains pro-risk with bullish view on equities and commodities.
Tick-by Tick Guide to Today’s Actionable Events
- Today -- GOOGL’s I/O developer conference, NTNX’s .NEXT and Red Hat Summit begin
- Today -- Christie’s art auction (may impact BID)
- Today -- APLS, SOGO IPO lockup expiry
- 7:00am -- VRX, CROX earnings
- 7:30am -- VSH, HAIN, JLL earnings; JD earnings call
- 8:00am -- VG earnings; VRX, HTZ earnings call
- 8:30am -- EXPD earnings
- 8:30am -- FIS investor conference
- 8:35am -- CAT presents at Wells Fargo Industrials conference
- 10:00am -- JOLTs job openings
- 10:00am -- ATHN presents at Deutsche Bank Health Care Conference
- 10:00am -- House panel hearing on opioid crisis with CAH, MCK, ABC executives
- 10:50am -- KO presents at Goldman Global Staples Forum
- 12:00pm -- Nikki Haley speaks at Washington Conference on the Americas
- 12:00pm -- DoE short-term oil and natgas outlook
- 12:10pm -- EL presents at Goldman Global Staples Forum
- 12:45pm -- CLX presents at Goldman Global Staples Forum
- 1:00pm -- PBR earnings call
- 1:20pm -- GIS presents at Goldman Global Staples Forum
- 1:55pm -- Mike Pompeo speaks at Washington Conference on the Americas
- 2:00pm -- Trump to announce decision on Iran nuclear accord
- 3:15pm -- Fed’s Powell to speak in Zurich
- 3:30pm -- RHT analyst day
- 4:00pm -- CTXS analyst meeting
- 4:01pm -- EA, ZAGG, AAXN, LC, FOSL, FANG earnings
- 4:02pm -- TRIP earnings
- 4:05pm -- DIS, CA, AAOI, OCLR, NEWR, OSTK, GDDY, TRUE, WEN, MNST, PLNT, BW, JAZZ, SPWR earnings
- 4:10pm -- ETSY (roughly) earnings
- 4:15pm -- MCHP, TWLO, MGI, PHH, LQ, OXY earnings
- 4:30pm -- Wilbur Ross speaks at Washington Conference on the Americas
- 4:30pm -- API oil inventories
- 4:30pm -- MTCH (roughly) earnings
- 5:00pm -- MAR, LBTYA, PZZA (roughly) earnings
- Tonight -- Origin Bancorp (ONBK), Evelo Biosciences (EVLO) to price IPOs
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