Monday 7/8/19=DJIA -115 NASDAQ -63
A downgrade by one analyst of Apple hurt the market on Monday. This analyst actually put out a very rare SELL rating on the stock. Apple is big member of both the DJIA and the Nasdaq. The underlying stocks of the indexes actually looked a lot better than the market would suggest.
AutoZone, Shopify, and Roku were standouts for me.
Here is a re-cap of Friday’s jobs report. It lowered the probability of an upcoming rate cut by the Fed. This hit both the stock and bond markets.
June jobs report shows inflation is still tame
• Unpacking the June jobs report, average hourly earnings rose only 0.2% from May and increased 3.1% Y/Y.
• In other words, even with unemployment near 50-year lows, inflation hasn’t picked up.
• “Wage growth has noticeably decelerated as average hourly earnings increased by a paltry 0.2% on the month,” observes Joseph Brusuelas, RSM US chief economist.
• “We still expect a 25-bps rate cut by Fed on July 30, but 50 bps cut now off the table,” Brusuelas writes via Twitter.
• “The data are unlikely to stop the Fed from easing at this month’s meeting,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics, told Reuters.
• Slightly higher-than-expected unemployment is a result of an increased labor force, not higher unemployment, says Jared Bernstein, senior fellow at Center on Budget.
• Six-month rolling average of Y/Y nominal wage growth suggests trend is “stalled or even trailing off a bit,” Bernstein adds, tacking on a chart to his tweet.
• It’s clear job gains are slowing from 2018; employment growth averaged 172K per month this year vs. an average monthly gain of 223K in 2018.
• Notable job gains in professional and business services (+51K), health care (+35K), and in transportation and warehousing (+24K).
Bonds fall after strong June jobs print
• After the June nonfarm payrolls number comes in stronger than expected, the 10-year Treasury falls, pushing yield up 5 basis points to 2.00%.
• iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) slips 0.4% in premarket trading; ProShares UltraShort 20+ Year Treasury ETF (NYSEARCA:TBT) jumps 1.1%.
• Unemployment ticked up to 3.7% vs estimate of 3.6% and May’s 3.6% reading.
Global markets also had a down day on Monday.
Global markets slide post US jobs data hurt hopes of Fed rate cut
• Japan -0.98%.
• Hong Kong -1.54%.
• China -2.58%.
• India -1.93%.
• London -0.16%.
• Paris -0.22%.
• Frankfurt -0.16%.
Trump is still calling for a rate cut.
Trump’s repeats call for a rate cut
• President Donald Trump took the opportunity to renew his call for the Fed to cut interest rates today.
• Says U.S. economy “would be like a rocket ship” if interest rates were lower.
• White House economic adviser Larry Kudlow also keeps to the talking point, saying, “They should take back the interest rate hike” that the central bank implemented in December.
Finally a positive number out of Germany.
German export engine speeds up in May
• German industrial production saw a slight pickup in May, a rare sign of resilience for Europe’s largest economy after data on Friday showed a plunge in factory orders.
• Exports grew by 1.1% on the month, while imports fell 0.5%. The upshot was a rise in the trade balance to €18.7B (from €16.9B) in the prior month.
Big turnaround in Greek politics.
Landslide win for Greece’s conservatives
• Greece’s opposition conservatives returned to power with a landslide victory in snap elections on Sunday, unseating the incumbent leftist Syriza party, which was blamed for foisting a bailout on the country.
• New Democracy leader Kyriakos Mitsotakis has pledged to cut tax rates – to 20% on businesses in two years from 29%, and on lower individual incomes, while slashing property taxes.
• He’s also promised a major round of deregulation, with a focus on investment and growth, as he takes the helm of Europe’s most indebted nation.
Iran causing trouble again. Ezekiel did not trust Iran’s government (Persia). Neither do I.
Iran breaches curbs on uranium enrichment
• Iran has increased its uranium enrichment beyond the limit allowed by its 2015 nuclear deal with world powers, edging closer toward weapons-grade levels while calling for a diplomatic solution to an escalating crisis.
• The move marks the end of a 60-day deadline Tehran issued in May for European nations to do more to offset the economic impact of sanctions by the U.S., which pulled out of the pact last year.
• Iran sent another letter to the EU issuing another two-month deadline to take further action, but didn’t disclose details about those measures.
Nike stock had a good day.
Nike on target with Women’s World Cup
• Nike (NKE +0.3%) looks like a clear winner from the Women’s World Cup due to its high profile at the event.
• Nike CEO Mark Parker said during the company’s FQ4 earnings call (transcript) that it’s creating an “even deeper emotional connection” to consumers through the Women’s World Cup in France.
• “In fact, the USA Women’s home jersey is now the number one soccer jersey men’s or women’s ever sold on NIKE.com in one season,” he disclosed. Parker gave the update on July 27 even before the U.S. women’s team won its quarterfinals and semifinal games with flair.
• The strong ties to the women’s team is seen by analysts as giving Nike a boost this quarter. Nike sponsors players U.S. players Alex Morgan, Mallory Pugh, Megan Rapinoe and Tobin Heath – as well as 14 of the 24 teams that competed in France at the World Cup.
• Beyond soccer, sales to women and girls are anticipated to be a growth opportunity for the company. “Nike will continue to invest heavily in developing women’s product across numerous categories and platforms as well as allocating significant marketing dollars behind initiatives to reach and connect with women,” notes Susquehanna analyst Sam Poser.
• Shares of Nike have crushed the S&P 500 Index over the last two years with a 50% return.
The street does not like this deal. Neither do I.
Broadcom makes progress on Symantec deal
• Broadcom (NASDAQ:AVGO) has secured financing for the acquisition of Symantec (NASDAQ:SYMC) in an all-cash deal that could value the cybersecurity firm at more than $22B including debt, Bloomberg reports, adding that an agreement could be reached around mid-July.
• Symantec has also drawn interest from its former chief executive officer, Greg Clark, who has teamed up with buyout firms Advent International and Permira Holdings in an attempt to muster a competing offer.
• However, the group so far has been unable to compete on price with Broadcom, making the pursuit a long shot.
Boeing’s loss is Airbus’ gain.
Flyadeal ditches 737 Max for A320
• In another setback for Boeing (NYSE:BA), Saudi Arabian budget airline Flyadeal said it will cancel its order for up to 50 737 Max jets, a deal worth $5.9B when it was announced last December.
• The low-cost carrier will instead buy up to 50 A320neo planes and become an “all-Airbus (OTCPK:EADSY) fleet,” marking one of the first tangible signs the 737 Max crisis could shift business to Boeing’s European rival.
• The Max continues to be grounded following two fatal crashes – Lion Air Flight 610 in October 2018 and Ethiopian Airlines Flight 302 five months later.
I would not touch this IPO.
WeWork to raise billions ahead of IPO
• Following the disappointing public debuts of Uber and Lyft, shared office space manager WeWork (VWORK) is hoping to shore up confidence in its business before it goes public.
• The company, which lost $1.9B last year, is reportedly looking to raise as much as $3B-$4B in coming months through a debt facility, assuring investors that it could fund growth initiatives until it can turn a profit.
• The capital would be separate from funds WeWork would receive in an IPO and may grow as big as $10B over the next few years.
PEP reports tomorrow. DAL and FAST on Thurs.
More IPO’s on tap.
Software platform maker Dynatrace files for IPO
• Dynatrace Holdings, maker of a software intelligence platform aimed at the enterprise cloud, has filed for its initial public offering.
• It’s set a placeholder amount of $300M, and is seeking an NYSE listing under the ticker symbol DT.
• It will be a “controlled company” under NYSE rules considering the stakeholding by affiliates of Thoma Bravo.
• Underwriters include Goldman Sachs, J.P. Morgan, Citigroup, Barclays, Jefferies, RBC Capital Markets and UBS Investment Bank.
• For the year ended March 31, 2019, it logged revenue of $430.97M (up 8.3% Y/Y) and a net loss of $116.2M (down from a profit of $9.2M, as marketing and G&A expenses ramped up substantially).
• The company competes with application performance monitoring vendors, including Cisco AppDynamics (NASDAQ:CSCO), Broadcom (NASDAQ:AVGO) and New Relic (NYSE:NEWR), as well as infrastructure monitoring vendors including Datadog and Nagios, Digital Experience Management vendors including Akamai (NASDAQ:AKAM) and Catchpoint, and point solutions from cloud providers including AWS, Azure and Google Cloud.
Kura Sushi USA files for IPO
• Kura Sushi USA (KRUS) proposes Class A common stock offering at a maximum aggregate price of $57.5M.
• The company has not yet determined a price range or the number of shares going on offer.
• The company plans to list on Nasdaq.
Sundial Growers files for IPO
• Canadian cannabis products firm Sundial Growers has filed for its initial public offering.
• The company has a placeholder registration for $100M, via Cowen, BMO Capital Markets and Barclays.
• It’s looking to list on Nasdaq under the symbol SNDL.
• For the quarter ended March 31, it logs net revenue of $1.5M, an operating loss of $17.5M (up from $7.1M last year, when it had no net revenue) and a net loss of $16.7M after income tax recovery.
Rapt Therapeutics files for IPO
• Rapt Therapeutics (OTC:RAPT) has filed a preliminary prospectus for an $86M IPO.
• The South San Francisco-based biopharma firm develops small molecule therapies for cancer and inflammatory disorders that it says modulate the critical immune responses underlying the diseases.
• Lead oncology candidate is FLX475, a CCR4 antagonist that blocks the migration of immunosuppressive regulatory T cells into tumors. Proof-of-concept data should be available in H1 2020.
• Lead inflammation candidate is RPT193, also a CCR4 antagonist, that blocks the recruitment of inflammatory immune cells called type 2 T helper cells that play a key role in allergic inflammatory diseases. A Phase 1 study in atopic dermatitis should launch in H2.
Glucose Biosensor Systems (Greater China) Holdings readies IPO
• Glucose Biosensor Systems (Greater China) Holdings (GBSG) has filed a prospectus for a $23M IPO.
• The New York City-based medical tech company plans to launch its Saliva Glucose Biosensor test in Mainland China, Hong Kong, Vietnam and Bangladesh, followed by tests for prostate specific antigen, peanut allergen and luteinizing hormone.
• The Saliva Glucose Biosensor test, a non-invasive method of measuring glucose, is based on an electrochemical reaction that produces an electrical signal that is directly proportional to the amount of glucose in the saliva. A smart phone app converts the signal into a real-time glucose reading that can be stored in the company’s cloud-based digital information system.
• Financials (nine-month period ending March 31, 2019): Sales: $114.0K; Net Loss: ($4.2M); Cash Consumption: ($3.1M).