The Hammerstone Report - Mid-Morning Look - 2-15-17

The Hammerstone Report – Mid-Morning Look – 2-15-17

Submitted By Jamie Lissette On February 15, 2017

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Mid-Morning Look

Wednesday, February 15, 17

Index Up/Down % Last
DJ Industrials 48.43 0.24% 20,552
S&P 500 1.07 0.05% 2,338
Nasdaq 7.64 0.13% 5,790
Russell 2000 -1.72 0.12% 1,394



Equities erase earlier declines, with major averages once again pushing to new record territory; stocks were lower initially as good news (very strong economic data) was actually bad news for the market, as futures dipped and the dollar surged given higher expectations for a March interest rate hike from the Fed. Following back to back big jumps in inflation readings for (CPI today and PPI yesterday), as well a big jump in manufacturing data in NY and a surge in retail sales, Fed Fund Futures are now pricing in more than a 40% chance of a March rate hike (up from yesterday). The move lifted the dollar and weighed on bonds, but have since pared those moves. Oil prices slipped on bearish inventory data, while several sectors/stock move on earnings and holdings revealed by several influential investors as quarterly 13F filings were released (Berkshire bought several airlines). Markets continue to watch for headlines this morning from Fed Chair Yellen in testimony before the House Financial Services Committee, wrapping up her semiannual testimony before Congress.


Treasuries, Currencies and Commodities

  • In Currency markets, the dollar index (DXY) rises to one-month highs following the stronger-than-expected U.S. CPI, manufacturing and retail sales data; the data, coupled with yesterday’s commentary from Fed Chairwoman Janet Yellen (and speaking again today) has propelled the dollar to its highest level in a month; dollar has since pared gains
  • Commodity prices in general are higher, though oil slides a bit after bearish inventory data overnight from API (9.94M barrel build) and this morning (EIA build 9.53M barrels vs. est. build of 3.5M) while distillates fell less than expected; gold prices pared earlier losses, but still under pressure with prospect of rising rate environment
  • Treasury market’s fall as yields touch their highest levels in more than 2 weeks on the rosier outlook for the U.S. economy; the 10-yr yield trades back above 2.50% on the increased odds of a Fed rate hike for the March meeting now, jumping after the strong data this morning; 2-yr yield up around 1.25% and the 30-yr around 3.10%


Economic Data

  • Inflation surges again; the consumer price index (CPI) for January rose by a seasonally adjusted 0.6% in January, well ahead of the 0.3% increase forecasted by economists (the big jump in inflation comes a day after PPI surged the most in 5-years yesterday); a big increase in the cost of gasoline accounted for almost half of the increase in consumer inflation in January; core CPI (ex: food & energy) rose 0.3% also above estimates of 0.2%
  • The Empire State manufacturing index jumped to its highest level in more than two years in February, rising to 18.7 from 6.5 in January and was well above estimates of 7.0; new orders index climbed to 13.5 in February from 3.1 in the prior month, shipments rose to 18.2 from 7.3 in January and unfilled orders index rose above zero for the first time in more than five years.
  • Retail sales jumped 0.4% last month, well above consensus for a 0.1% gain, and follows a much bigger gain in December than originally reported (revised up to 1% from prior 0.6%); according to the report, every major retail sector reported higher sales except for auto dealers, though if you exclude autos, U.S. retail sales rose a robust 0.8%, vs. an expected 0.4% rise
  • Industrial Production for January disappointed, falling (-0.3%) vs. an estimate of unchanged; the IP fell after rising 0.6% in December (revised down from up 0.8% last month); Capacity utilization fell to 75.3% from 75.6% in Dec., revised up from 75.5% – dragged down by Utilities, which fell 5.7% in Jan. after rising 5.1% in December
  • Business Inventories for Dec rose 0.4% MoM, in-line with consensus; business sales rose 2% in Dec. after rising 0.3% the prior month
  • U.S. Home Builders’ Confidence index (NAHB) in February falls to 65 vs 67 last month (estimate for this month also 67); the present single family sales falls to 71 vs 72 last month and the future single family sales falls to 73 vs 76 last month



Macro Up/Down Last
WTI Crude -0.09 53.11
Brent -0.13 55.84
Gold 2.20 1,227.60
EUR/USD -0.0003 1.0575
JPY/USD 0.29 114.55
10-Year Note 0.038 2.508%



Sector Movers Today

  • Transports; airlines particularly in focus today after Warren Buffett’s Berkshire Hathaway boosted its investments in airlines according to the latest 13F filings (showed new position in LUV, while raising stakes in AAL, DAL and UAL)
  • Monthly Master Trust credit card data shows: 1) JPM Jan Credit-Card Net-charge offs 2.29% vs. 2.25% MoM and delinquencies 1.19% vs 1.17% MoM; 2) COF Jan Credit Card net-charge-offs 4.91% vs. 4.89% MoM and card delinquencies 4.13% vs. 3.95% MoM; 3) ADS Jan NCO’s 6.1% vs. 5.3% MoM and card delinquencies 5.1% vs. 4.8% MoM; 4) DFS Jan net charge-offs 2.6% vs. 2.5% MoM and delinquencies 2.1% vs. 2% MoM; 5) SYF Jan NCO’s 4.59% vs. 4.88% MoM while delinquencies were 3.09% vs. 2.99% MoM
  • Consumer Staples; PG active as Trian Fund Management (Nelson Peltz’s firm) has taken a $3B stake in PG (which would represent ~1% ownership in PG) according to 13F filing; PEP for Q4 EPS topped views on in-line revs though says sees currency as a headwind in 2017; SODA Q4 EPS/sales both came in well above consensus views
  • Optical stocks were under pressure early after Rosenblatt said ZTe and Huawei’s optical component inventory levels are high and believe their optical shipments are flattish year-over-year in Q1. Both ZTE and Huawei have tried to build inventory with concerns of the US government potentially sanctioning Chinese telecom vendors (OCLR, FNSR, ACIA moved)



  • BG +8%; as Q4 EPS and sales both handily topped consensus
  • EVOK +57%; as the FDA exempted its late stage product Gimoti from a Human Factors (HF) Validation study requirement prior to submission of a New Drug Application (NDA).
  • FIG +28%; to be acquired by Japan’s SoftBank Group Corp for about $3.3B
  • GRPN +19%; as Q4 EPS/revenue both top consensus with $1.7B billings and better Ebitda
  • MDCA +32%; to receive $95M investment from Goldman Sachs
  • PG +3%; as 13F dhows Trian Fund Management (Nelson Peltz’s firm) has taken a $3B stake
  • SODA +7%; Q4 EPS/sales both came in well above consensus views



  • AIG -9%; after earnings/lowers 2017 ROE target after missing CEO’s goal last year
  • FOSL -16%; after posting Q4 miss across the board (EPS/sales/comps) and guides Q1 to a loss
  • LC -7%; Q4 was okay, but Q1 and 2015 forecast trailed estimates
  • LGND -3%; falls in sympathy with MRK news
  • MRK -1%; on news it is stopping protocol 017, also known as Phase 2/3 “Epoch” study
  • SLCA -3%; as frac sand names in general weaker today (FMSA/HCLP)



  • Alcoa (AA) 23M share Block Trade priced at $38.25
  • Auris Medical (EARS) 10M share Spot Secondary priced at $1.10
  • Essent Group (ESNT) 1M share Block Trade priced at $36.35
  • Seacoast Banking (SBCF) 7.75M share Spot Secondary priced at $22.25






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