Market Preview: September 12, 2017

Regal HelpdeskDaily Market Report

Tuesday, September 12, 17
Equity Market Recap
·      U.S. stocks continue to push higher with all major stock benchmarks trading in record territory in early trade (before paring gains), with 52-week highs for several Dow components today (CAT, DWDP, HD, KO, MSFT, PFE and V). The morning was dominated by upward momentum after the debt ceiling default was averted last week (pushed out 3-months), North Korea has been quiet of late, President Trump pushing tax reform for the Fall and markets take a sigh of relief as economic damage (not actual damage) from Hurricane Irma being less than estimated. The afternoon was dominated by Dow component Apple (AAPL) which revealed 3 new iPhones, including a highly anticipated $1,000 priced model with several bells and whistles, along with facial recognition, new watch features, improved camera, and more (full recap below). Some stocks were active as hedge fund managers spoke today at CNBC Institutional Investor Delivering Alpha conference (names like Dalio, Cooperman, Robertson, Chanos, others). Bonds and gold prices slipped again, while the dollar was mixed and oil managed small gains ahead of inventory data tonight/tomorrow. Energy stocks helped pace gains on OPEC comments, while Financials led on the jump in yields. European stocks advanced amid gains in financials reflecting rise in benchmark yields in government bonds, as the Stoxx Europe 600 index gained 0.5% to close at 381.42, scoring a fifth straight day of wins (longest streak since April). Note there aren’t many major macro events for the next couple of weeks outside of the FOMC decision next Wednesday.
 
Commodities
·      Oil prices ended higher ahead of API inventory data tonight and the EIA report tomorrow morning at 10:30 AM EST. Oil prices edged up as a report that showed oil production from the cartel fell last month as OPEC said in its closely watched monthly report that output in August fell by 79K barrels a day to 32.76M, driven mainly by a decline in Libya, Gabon, Venezuela and Iraq; also a report that OPEC is said to discuss output-cut extension longer than 3-months. WTI crude rise 16c to settle at $48.23 per barrel
·      Gold prices slipped -$3, or 0.2%, to settle at $1,332.70 an ounce, falling for a second-straight session as the dollar steadies, with the precious metal pulling back from recent 1-year highs last week. Quiet news out of North Korea also easing market fears for time being/weighing on gold as safe-haven – gold recently traded at 12-month highs
 
Currencies
·      The U.S. dollar trades mixed, advancing vs. the safe-haven Japanese Yen (tops 110 level, up over 0.6% and up over 1.5 from Friday low of 107.32; the dollar slipped vs. the euro while falling against the British Pound after UK CPI inflation came in above estimates (highs 1.3288); Bitcoin prices fell on the day, erasing gains of over 2% after JPM CEO Jamie Dimon said at a conference today that Bitcoin “will eventually blow up” and that Bitcoin “won’t end well”
 
Bond Market
·      Bonds sell off further while bonds spike; the 10-year yield traded back above levels seen at the end of August as geopolitical tensions have eased the last few days as well as debt ceiling concerns and the potential impact of Hurricane Irma to GDP as the storm total damage coming in less than forecasted. The yield on the 10-yr traded around 2.17%, up about 5 bps from yesterday and well off last week’s lows of around 2.03%. Bonds fell over 8 bps yesterday as appetite for assets perceived as havens diminished
 
Sector News Breakdown
Consumer
·      Retailers; GPS added to franchise picks list at Jefferies saying its Old Navy unit alone is worth ~30% more than total company enterprise value; in auto retail, AAP was downgraded to sell at Citigroup saying the company’s turnaround seems to be taking longer given the number of issues to fix (cut tgt to $82 from $99); Bernstein initiated coverage on retailer space with outperform ratings on LB, NKE, COH, ROST and TJX and a new sell on KORS and UAA
·      Consumer Staples & Restaurants; Dow component MCD came under pressure after M Science said they are below street on domestic revs, comp sales trends, noting analysis of ticket, traffic, regional performance trends; KR was upgraded to buy at Pivotal as believe that that the continued weakness in sentiment following Kroger’s latest results presents a near-term buying opportunity; PFGC and CAKE both reaffirmed guidance ahead of presentations; Kynikos Chanos said at CNBC presentation said he has been short the grocery industry with thin margins
·      Casino, Lodging & Leisure; in gaming (WYNN, MLCO, LVS), Nomura Instinet estimates that Macau gross gaming revenue is up 3% sequentially in the first 10 days of September vs. the prior week estimate, but still sits 7% lower from last month’s daily average
 
Energy
·      Oil prices were active, rising initially on reports: 1) report that showed oil production from the cartel fell last month as OPEC said in its closely watched monthly report that output in August fell by 79,000 barrels a day to 32.76 million, driven mainly by a decline in Libya, Gabon, Venezuela and Iraq; 2) a Bloomberg report that OPEC is said to discuss output-cut extension longer than 3-months and Opec raises oil demand growth forecasts for 2017, 2018 – note API weekly inventory data reported after the close and the EIA tomorrow morning. However late morning, a Financial Times report indicated that Nigeria will resist cuts to its oi output according to its oil minister
·      Other movers; JP Morgan on oil equipment as they lower price targets on average by 12%, and reduce the number of stocks they recommend as relative longs (downgrading PD, TTI to Neutral), partially offset by PTEN upgrade and top picks are slimmed to FTI and HAL among large caps and CLB, MRC and PUMP among SMIDs; TA shares advanced as it won the breach of contract lawsuit versus Comdata which will allow them to go back to paying a lower fee (~$900K/month less) and it is entitled to legal expenses; oil drillers outperform today DO, ESV, NE up over 5%
 
Financials
·      Large Cap banks got a big boost as bond yields traded sharply higher for a second session as stocks rallied; banks which tend to benefit from higher rates got good news last week as the debt ceiling limit was pushed out until December by Congress, causing a pullback in bonds as fears subsided; in insurance; TRV announced an estimated range of $375-750M pre-tax ($245-490M after-tax) of Hurricane Harvey losses equating to about $1.32/sh, assuming the $367.5M after-tax midpoint; the group extended rebound as economic damage from Irma not as high as forecast; JPM said Q3 trading revenue will be down around 20% for Q3;BAC said Q3 trading revs to probably decline 15% YoY – trading commentary weak, but failed to dent financials
·      Other financials; BBT said it sees Q3 loans core up 2%-4% annualized vs 2q, and sees 3q NIM GAAP margin stable vs 2q, core margin stable vs Q2; CMA was upgraded to Overweight at Piper and raised tgt to $80 saying while investors would like better than flattish loan growth trends, they think the increased profitability from GearUp, and recent decline in the valuation offer an attractive entry point; GS said its FICC biz remained sluggish, STT talked about seasonal softness in markets revenues, and regional numbers
·      Asset managers; monthly metrics out for some as CNS announces preliminary AUM $62B as of August 31, an increase of $152M from July 31, due to net inflows of $264M and market appreciation of $210M partially offset by distributions of $322M;BEN reported preliminary month-end assets under management of $747.4B at August 31, compared to $752.7B at July 31
·      REITs; CPT 4.75M share Spot Secondary priced at $93.75; LSI downgraded to sell at FBR Capital as believe the recent ~10% run up of LifeStorage (and the self-storage sector) driven by the hurricane trade has been overdone and the sector is due for a near-term correction
 
Healthcare
·      Large Cap Pharma; TEVA rises again (jumped 19% yesterday on new CEO news) as sells its ParaGard Women’s Health business to COO for $1.1B to reduce debt https://goo.gl/swYEHyALXN said it plans to fire 20% of its global workforce as part of a restructuring effort/expects pre-tax savings of about $270M in GAAP and about $250M in non-GAAP each year by 2019/expenses associated with the restructuring are expected $340M-$440M; ALDX soars as reported positive results from a phase 2a trial of its treatment for dry eye disease; PRGO shares jumped after Starboard Value’s Jeff Smith talks up the stock at CNBC Delivering Alpha conference
·      Biotech movers; ICPT shares fell after sending a letter to health care providers warning of liver injury if its primary biliary cholangitis (PBC) treatment, Ocaliva, is dosed more frequently than recommended – ICPT later said it is working with the FDA to reinforce dosing recommendations; SAGE shares slumped after reported negative top-line results from the phase III STATUS trial of brexanolone (SAGE-547) in super-refractory status epilepticus as the study did not meet the primary efficacy endpoint, with 43.9% of patients treated vs. 42.4% of patients treated with placebo; ARRY active after the FDA said to review its Binimetinib, Encorafenib NDAs
·      Healthcare services and facilities; HIIQ shares under pressure again, while Canaccord said outstanding regulatory issues will be resolved without a meaningful impact on the business, but said it could take time and remain an overhang until this is settled;INOV was upgraded to Equal-weight at Morgan Stanley, PT $14; Kynikos Chanos said they are short the PBM industry
 
Industrials & Materials
·      Industrial & Machinery; DOV said it is exploring options for separating Wellsite business which may include tax-free spinoff, sale or other combination; MTZ upgraded to buy at Deutsche Bank with $50 target; GE new CEO mentioned positively by Trian’s Garden at CNBC event; CAT shares were strong amid commentary and guidance at its investor day presentation
·      Metals & Mining; busy day of analyst research as aluminum names positive at Deutsche Bank, as firm upgraded AA to buy from hold (with upped $60 tgt) after the firm raised aluminum-chain commodity estimates based on capacity curtailments in China, reducing domestic surplus and exports of aluminum products to Rest of World (also raised tgts on CENX). Steel industry view cut to in-line from attractive at Morgan Stanley, with NUE and STLD downgraded citing weakening U.S. demand outweighing the positive effect of China supply side reforms; gold miners fell for a third session as demand for risk increases
·      Agricultural space; Fertilizer sector upgraded to Mixed from Negative at OTR Global following checks that indicate US dealers have taken advantage of attractive summer prices to maintain or increase positions in most nutrients year-over-year (POT, AGU, MOS, CF); LMNR shares fall on in-line EPS/revs beat after touching 52-week highs; BG was downgraded at Vertical saying purchase of 70% stake in IOI Loders Croklaan for $946M makes takeover less likely/hurts value as it increases leverage” for no near-term EPS accretion
·      Chemicals; DWDP said it would realign business after review/businesses that will be realigned to the Specialty Products Division account for total net sales of more than $8B, and operating EBTIDA of $2.4B, including about 40% of the heritage Dow Corning EBITDA
·      Paper & Packaging; Jefferies reported overnight that Georgia Pacific has reportedly raised linerboard prices by $50/ton and $60/ton price for corrugated medium, citing industry contacts; said a full $50/ton containerboard price increase would boost earnings by more than 25% for IP, WRK, PKG according to Jefferies
 
Technology, Media & Telecom
·      Apple (AAPL): details form its product event today: iPhone 8 and iPhone 8 Plus have the same 4.7-inch and 5.5-inch screen sizes as last year’s models with new displays and an all glass front and back. With a new chip Apple is calling A11 Bionic — with a six core CPU; iPhone 8 to start at $699 for 64GB vs. $649 for 32GB and 8 plus at $799 says pre-orders start 9/15 to ship on 9/22; says iOS to be available 9/19 – 12 megapixel camera with new sensor; adds new lighting feature called “portrait lighting”; optical stocks (FNSR, LITE, NPTN, IIVI) rise after Apple augmented reality features; introduces wireless charging for iPhone 8;
·      AAPL also announced the iPhone X to start at $999– a new phone – has a “Super Retina Display” – an OLED screen – a 5.8-inch display with 2436 x 1125 resolution, the most dense screen ever in an iPhone; the “X” all-screen front, stainless steel band, glass on the back; iPhone X also eliminates the home button; the phone has 3D-facial recognition scanner to unlock dubbed “face ID” – the iPhone X to be available in 64GB or 256GB – iPhone X pre-orders begin Oct. 27, available Nov. 3
·      AAPL non-iPhone related news today: AAPL said Apple Watch is now the #1 selling watch in the world (MOV, FOSL moved); said the Apple Watch’s heart-rate monitor is the most used in the world (FITGRMN moved in reaction); says watchOS 4 is coming to all Apple Watches Sept. 19, a week from now – the new Apple Watch begins at $329 for a base model, or $399 for one with a cellular capability; the Apple TV 4K will cost $179, available for order Sept. 15, shipping Sept. 22; Apple introduces wireless charging pad to charge iPhone, Apple Watch, AirPods for next year
·      Great stat for Apple: Total number of iPhones sold: (milestones) 2017: 1.2 billion… 2016:  1 billion … 2014: 500 million … 2011:  100 million … 2007:  1 million; semi movers on the AAPL event included AVGO, SWKS, STM, CYCRUS
·      Software & Hardware; PRGS issues better-than-expected Q3 results as EPS beats by 5c and tops prior guidance on higher revs; software sector awaits ORCL earnings later this week
·      Media & Telecom; CMCSA upgraded to buy from neutral by MoffettNathanson as shares have fallen by more than 9% vs the S&P in less than a week since the company warned on Q3 video net losses; ATUS said at conference it expects to double U.S. cable footprint in next 5-years; Hurricane Irma knocked out landline service to 7.6 million customers and about 27% of the cell sites in Florida’s disaster area according to FC report; FOXA’s proposed $15B buyout of the rest of pay-TV group Sky PLC it doesn’t already own will be referred to Britain’s competition regulator. https://goo.gl/Fdk3t1CHTR was hit on headlines of ATUSnot rushing to do a deal with as the two are apart on valuation.
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Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P.  Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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