Mid-Day Outlook: October 6, 2017

Regal HelpdeskDaily Market Report

Mid-Morning Look
Friday, October 6, 17
U.S. stocks declined for the first time in over a week, threatening the 8-day win streak for the S&P and Nasdaq Composite and the 7-day for the Dow Industrials after September payrolls fell for the first time since 2010 and hourly wages spiked. Financials outperform early while interest rate sensitive sectors (utilities, telecom, REITS) decline alongside a spike in Treasury yields. Markets certainly have tax reform, healthcare, infrastructure programs in the back of their mind (which has driven markets higher) along with guessing who the next FOMC Chair will be…but today was about jobs. The September jobs report getting lots of attention today as the headline job totals disappoint, falling -33K vs. an estimate of up 80K (prior month upwardly revised to 169K from 159K), though numbers skewed due to the impact of hurricanes (report said there were 1.47 million folks not at work because of the weather). Jobless rate falls to 4.2% (16-year low) vs. est. 4.4%, while hourly wages jumped 0.5%, topping estimates for a 0.3% rise while the prior month was upwardly revised to 0.2% from 0.1%. The wage and unemployment rate figures certainly lifting expectations for a Fed rate hike in December (which was expected anyway following recent hawkish Fed comments), which in turn is boosting the dollar and weighing on gold and bond prices.  The Financial Times noted the implied probability of a Federal Reserve rate increase in December jumped to 90% following today’s data. Other factors affecting markets include the Puerto Rico debt situation, the political turmoil in the UK (Pound down over 2% this week), the Catalonia situation in Europe…and the start of earnings season kicking off next week with financials.
 
Treasuries, Currencies and Commodities
·      In currency markets, the U.S. dollar hit 10-week high and bond yields jumped on strong wages data in the jobs report this morning – though the dollar has pared gains since after what has been a strong run over the last few weeks on rising rate hike expectations. The FTSE 100 advance (7th straight session) comes as the British Pound falls further amid political turmoil. Sterling is now set for a 2.5% weekly tumble, its biggest since the week ending Oct. 7, 2016 when it lost over 4%
·      Commodity prices drop,; WTI crude prices fall for a 4th day in the last five, on pace for its biggest weekly drop since May on a rising dollar and as concern over Tropical Storm Nate causing a major disruption of the energy sector eases; gold prices drop to new monthly lows on the stronger details of the jobs report (rising wages/falling unemployment)
·      Treasury market’s slide and bond yields jump on the jobs report. With the 10-year yield rising to around 2.38% and the 2-yr yield tops the 1.5% level as rate hike expectations surge for Dec
 
Economic Data
·      Headline jobs data for September misses due to impact of hurricanes; the U.S. loses -33,000 jobs in September for first loss in seven years, well below the 80K gain expected (Nonfarm payrolls, net revisions, -38k from prior two months), though the unemployment rate falls to 4.2%, a 16-year low; average hourly earnings jumped 0.5% MoM vs. est. 0.3% and upwardly revised 0.2% prior; Over the past 12 months hourly pay increased by 2.9%, up from 2.7% in the prior month and matching a post-recession high. Nonfarm private payrolls fell 40k vs prior 164k (est. 75k) and manufacturing payrolls fell 1k after rising 41k in the prior month
·      Wholesale Inventories rose 0.9% in August, slightly below the up 1% estimate as wholesale inventories increased to $608.1B vs $602.4B in prior month; wholesale sales rose 1.7% in Aug. after no change the prior month (the increase in sales is largest this year)
 
Sector Movers Today
·      Consumer Staples & Restaurants; HELE reported a Q2 EPS and revenue beat, but yearly guidance midpoint came in below consensus for EPS/revs; YUMC Q3 EPS missed by 4c, though revs of $2.04B beat, with comp sales up 6% overall; KHC was upgraded to overweight at Piper; OME rises as Cooke Inc. agrees to acquire the company for $22 per share in a deal valued at about $500M https://goo.gl/wSQM1QSAFM downgraded to underweight (citing worsening chicken fundamentals amid accelerating supply growth and declining prices) and DAR cut to neutral, both at JP Morgan; Kellogg (K) to buy Rxbar for $600M
·      Casino, Lodging & Leisure; Macau casino operators dropped after government statistics showed a decline in tourist numbers over the first few days of the holiday week; Statistics from Macau’s tourism office showed the number of mainland Chinese tourists from Oct. 1-4 dropped 5.1% y/y to 363,435; total tourist numbers fell 2% y/y (WYNN, MLCO, MGM were weak)
·      Refiners; JP Morgan downgraded VLO to neutral and HFC to underweight saying valuation getting full/while 3Q looks solid versus firms raised expectations in early September (EBITDA +2%, EPS +7%), they believe the ~22% appreciation in the group since Harvey on a combination of fundamentals (lower inventories) and non-fundamentals (renewed tax/RINs hope) is now pricing in most of the near-term upside potential
 
Stock GAINERS
·      GM +2%; Citigroup reiterates call from Monday saying shares may triple over the long-term to path of $134 per share on potential in mobility/Robo Taxi combined with GM’s “core” pickups
·      OME +32%; to be acquired by Cooke Inc. for $22 per share/$500M deal https://goo.gl/wSQM1Q
·      SIMO +2%; said it expects revenues to be in the upper half of their original guidance of down 3-8% q/q or between $122M-$129M
·      SNCR +27%; has resumed talks with Siris Capital Partners to sell itself https://goo.gl/mB66SY 
·      XXII +9%; after positive Spectrum study results
 
Stock LAGGARDS
·      ALB -3%; cut to neutral from buy at Goldman Sachs citing rally in shares due to lithium exposure
·      COST -5%; Q4 EPS/revs/comps all beat, but downgraded at Morgan Stanley on decelerating membership growth and expects COST’s EPS growth to decelerate over the next 6-12 months
·      GIMO -5%; after reports hedge fund Elliott Management Corp’s attempt to acquire the company came to a halt over pricehttps://goo.gl/fUyw3c
·      HELE -7%; Q2 EPS and revenue beat, but year guidance midpoint missed consensus for EPS/revs
·      HVT -9%; Q3 EPS missed and comp sales fell (-2.9%)
 
Syndicate
·      Switch (SWCH) 31.25M share IPO priced at $17.00
·      Annaly Capital (NLY) 65M share Spot Secondary priced at $12.00
·      Immunogen (IMGN) 14.5M share secondary priced at $6.50 per share
·      Globalstar (GSAT) 73.4M share secondary priced at $1.65 per share
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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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