Wednesday, November 22, 17
Equity Market Recap
· Following strength the first two days of this week, pushing all major averages to record closing highs yesterday, stocks were down slightly too little changed ahead of the Thanksgiving holiday. Commodity prices gained, led by a 2% spike in WTI crude oil on mixed inventory data and ahead of the OPEC meeting late next week, while gold prices jumped on the weaker dollar. Bonds prices gained on dovish commentary out of the November FOMC minutes released late afternoon and after warnings overnight of Chair Yellen, who said that tightening monetary policy too quickly risks stranding inflation below the Fed’s 2% target. The yen rose to a two-month high against the dollar, while the greenback traded at a five-week low. Economic data came in mixed with a surprising miss for monthly Durable Goods orders, while jobless claims were reported in-line and sentiment data dipped from the prior month. Tech stocks weakened after hitting record highs yesterday as HPE and HPQ tumbled after their earnings. No news out of Washington as expected given the shortened holiday week, with hopes for a resolution soon. Markets are closed in the U.S. tomorrow and close at 1:00 PM EST on Friday.
· Weekly Jobless Claims fell 13K to 239K, mostly in-line with the 240K estimate while the prior week was upwardly revised to 252K from 249K; the 4-week moving avg. rose 1,250 to 239.75k in the week ending Nov. 18; continuing claims rose 36K to 1.904M in the week ending Nov. 11
· U.S. durable goods orders fall (-1.2%) in October, compared to an estimated gain of 0.3%, while the prior month was upwardly revised to 2.2% from 2%; new orders ex-trans. rose 0.4% in Oct. after 1.1% rise while new orders ex-defense fell 0.8% in Oct. after 2.4% rise; non-defense capital goods orders ex-aircraft fell 0.5% in Oct. after rising 2.1% in Sept.
· The U.S. November-Final Michigan Sentiment fell to 98.5 from 100.7 last month and was mostly in-line with an expected 98 reading; the expectations index fell to 88.9 vs. 90.5 last month, while the current economic conditions index fell to 113.5 vs. 116.5 last month
· The 30-Yr fixed mortgage rate for week ended today fell to 3.92% from 3.95%, Freddie Mac said; 15-year rate avg 3.32%, up from 3.31% a week earlier and 5/1-year ARM rate avg 3.22%, up from 3.21% a week earlier.
· Oil prices ended near the highs, rising $1.19 or 2.1% to settle at $58.02 per barrel (highs $58.09 and low $57.03) following mixed inventory data. Crude spiked overnight after the weekly API inventory report showed a larger than expected drawdown in inventories of -6.4M barrels, but then pared gains mid-morning after the EIA showed smaller-than-expected draw of -1.85M vs. est. -2.2M and a surprise build in distillates of 269K (vs. est. -1.0M barrels). It didn’t matter as crude prices climbed further, even despite one of the biggest rig build in months (Baker Hughes said added 9 rigs in latest week). Crude also got a boost from the news of TRP’s decision to cut oil delivered to the US via the Keystone pipeline by 85% through the end of November. Lastly, all eys on the upcoming OPEC meeting (Nov 30th) where oil producers are expected to extend a production-cut agreement beyond March of next year.
· Gold prices gained, rising $10.50, or 0.8%, to settle at $1,292.20 an ounce, closing before the release of the FOMC minutes from the November meeting (which was released at 2:00 PM EST). Gold benefitted from a sharp downturn in the dollar late week, managing to post gains despite firm expectations for a Fed rate hike in December (though the late day Fed minutes were perceived as partially “dovish”)
Currencies & Bonds
· The U.S. dollar ended the day broadly lower, falling to lows ate afternoon against major rivals following the release of the FOMC minutes from November meeting. The greenback fell to lows of 111.15 against the Japanese yen (down -1.1% to lowest levels in slightly over a month), while the euro moved to highs as well vs. USD, trading above 1.18 (up 0.5%). The pound slipped initially vs. the dollar as UK 2018 economic growth forecast was lowered to 1.4% from 1.6%, and the 2019 prediction of 1.3% is far below economist projections – but rebounded. Emerging-market currencies posted the longest winning streak since March 2015 as the U.S. dollar and Treasury yields fell ahead of the Thanksgiving holiday. MSCI’s gauge of emerging-market currencies jumps for 7th straight day according to Bloomberg (MXN, CAD).
· Bonds opened strong and ended even higher as yields tumbled late day following the release of the November FOMC meeting minutes that were perceived as somewhat dovish despite expectations holding for a rate hike in December. The 10-yr yield slipped about 4 bps to around 2.32%, while the 2-yr yield dips under 1.73% after trading near 1.77% yesterday. Mixed economic data (weak durable goods data but inline jobless claims) and a small pullback in stocks from record highs boosting bonds. Overnight, Fed Chair Yellen said one of the “biggest challenges” to the central bank remained inflation staying below its 2% target.
Sector News Breakdown
· Retailers; in apparel, GES shares slumped after Q3 EPS sales missed forecasts while EPS was in-line, and guidance mid-point missed estimates; electronic retailerGME 3Q results exceeded estimates as an increase in new hardware and software sales helped drive results, but analysts note concerns around lower pre-owned margins; in footwear, CAL posted 3Q sales and EPS softer than expectations due mostly to weather yet showed upside on gross margin and reiterated year; IRBTshares declined on reports of steep discounts for its Roomba product
· Auto sector; CPRT shares advanced after Q1 EPS beat by 6c on higher revs of $419.2M; auto makers were generally weaker (F, GM, FCAU), along with suppliers (AXL, LEA)
· Consumer Staples & Restaurants; BLMN was downgraded to neutral at Bank America following rally in shares as Jana revealed stake in company; CBRL was downgraded at Longbow; PG has notified independent inspector IVS Associates it will challenge the proxy vote recount that narrowly gave activist investor Nelson Peltz a victory and a board seat, CNBC reported; Kellogg (K) was upgraded to buy at Argus
· Energy futures end higher but slip from highs after mixed inventory data; crude spiked overnight after the API inventory report showed a larger than expected drawdown in inventories of -6.4M barrels, but pared gains after the EIA showed smaller-than-expected draw of -1.85M vs. est. -2.2M and a surprise build in distillates of 269K (vs. est. -1.0M barrels). The move higher in crude has also been spurred by a major outage at the Keystone pipeline in the U.S. Overall, a small bounce in the energy space which has largely been left out the last few days. The Baker Hughes rig count showed total rigs rose 8 to 923 in the latest week, with oil rigs up 9 to 747, while nat gas rigs slipped 1 to 176
· In research, Bank America said HES remains one of the battleground stocks within the large cap E&P’s that in their view pits short term investors with value players; in utilities; Bank America upgraded Dominion (D) to buy saying they are more positive after mgmt meetings; EE was downgraded to neutral at Bank America and raised its price target to $62 from $61 saying shares are fairly valued following recent outperformance
· Banks remained down to little changed as bond yields slip further; in finance and lending, SQ snapped its 5-day win streak (from record highs) as earlier RBC Capital said that SQ and other payment service providers (GPN, TSS, VNTV) may have the greatest exposure to trend toward increasing integration and competition for payments via online, mobile and social media solutions. Chinese Online Lenders fall again (QD, XRF, YRD) after China halted approvals for new online micro-lenders
· Pharma movers; MNK was downgraded to a Perform rating at Oppenheimer saying the thesis of branded growth and material margin expansion has not and is unlikely to play out within the next 12-18 months; EXEL said the phase 3 CELESTIAL trial results have been accepted as a late-breaking presentation at the 2018 American Society of Clinical Oncology’s Gastrointestinal Cancers Symposium
· Biotech movers; ESPR tgt raised to $100 at Northland on confidence in the success of ESPR’s P3 bempedoic acid (BA) development program is uniquely high; PTLAsaid the FDA needs more time to review company manufacturing changes to a drug already approved. Portola said the FDA needs time to review the entire Prior Approval Supplement submission for Bevyxxa and pushes out the release of Bevyxxa to February, given that the FDA is required to act by Jan. 30
· Medical tech and services; CERN shares spiked after CNBC reported that AMZN and Cerner plan to announce a deeper partnership at AWS re:Invent next week and that the talks between the two companies are in the late stages https://goo.gl/cMHWrc; GKOS falls after mgmt. confirmed it had heard of a proposed physician payment rate cut at Palmetto, its Medicare Administrative Contractor (MAC) for N.C., S.C., Va. and W. Va., which could hinder utilization rates and new physician starts in areda, according to Piper
Industrials & Materials
· Industrial & Machinery; Agriculture machinery stocks active after DE posted Q4 top/bottom line results that handily topped estimates as did its 2018 net income forecast citing improving markets for farm and construction equipment (shares of CNHI, AGCO, LNN, CAT have performed well this year); ROK said today its Board of Directors has unanimously rejected EMR’s unsolicited proposal to acquire the company received on November 16, 2017 ($29B bid)
· Chemicals; Nippon Paint Holdings Co Ltd made an all-cash offer to acquire U.S. coatings company AXTA two people familiar with the matter said, ending merger talks between Axalta and Dutch peer Akzo Nobel https://goo.gl/zb8Ypx ; VVV was downgraded to neutral at Seaport Global saying FY18 is setting up to be a transition year of investments and higher costs and views risk/reward as balanced
Technology, Media & Telecom
· Internet; Hackers stole the personal data of 57 million customers and drivers from Uber Technologies Inc., a massive breach that the company concealed for more than a year, paying the pirates to keep quiet instead; OSTK the first retailer to accept bitcoin, is keeping more of what it takes in. The company disclosed that it holds $403,000 of cryptocurrencies, the greatest amount held since they began reporting the figure, according to its latest quarterly statement
· Software movers; CRM delivered a big 3Q billings beat (+24% Y/Y), driven by sustained growth in Sales Cloud (+17%), acceleration in Service Cloud (+25%, up from +21% last quarter), and international expansion, however, the company’s forward bookings and EPS outlook came in slightly light of street expectations; PDFS to join the S&P SmallCap 600 index
· Hardware, Components & Storage; TIVO won a federal patent ruling against CMCSA as the U.S. ITC ruled that Comcast set-top boxes violated two patents of Rovi Corp; BZUN shares volatile early after mixed Q3 results; HPE announced CEO Meg Whitman stepping down early next year and will be succeeded by President Antonio Neri/also guides Q1 EPS below views (20c-24c vs. est. 28c) after Q4 beat and FY18 guidance was more back-end loaded than normal; HPQ with mixed Q1 results as solid top line was offset by weaker margins and EPS of 44c was in line