Market Review: August, 13, 2018

Terrie AmengualDaily Market Report

Closing Recap

Monday, August 13, 2018

Equity Market Recap

· U.S. stocks close lower for a 4th straight day, though rebound off the lows, tracking the rebound in energy stocks after oil prices bottomed and bounced (though still closed lower). The CBOE Volatility index (VIX) edged higher, rising as much as 10% (touching the 15-level) as markets remain on edge given the uncertainty from Turkish market/currency plunge. European bank shares dropped Friday after the Financial Times reported that European Central Bank regulators were concerned about the exposure of certain Spanish, Italian and French banks to lira weakness, with that concern carrying over to today. However, despite the market apprehension give Turkish situation, major US averages remain not far off all-time record highs. Recall last week, several indices touched new all-time bests, including the S&P SmallCap 600 index, S&P Midcap 400 index, the Russell 3000 and the Wilshire 5000. Homebuilders were among the top declines in the S&P today amid weakness in LEN, TOL, PHM and KBH. Energy stocks dropped on the decline in oil and retailers prepare for a busy week of earnings (HD tomorrow, WMT later this week). Tech outperformed, with the Nasdaq ending down -0.25%.


· Oil prices end lower, but finish off its worst level, as WTI crude slides 43c to settle at $67.20 an ounce (highs $67.95 and lows $65.71). Prices fell amid a stronger dollar (weighing on commodity prices) as well as data showing a pickup in production by OPEC. Earlier today, data showed OPEC crude production rose in July, despite sliding output in Libya, Iran and Saudi Arabia. The bloc’s output averaged 32.32 million barrels a day in July, up 41,000 barrels a day from June.

· Gold prices were hammered, plunging to 17-month lows as commodity prices drop following ongoing strength in the U.S. dollar amid the eroding financial crisis in Turkey. Gold prices dropped below the $1,200 an ounce level for the first time since March 2017, falling over $20 an ounce or 1.6% to settle at $1,198.90 an ounce.


· The U.S. dollar was mixed, as the dollar index (DXY) ended little changed around the 96.40 level (high 96.52 and low 96.15), holding at best levels of 2018. The euro was volatile, touching highs of 1.433 and lows 1.1365 (which was lowest levels since July of last year), before settling somewhere in the middle around 1.14. The Turkish Lira remains the big story in currency markets, falling another 8% vs. the US dollar (buck traded as high as 7.23 vs. Lira), bringing its 10-day decline to around 40% on sanction concerns (despite Turkey’s central bank making policy moves today). The Russian ruble bounces off 52-week lows vs. the dollar. The British Pound bounces off lows, near best levels of day (still down at 1-year lows vs. dollar), while yen little changed. The dollar rallied back from six-week lows of 110.12, trading as high as 110.94. The Mexican peso drops more than 2% midday vs. the dollar. Argentina’s central bank unexpectedly hiked its key interest rate and unveiled a plan to gradually eliminate the stock of its short-term notes as the peso slumped to a record low.

Bond Market

· Treasury prices ended little changed, as yields bounce back from early declines (10-yr lows under 2.84%) to end the day little changed above 2.87%. There was no economic data to move markets today or Fed speakers, but Treasury prices have rallied over the last 2-weeks amid the uncertainty in Turkey, and its potential contagion impact to ECB banks. Yields fell to their lowest levels in about a month, with the 10-yr down more than 15 bps from its highs after the FOMC meeting 2-weeks ago.

Sector News Breakdown


· Retailers; VFC said it plans to spin off its Lee and Wrangler jeans business to focus on faster-growing outdoor products and active wear such as its North Face and Vans brands and should be completed in the 1H of next year; PLNT was downgraded at JPMorgan after rally in shares; DLTR was upgraded to overweight at Atlantic Securities to buy while Deutsche Bank raised its Q2 comp sales forecast for discount retail WMT, DG and DLTR; HD reports tomorrow morning

· Auto’s; TSLA shares active once again: two stories as 1) Saudi Arabia’s Public Investment Fund (PIF) has shown no interest so far in financing TSLA CEO Elon Musk’s proposed $72B deal to take the co private, despite acquiring a minority stake in the company this year – Reuters . However, 2) this morning, Musk said in a blog post that the Saudi fund has approached him multiple times about taking Tesla private in the past couple years, including a meeting on July 31 after the fund bought the Tesla stake ; GT was downgraded to Equal Weight at Morgan Stanley and lowered price target to $23 from $33, saying remains constructive on the l-t growth for global miles traveled, but believes this will not affect the stock for the next 12 months due to the overhang from estimate achievability.

· Consumer Staples & Restaurants; in food sector, SYY reported a Q4 profit and revenue that topped expectations and trades above the July 26 record closing price of $71.74; COTY fall a 6th straight session after weakness in cosmetics space last week after softer earnings from Revlon and ELF; RUTH downgraded at Raymond James as believe the stock is fairly valued after Friday’s 15% gain and do not see material further upside to EPS estimates; PZZA was upgraded to buy at Longbow saying negative news baked into shares

· Casino & Leisure movers; boating stocks active (BC, MBUU, MCFT) after Wedbush said recent checks suggest the boat segment/industry has returned to “a more normal growth rate in July,” after “somewhat of a slow start” (raised tgt on BC to $77 from $70); in casinos (MLCO, WYNN), Bernstein notes Into Q2, Macau GGR has shown deceleration, particularly in VIP. In Q2, GGR grew by 17% y/y, down from 21% in Q1 and 21% growth in 2H’17; TSG falls after cutting its full-year earnings outlook; sees FY18 adj. EPS $1.99-$2.22 below prior guidance of $2.33-$2.47

· China education names fall, TAL, BEDU, RYB all under pressure after the Financial Times noted weakness followed draft legislation from Beijing that could limit business growth through acquisitions


· Oil prices opened lower and finished lower as OPEC crude production rose in July, despite sliding output in Libya, Iran and Saudi Arabia. The bloc’s pumped 32.32 million b/d, up 41,000 b/d from June, it said in its monthly report. In direct communications with OPEC, Saudi Arabia reported that its production slipped by 201,000 b/d in July, meaning that it pumped 10.288 million b/d — lower than the 10.387 million figure secondary sources compiled by OPEC showed.

· Utilities & Solar; JKS shares lead solar lower after reporting 2Q gross margin shortfall and providing shipment forecast that implies shipment volume grows 85% y/y in 4Q vs 5% in 1Q-3Q according to Goldman Sachs; utilities gave up early gains as Treasury yields remain active


· Financials were mostly lower a news was sparse, but banks continue to track Treasury yields; European banks remained pressured amid fear of exposure to Turkish Lira; DBdowngraded to Underperform at Bank America as see the EPS downgrade cycle continuing/firm 10% below consensus on earnings, despite a relatively large forecasted recovery in profits; in finance space, FDC shares fell after KKR fund plans sale of $1.55 billion worth of shares


· Pharma movers; RBC Capital is shifting to a bullish view on generics and upgrading MYL, AMRX and ENDP to Outperform, first OP rating on a generic stock in more than a year. Firm said they were early in calling a cyclical peak in 1H2016 and we risk being early here too, but the potential upside if we are correct is worth that risk.

· Biotech movers; ALNY falls, among the top stock stories as receives FDA approval for the first ever RNAi therapeutic treating patients with a rare disease known as hereditary ATTR amyloidosis, but shares pressured amid a restrictive label viewed as disappointing, prompting analyst tgt cuts and cuts expected sales; FOLD received approval for Galafold for Fabry patients with amenable mutations on Friday as accelerated approval appears to be straight forward

· Medical equipment and devices; HOLX shares fall after the company said its Cynosure division will suspending marketing and distribution of its Vitalia TempSure device for heating of vaginal issue, while it considers the FDA concerns over “vaginal rejuvenation” procedures using energy-based devices

· Healthcare services and providers; RAD extends last week declines after Cowen cut to market perform saying share price adequately reflects the company’s outlook after termination of its merger with Albertsons

Industrials & Materials

· Industrial movers; DY shares plunge as lowers FY19 adj. EPS view to $2.62-$3.07 from $4.26-$5.15 (est. $4.68) and lowers FY19 revenue view to $3.01B-$3.11B from $3.23B-$3.43B (est. $3.34B) after Q2 prelim figures miss; FLR was upgraded to buy at UBS as expect backlog to inflect positively YOY in the near term (3Q18), rising 35-40% by mid-2019E, and expect EPS to nearly double between 2018 and 2020 to reach $4.75 in 2020E

· Machinery: ETN upgraded to overweight from neutral and raise tgt to $92 from $85 and downgraded AGCO to underweight from neutral PT $55 from $60 as the German wheat crop is expected to be down >20% this season; remains overweight on CAT, PH, TEX; CAT July rolling 3-month retail machine sales rose 24% vs June 25% rise, while North America machine sales up 27% after rising 22% in June and Latam sales July up 16% after rising 29%

· Chemicals movers; BAYRY shares fall after its recently acquired Monsanto Co. was ordered to pay $289.2M in a landmark lawsuit over whether exposure to two of its weed killers caused cancer.; APD announced over the weekend that it will form an $8B JV along with Saudi Aramco and ACWA in Jazan Economic City (JEC), of which it will own at least 55%; ALB shares were pressured

Technology, Media & Telecom

· Internet; NFLX announced CFO Wells to step down; AKAM was downgraded to neutral at Credit Suisse citing valuation; TWTR shares jumped late morning after Citron Research’s Andrew Left said in tweet that Twitter “has hit a level of relevancy as never before” and that “privacy concerns in its rear view & execution on all fronts”

· Media & Telecom movers; NLSN shares rallied after activist investor Elliott Management Corp. has taken a big stake in the media company and plans to push the TV-ratings company to sell itself/Elliott owns more than 8% of Nielsen, worth at least $640M


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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