Tuesday, August 14, 2018
U.S. equities open higher, recovering after yesterday declines, as the S&P 500 and Dow Industrials look to snap their recent 4-day losing streaks. Major averages had risen to near record highs last week (and in some cases topped those levels), but have recently spun lower on contagion fears/fallout from the recent slide in Turkish markets and its Lira (down 40% over the last 2-weeks) after imposed sanctions by the U.S.. The bigger fears have hit European markets, as some banks in Italy, Spain and France have more direct exposure to the Lira. However, concerns easing today, as markets rebound and attention turns back to the healthy domestic economy and strong corporate results this earnings season. Oil prices are higher by more than 1% on supply concerns while the API inventory report is scheduled for release after the market closes today. Volumes are also lighter than normal as earnings season has slowed and trading desks less staffed due to vacation times. Better earnings results from TPR, AAP and Dow component HD helping lift the consumer related sectors, while tech awaits earnings reports from CSCO, NTAP, NVDA later this week.
Treasuries, Currencies and Commodities
· In currency markets, the dollar index (DXY) once again little changed, holding recent gains up around the 96.40 level and back near 2018 highs; the euro slides back below the 1.14 level against the greenback, while the USD/JPY at 110.85 level. The Pound also steady below the 1.28 level (holding near 1-year lows), while the Turkish Lira rebounds partially after falling over 40% the last few weeks amid sanctions against the country
· Precious metals rise; after falling to 17-month lows this week, gold prices with a little rebound, bouncing back above the $1,200 an ounce level. Energy futures rise after Saudi Arabia said it had cut production in July, on top of market expectations for lighter Iranian output. Saudi Arabia told OPEC that it had reduced crude output by 200,000 barrels per day to 10.29M bpd in July.
· Treasury markets are steady, with yields inching ever so slightly higher, as the 10-yr yield tops 2.88%, the 30-yr at 3.05% and the 2-yr at 2.625% – well off earlier highs this month of 3.01%, 3.16% and 2.68% respectively. Mixed economic data not moving bonds early.
· Import Prices for July were unchanged MoM, in-line with estimates, after falling 0.1% in June (and rose 4.8% y/y in July –t he largest increase since Feb. 2012), while import prices ex-fuels fell 0.3% after falling 0.3% in June. Export prices for July fell (-0.5%) after rising 0.2% in June and was well below the expected rise of 0.2%.
· The National Federation of Independent Business (NFIB) small business optimism index rose 0.7 points in July to 107.9. The NFIB said it was the second-highest level in history and just under the 1983 peak. Eight of the ten components, led by plans to increase employment, expectations for rising sales and for expansion, increased
Sector Movers Today
· Consumer finance and lending; ONDK shares were downgraded to sell at BTIG based in large part on current valuation, which we view as overextended at 17.7x and 14.8x its FY19E and FY20E consensus adjusted EPS, respectively; JPMorgan comments on payments, as upgraded ADS to overweight as shares trade near multi-year low valuation; sentiment may be near inflection point thanks to stabilizing delinquency trends, expanded share buyback and potential for segment divestitures; JPM downgraded FISV and PAYX to underweight, saying they’re below-average growers with below-average earnings upside risk; FDC 64M share Secondary priced at $23.75
· Casino & Leisure movers; in casino sector, Jefferies downgraded WYNN to hold as view the recent board additions and the standstill agreement as a significant overhang for shares, reducing the likelihood for a structural change over the next 2-years. Meanwhile, Jefferies upgraded BYD to buy as see the recent post-earnings weakness as a compelling opportunity. Credit Suisse initiates the sector saying they like the domestic gaming industry, given a good macro backdrop, high cash flow generation and leverage to spending on experiences (OP rated on GLPI, VICI, neutral on IGT, MGP, MGM, WYNN, LVS and underperform on SGMS)
· Restaurants; EAT posted in-line Q4 earnings and revenue, while comp sales of 0.6% for co-owned stores misses the 1% estimate, but mid-point of year EPS view $3.70-$3.90 tops the $3.75 est.; YUMC rises early on reports China Investment Corp. is backing a potential takeover of Yum China Holdings Inc., which runs KFC and Pizza Hut outlets ; DAVE Q2 results mixed as EPS beat but revs miss and company owned comps of +1.2% (including a 1.0% headwind due to weather closures) and franchise comps down 1.9%
· Internet; Chinese ADRs fall following several earnings results with YY and HUYA both sliding more than 10% while e-commerce name VIPS drops as missed 2Q estimates and guided lower for 3Q; note JD reports earnings this week and BABA next week
· Housing & Building Products; Dow component HD reported a solid Q2 and exceeded consensus comparable store growth estimates, with an 8.1% figure overall, topping estimate of 6.5%. HD also posted beat and raise quarter but shares slipped after guiding year gross margin expansions 41 bps vs. prior view 45 bps (LOW reports next week);TILE was upgraded to buy at Longbow as believe current levels present an attractive entry point for a name with strong organic order momentum combined with a recently closed accretive acquisition
· AAP +8%; reported 2Q results above analysts’ expectations, and raised its full-year revenue forecast, citing improving industry trends
· NLSN +5%; upgraded by two analysts (Barclays and Macquarie) following the announcement Elliott Management of an 8.4% activist stake
· NVDA +1%; announced the first products containing a long-awaited new generation of graphics technology late Monday, upgrading from its Pascal architecture
· TPR +10%; as quarter results beat, withy improvements in all three banners (Coach, Kate Spade, Stuart Weitzman) and forecast revenue for FY2019 ahead of market expectations
· YUMC +5%; on reports China Investment Corp. is backing a potential takeover of Yum China Holdings Inc., which runs KFC and Pizza Hut outlets
· GDS -3%; drops after Q2 results that beat on revenue with a reported RMB637.51M but missed on EPS with RMB0.29
· ONDK -5%; downgraded to sell at BTIG based in large part on current valuation, which we view as overextended at 17.7x and 14.8x its FY19E and FY20E consensus adjusted EPS, respectively
· PERY -4%; affirms commitment to $437M going-private deal led by George Feldenkreis (terminated discussions with Randa Accessories at $28.90-per-share buyout proposal, and said remains committed to the $27.50 bid led by founder)
· SWCH -24%; after its Q2 earnings miss and reduced FY18 guidance attributed to the timing of several large deals closing later than expected
· VERI -17%; after it posted a miss on top and bottom lines in its Q2 earnings as revenues grew just 2% (Roth noted Q2 AI revenue was in-line as agency underperformed)
· VIPS -13%; missed 2Q estimates and guided lower for 3Q. Tencent/JD contributions continue to be lukewarm and disappoint the market as both channels combined brought only 0.4 million new customers to VIPS in 2Q18 and light guidance implies little contribution in 3Q
· WYNN -2%; downgraded to hold at Jefferies as view the recent board additions and the standstill agreement as a significant overhang for shares