Mid-Morning Look: August 21, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Tuesday, August 21, 2018

U.S. equities edged higher for a 4th day as the dollar slipped and investors assess the latest developments in the trade war with China. The S&P 500 index nears its all-time highs of 2,872.87 reached in January while the Dow Transport index trades to new all-time highs, led by another advance in the airline sector. Small Caps also lifting market, with the Russell 2000 trading to a fresh al-time intraday high as well. Handful of earnings reports moving some names, but the move in currencies and bond yields, along with trade commentary and markets awaiting to see if Fed Chair Jerome Powell will respond to President Donald Trump’s complaint about higher interest rates yesterday and offer more clues on monetary policy at a meeting of central bankers later this week are what’s leading markets early. Overnight, the PBOC helped market tensions by saying China won’t use competitive currency devaluation or the foreign exchange rate as a tool to cope with trade frictions. The dollar fell for a fourth day after Trump complained about the Federal Reserve’s policies, while the 10-year Treasury yield rose for the first time in three days. The Financial Times reported that the U.S. and China to attempt revival of trade negotiations that ended acrimoniously after their bosses last met in May…but neither side is optimistic that the meeting in Washington.

Treasuries, Currencies and Commodities

· In currency markets, the dollar index (DXY) rolls to its lowest levels in about 2-weeks, falling to 95.50 (off 2018 highs of 96.98 on 8/15), losing traction late day yesterday after President Donald Trump criticized the Federal Reserve about higher interest rates yesterday; the euro bounces back above the 1.15 level (off recent 52-week lows), with the Pound also off 1-year lows

· Commodity prices rebound as the dollar extends losses from yesterday; oil prices trade above $68 per barrel for WTI crude ahead of API inventory data tonight and EIA data tomorrow, and bounces off multi-week lows of $65 late last week. Oil got a lift yesterday after President Trump has proposed a sale of as much as half of the 660 million-barrel stockpile from the SPR, although it will only be 11 million barrels released this time around. Gold prices look to make it a 2nd straight day of gains, trading back to the $1,200 an ounce level, off recent 18-month lows

· Treasury markets slip after yesterday’s strong performance that saw yields slump to multi-week lows; the yield on the 10-yr rises over 2 bps to around 2.845% after slipping 5 bps yesterday, while the 2-yr back above 2.6% and the 30-yr back above 3%. No economic data the last 2-days to impact markets, but FOMC minutes and Jackson Hole central bank meeting this week may.

Sector Movers Today

· Discount brokers under pressure (AMTD, ETFC, SCHW) after CNBC first reported JPM will introduce a digital investing service next week that includes free or discounted trades, a portfolio-building tool and no-fee access to JPMorgan stock research (CNBC reports that JPM customers get 100 free stock or ETF trades in first year, offer becomes permanent for those with Premier-level bank accounts)

· Consumer Staples; cosmetics space been pressured of late after ELF and REV results, while EL rallied despite lower guidance the other day (upgraded today at Davidson citing strong fundamentals); today, COTY posted mixed Q4 results (sales slight miss) on lower guidance (FY19 EPS 74c-78c vs. est. 82c) and CFO departure; in food, SJM cut its FY19 sales forecast following weaker-than-expected 1Q results as now sees FY sales $8B, down from $8.3B prior and below the $8.08B, while also lowers FY free cash flow view to $770M-$820M from $800M-$850M

· Housing & Building Products; among strongest sectors today after TOL quarterly results topped estimates helped by an increase in contract signings and backlog that the company says set it up for further revenue and earnings growth into fiscal 2019 (backlog rose 22% in dollar terms in Q3 to $6.48 billion, its highest at the end of a third-quarter in a dozen years); FND upgraded to buy at Jefferies as believe the trajectory for continued ~20% unit rollout over the next several years is achievable; LOW was removed from the franchise picks list at Jefferies especially as supply chain investments and store fill-ins will take time

· Software movers; CRM tgt was raised to Street high $181 at Bank America, tgt raised to $165 at Cowen and BMO Capital ahead of Q2 results this week; SEAC shares plunge after the company warned that it will report a wider-than-expected Q2 EPS loss and lower revenue, citing a number of deals that were delayed to Q3 (guided Q3 revs $11.5M-$12.5M vs. est. $18M); APPN 2M share Spot Secondary priced at $35.15; SYMC was upgraded to positive at Susquehanna

       Stock GAINERS

· DISCA +2%; upgraded to buy at Jefferies as see several opportunities that could boost DISCA’s FCF

· FN +5%; as Q4 EPS beat by 6c and revs of $345M topped views by $7M while Q3 guidance came in above views

· MDT +4%; as Q1 EPS and revenue topped consensus estimates and reaffirmed year EPS view

· RGS +14%; following quarterly earnings results

· TJX +4%; reported Q2 revenue and same-store sales that beat expectations (comparable sales were up 6% during the quarter to triple the 2% consensus expectation) and guides full-year EPS of $4.83-$4.88 vs. prior view $4.75-$4.83

· TLRY +9%; after partnership with Ontario Cannabis Retail Corp., to supply province of Ontario with a diverse array of cannabis products in anticipation of start of adult-use market on Oct. 17.

· TOL +11%; quarterly results topped estimates helped by an increase in contract signings and backlog that the company says set it up for further revenue and earnings growth

· UNP +1%; as Transport index rises to all-time highs, led by rail strength

Stock LAGGARDS

· AMTD -5%; CNBC reported JPM will introduce a digital investing service next week that includes free or discounted trades, a portfolio-building tool and no-fee access to JPMorgan stock research

· JILL -10%; posted weaker-than-expected 3Q forecasts that offset 2Q results that topped estimates (sees Q3 EPS 9c-11c vs est. 16c)

· KSS -3%; shares came into earnings up 47% YTD, so likely profit taking after delivered upbeat quarterly results and boosted its full-year earnings outlook (similar reaction fromM last week); slides to lows as year gross margin guide implies 2H slowdown

· LII -1%; cuts FY18 adjusted EPS view to $8.90-$9.30 from $9.95-$10.35 (est. $10.25) amid estimated financial impacts and insurance offsets from tornado that damaged its facility

· NDSN -5%; 4Q sales and earnings guidance fell below analysts’ estimates due to lower demand for Advanced Technology dispense product lines (guided Q4 sales down 4% to flat y/y, while analysts had expected growth of 2.9%)

· SEAC -48%; after the company warned that it will report a wider-than-expected Q2 EPS loss and lower revenue, citing a number of deals that were delayed to Q3

· SJM -3%; cut its FY19 sales forecast following weaker-than-expected 1Q results as now sees FY sales $8B, down from $8.3B prior and below the $8.08B, while also lowers FY free cash flow view

 

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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