Mid-Morning Look: August 28, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Tuesday, August 28, 2018


U.S. stocks rise, with the S&P 500 on track for a third straight day of record highs (topping the 2,900 level), as upward momentum continues to fuel the market out of a seven-month trading range. The Nasdaq Composite and Russell 2000 also extend their record high advances, as a trade deal with Mexico announced yesterday and Fed Chairman Jerome Powell’s pledge on Friday to keep a gradual pace of monetary tightening have pushed markets to new levels. Stocks had already posted strong returns in August, propelled by better-than-expected earnings this quarter, as retailers provided the latest boost. Regarding trade, talks with Canada are expected later this week, while President Donald Trump said that it’s not the right time for bilateral trade negotiations between the U.S. and China. Consumer confidence data came in at the highest level in over 18-years in August, while the U.S. trade deficit widens in July to highest level in five months (details below). Momentum clearly remains to the upside, with Treasury prices sliding (yields higher) and the dollar declines (though bouncing off lows).


Treasuries, Currencies and Commodities

· In currency markets, the US dollar extends recent decline, as the dollar index (DXY) drops to lows below 94.50 (more than 200 bps off 2018 highs of 96.98 on 8/15), adding to last week’s 1% decline as rival currencies rebound amid abating trade fear concerns (Mexican Peso, Canadian dollar rise). The dollar started its drop last week after Fed Chairman Powell noted only gradual continued rate hikes and did not appear overly concerned about inflation. The dollar falling broadly s. the euro, Pound, and emerging market currencies, while the yen was little changed.

· Commodity prices are mixed as gold prices rise to $1,220 an ounce, well off 18-month lows a week ago below $1,180 an ounce, getting a boost from the dollar slump; meanwhile oil prices are little changed after last week’s gains (rose the first time in 8-weeks last Friday), ahead of inventory data tonight (API) and tomorrow (EIA)

· Treasury market’s decline as yields spike, with the 10-yr jumping to 2.87% (up 3 bps), highest in a week while dollar falls near overnight lows (dollar index – DXY down around 94.50 level); the 2-yr yield rises above 2.65% and the 30-yr yield moves back above 3%


Economic Data

· Advanced Goods Trade deficit for July widened to (-$72.2B) from (-$67.9B) prior and above the (-$69.0B) estimate; imports rose 0.9% in July to $212.218B from $210.401B in June, while exports fell 1.7% in July to $140.020B from $142.481B in June; the government’s advanced report on wholesale inventories found a 0.7% increase in July; and advanced retail inventories rose 0.4%

· Consumer Confidence for August rose to 133.4 from 127.9 prior month and above the 126.6 estimate; the present situation confidence rose to 172.2 vs. 166.1 last month and consumer confidence expectations rose to 107.6 vs. 102.4 last month

· S&P CoreLogic Case-Shiller National Home Price index rose 6.24% y/y in June after rising 6.38% in prior month and compared to the 6.4% estimate; S&P/Case-Shiller 20-city NSA index at 213.07 after 212 in May; the 20-city SA index rose 0.11% m/m in June after rising 0.21% the prior month; national home price index rose 0.31% m/m in June after rising 0.31% the prior month

· Richmond Fed’s Aug. Manufacturing survey rises to 24 from 20 last month and above the 17 estimate; shipments rose to 23 after 16 the prior month, with new order volume increased to 25 after 22 the prior month and order backlogs rose to 15 after 4 the prior month


Sector Movers Today

· Consumer Staples; in food, CPB shares slipped after the New York Post reported that the company is expected to announce this week that it doesn’t plan to sell itself to a strategic buyer, a move that could provoke Dan Loeb into waging a nasty proxy fight https://nyp.st/2BV4LqT ; HAIN Q4 EPS and Ebitda narrowly topped estimates but said it sees Q1 net sales flat to down slightly and guides year EPS $1.21-$1.38 vs. est. $1.32; in beauty, Morgan Stanley upgraded both EL and COTY to overweight saying for COTY the risk-reward profile on the stock is seen as compelling, while EL channel/geographic mix is expected to shift in the right direction

· Semi equipment stocks AMAT and LRCX both downgraded to neutral from buy at Bank America as growth in the wafer fab equipment space may not accelerate until at least the second half of 2019/firm lowers outlook for industry-wide wafer fab equipment growth to 7% y/y from prior view for 10% growth and now sees a decline of 2.5% in 2019 and 2.5% growth in 2020, from 2% and 5% growth, respectively

· Semiconductors; XLNX was upgraded to outperform at Baird saying field research suggests a very recent and significant acceleration in 5G-related orders for FPGAs scheduled for the later part of this year, suggesting recently finalized design wins; AMD announced after the close the Company will be manufacturing all 7nm products at TSM and Mr. Jim Anderson will leave AMD to become the CEO of LSCC

· Housing & Building Products; MKM Partners noted Q2 earnings season was a challenging one for most building products companies (BECN, BLDR, BLD), with the operating environment leaving little room for unexpected headwinds – lowers tgts for group; HD filed debt securities shelf

       Stock GAINERS

· AFMD +146%; announces collaboration with Genentech to develop novel NK cell engager-based immunotherapeutics for multiple cancer targets; Affimed will receive $96Mupfront and committed funding and is eligible for up to an additional $5.0B including milestone payments

· BILI +11%; shares rise after Q2 revenue rose 76% YoY despite online content clean-up

· COTY +7%; Morgan Stanley upgraded both EL and COTY to overweight saying for COTY the risk-reward profile on the stock is seen as compelling

· DSW +23%; as Q2 earnings and comps top the highest estimates and boosted its full-year forecast as now sees FY revs up 6%-9% (had seen down 1%-3%) and raised year comps and EPS as well

· HEI +10%; raised revenue growth guidance to 20%-21% (vs. 18%-20% previously) and now expects an operating margin of 28.5%-29.0% (vs. 28.0%-29.0% previously); overall reported solid Q3 results, and upward revisions to guidance

· SHLD +17%; as expands tired purchase and installation program with AMZN that was announced in May to nationwide availability; full-service tire installation and balancing available to customers at Sears auto centers who buy any brand of tires on Amazon.com nationwide

· TIF +2%; Q2 profit and sales beat as world-wide sales rose 12% from a year earlier to $1.1B, topping the $1.04B est. and same-store sales climbed 8% (up 7% ex-FX), ahead of the 5.6% est.

Stock LAGGARDS

· AKCA -21%; along with weakness in IONS after the companies said they received a “complete response letter” from the FDA concerning their drug Waylivra, a medicine designed to treat a rare liver disorder; the companies said they would work with the FDA “to confirm the path forward

· BBY -5%; posted Q2 EP, revs and comp sales beats, but guided Q3 below views (79c-84c on revs $9.4B-$9.5B vs. est. 91c/$9.49B)

· BJ -3%; posted Q2 EPS, Ebitda and revs above consensus with comp sales up 5% vs. est. 2.8% though guides initial FY19 net sales view $12.6B-$12.7B vs. est. $13.04B and sees year merchandise comp. sales (ex-gas) up 1.8%-2.1%

· CPB -3%; after the New York Post reported that the company is expected to announce this week that it doesn’t plan to sell itself to a strategic buyer https://nyp.st/2BV4LqT

· HAIN -5%; Q4 EPS and Ebitda narrowly topped estimates but said it sees Q1 net sales flat to down slightly and guides year EPS $1.21-$1.38 vs. est. $1.32

· LRCX -3%; Bank America downgrades AMAT/LRCX from Buy to Neutral on muted earnings growth owing to softening WFE and limited operating leverage/lowers 2018 WFE estimates

· MITK -19%; Benchmark downgraded to hold citing management departures announced last night that leave uncertainty in key roles and will likely result in downward pressure on the stock n-t

 

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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