Friday, August 31, 2018
U.S. equities are slightly higher, rebounding off overnight trade concerns with China, as markets focus on a positive headline related to another macro issue, Argentina. The IMF said “Argentina has the full support of the Fund and we are confident that the strong commitment and determination of the Argentine authorities will help the country overcome the current difficulties.” The commentary lifted the Argentine peso from its sharp double-digit % decline yesterday. Prior to the IMF statement, U.S. equities were mixed after Bloomberg reported that President Donald Trump is set to back tariffs on $200 billion worth of Chinese goods next week. Also, today marks the deadline for trade negotiations between Canada and the U.S. Separately, President Donald Trump also said he would pull out of the World Trade Organization if it doesn’t treat the U.S. better, targeting a cornerstone of the international trading system (ramping up trade concerns). The comments from POTUS took the “wind out of the sails” of markets yesterday as the S&P 500 and NASDAQ each snapped their 4-day record high winning streaks. Despite the volatility in markets the last few days, major averages are at or near their all-time best levels and on track for their best monthly returns since January. Coming into today, the Dow has gained 2.3%, the S&P has risen 3%, and the NASDAQ has climbed 5.4% with the S&P 500 and NASDAQ on track for fifth straight positive month.
Treasuries, Currencies and Commodities
· In currency markets, the dollar index (DXY) edges higher in what has been a volatile week for currencies (especially emerging markets such as Turkey, Mexico, and Argentina); the euro and pound both decline as Brexit talks hit snag on EU food labelling protections. The Argentina’s peso rebounded from its double-digit plunge against the US dollar Thursday (traded up at record ow 40USD) as the currency strengthened to roughly 36.97 pesos. Note this morning the IMF said it is working closely to strengthen the Argentina loan program, which helped the Peso. The Turkish Lira also rebounds after yesterday’s pullback on reports the deputy governor of the nation’s central bank will step down.
· Commodity prices are mixed as gold prices look to snap their 3-day losing streak (note gold is set for a fifth straight monthly decline, the longest losing run in half a decade, hit by a strengthening dollar and U.S. equities at record highs), while oil prices pare recent gains, but WTI crude holding the $70 per barrel mark (first time above that level since July), and on track for its 2nd straight weekly advance (after snapping 7-week losing streak last Friday
· Treasury markets holding steady after rallying late yesterday (sending yields lower) following the pullback in US markets on trade/tariff concerns; the 1-yr yield steady above 2.84%
· Chicago Purchasing Managers Index fell to 63.6 from 65.5 in the prior month but slightly better than the 63 estimate by economists (after rising 1.4 points to 65.5 in July). The decline breaks a string of four monthly gains, but is only the lowest since May. Prices paid rose at a slower pace, signaling expansion while new orders rose at a faster pace, also signaling expansion
· The Aug. Final Michigan Sentiment fell to 96.2 from 97.9 last month, but was above the 95.5 estimate and the 95.3 in the preliminary reading; expectations index fell to 87.1 vs. 87.3 last month while current economic conditions index fell to 110.3 vs. 114.4 last month.
Sector Movers Today
· Discount/dollar stores fall for a second straight session, hit today after BIG 2Q EPS missed estimates by 8c and cut its year adjusted EPS forecast to $4.40-$4.55 from $4.50-$4.70; the group declined yesterday led by a 15% decline in DLTR after Q2 EPS, sales and comps all just below and lower Q3 guidance (note FIVE reports next week)
· Auto’s; U.S. automakers, suppliers and parts retailers active after President Donald Trump rejected an EU proposal to eliminate tariffs on auto imports. Trump also announced that he wanted to move ahead with a plan to impose tariffs on $200 billion in Chinese imports – shares of GM, F, FCAU, AXL, LEA, MGA, DLPH among movers
· Video gamers; EA adds to yesterday’s 9% decline following its lower booking guidance and push out release of one of its top games; downgraded (along with ATVI) at Bank America today; Bank America cut ATVI and EA to neutral as believes Electronic Arts’ guidance cut highlights the risks of a back-end loaded year, a “crowded” holiday title slate and continued Fortnite pressure; shares of Ubisoft and Tencent among names in video game space that declined overnight after plans by China’s regulators to curtail the number of online games and discourage play-time
· AOBC +32%; as Q1 results handily topped consensus and raised FY19 adjusted EPS view to 62c-66c from 40c-50c and ups year revs to $620M-$630M from $570M-$600M as showed that a weak industry backdrop was part of the prior guidance and that benefits.
· LULU +13%; easily beat on both the top- and bottom-line, driving a 19% FX comp (vs. est. 9.5%) including 47% growth in e-commerce, a 10% B&M comp, 47% international growth, and double digit comps across women’s, men’s, and accessories.
· IDTI +9%; as Japan’s Renesas considers buying U.S. chip maker, Reuters reported saying the deal could be worth as much as $6 billion
· TLRY +9%; as momentum resumes in cannabis related stocks after brief pullback Thursday
· ULTA +7%; back to 52-week highs after Q2 EPS beat by 5c on in-line revenue while lower 3Q guidance ($2.11-$2.16 vs. $2.31 est.) was overshadowed by higher-than-expected margin; also announces Kylie Jenner brand pact
· VHC +10%; after AppleInsider reported a federal district judge denied AAPL’s motion for a new trial in the patent dispute on certain merits of VirnetX’s case then denied-in-part and granted-in-part VHC’s motion for entry of judgment
· AMBA -2%; after Q2 EPS and sales topped views, but 3Q guidance sales and EPS were well below Street estimates and guided for continued weakness in all consumer camera categories
· AZN -1%; after a phase 3 trial for anifrolumab didn’t meet its primary endpoint of a statistically significant reduction in disease activity in patients with systemic lupus erythematosus
· BIG -9%; 2Q EPS missed estimates by 8c and cut its year adjusted EPS forecast to $4.40-$4.55 from $4.50-$4.70
· EA -2%; adds to yesterday’s 9% decline following its lower booking guidance and push out release of one of its top games; downgraded (along with ATVI) at Bank America today
· KO ; said it would buy British coffee-shop chain Costa for $5.1 billion from London-listed Whitbread PLC, giving it a strong position in coffee overseas
· NTNX -2%; exceeded top-line expectations in the quarter, but guided EPS lower to reflect higher spending on both S&M and R&D
· ZUO -15%; after better Q2 results and raised guidance as analysts notes shares fairly valued at current levels after the 140% surge since its April IPO