Morning Preview: September 4, 2018

Terrie AmengualDaily Market Report

Early Look

Tuesday, September 4, 2018

U.S. equity futures point to a mixed open as traders return from a long three-day Labor Day weekend holiday, while stocks in Europe reversed an early gain after a listless session in Asia. European equities climbed at the open, with banks leading the advance as concerns about the Italian economy shifted to the sidelines after Fitch Ratings maintained the nation’s rating. However, European prices have since reversed to the downside. Oil prices are surging as U.S. oil prices rally above $70 as tropical storm Gordon raises supply disruption fears along with concerns about risks to Iranian supply from U.S. economic sanctions. Tropical storm Gordon is set to become a hurricane as it makes landfall along the U.S. Gulf of Mexico coastline later Tuesday, prompting oil producers to take precautionary measures and shut production at offshore oil platforms. WTI crude moves above $70 per barrel after ending August with a 3.2% gain. In Asian markets, The Nikkei Index slipped -10 points to settle at 22,696, the Shanghai Index gained 29 points to end at 2,750, and the Hang Seng Index rose 260 points to settle at 27,973. In Europe, the German DAX is off by about -80 points at 12,265, while the FTSE 100 is down a few points trading just under 7,500. Stocks start the month off after ending last Friday mixed, though returns in August were positive, with the S&P 500 posting a 3% monthly rise, the Dow advancing 2.2% and the Nasdaq rallying 5.7%.

Events Calendar for Today

· 7:45 AM EST ICSC Weekly Retail Sales

· 8:55 AM EST Johnson/Redbook Weekly Sales

· 9:00 AM EST Markit US Manufacturing PMI, Aug-F…est. 54.5

· 10:00 AM EST Construction Spending MoM for July…est. 0.4%

· 10:00 AM EST ISM Manufacturing Index for Aug…est. 57.6

· 10:00 AM EST ISM Price Paid for Aug…est. 69.5

· 10:30 AM EST Fed’s Evans discusses policy normalization

· N/A Monthly Total Vehicle Sales data for August

Earnings Calendar:

· Earnings Before the Open: CONN

· Earnings After the Close: CAL, COUP, HQY, RH, SMAR, WDAY

Other Key Events:

· Monthly Total Vehicle Sales data for August

· Barclay’s CEO Energy Power Conference, 9/4-9/6 in New York

· Barclay’s Global Consumer Staples Conference, 9/4-9/6, in Boston

· B Riley FBR Healthcare Conference one day meeting in New York

· Piper Jaffray Tech Select Conference, 9/4-9/5, in CA

Market Closing Prices Yesterday

· The S&P 500 Index gained 0.39 points, or 0.01%, to 2,901.52

· The Dow Jones Industrial Average fell -22.10 points, or 0.09%, to 25,964.82

· The Nasdaq Composite climbed 21.17 points, or 0.26%, to 8,109.54

· The Russell 2000 Index advanced 8.40 points, or 0.48% to 1,740.75

World News

· China’s Caixin August manufacturing purchasing managers’ index falls to 50.6 from 50.8 in July and below the year ago 51.6 (lowest reading since June 2017), while output rises to 52.5 vs 51.8 in July (highest reading since Jan. 2018) and new orders fall vs prior month

· The British pound extended its decline against the dollar into a third day as concerns over Brexit negotiations resurfaced, while weaker-than-forecast U.K. manufacturing PMI data also weighed. Sterling slips below $1.29 handle as U.K. Prime Minister Theresa May ruled out a second referendum on Brexit

· U.K. manufacturing growth unexpectedly slowed to the weakest in two years last month as the IHS Markit’s Purchasing Managers’ Index fell to 52.8 in August, down from 53.8 a month earlier

· Argentina announces new taxes on exports and the elimination of several ministries in a bid to halt economic turmoil that has sent the peso to record lows. All shipments of primary exports will be levied at four pesos per dollar, meaning payments will depend on commodity prices and the exchange rate.

· Fitch has cut its outlook for economic growth in Turkey and warned of “significant and widespread downside risks” as the country remains in the throes of a currency crisis

Sector News Breakdown

Consumer

· Barron’s said investors should use the selloff in Best Buy (BBY) as a buying opportunity, after financial results sent shares down 5%. Even after the drop, Best Buy has gained 50% over the past year, and analysts continue to underestimate it.

· Tesla (TSLA) reinstated as sell at Goldman Sachs with a 6-month price target of $210 as remains negative on Tesla’s ability to reach production ramp/margins and maintain free cash flow generation

· Conn’s Inc. (CONN) Q2 EPS 57c vs. est. 41c; Q2 comp sales rose 0.3% and sees Q3 comp sales down -5% to unchanged

· Wingstop (WING) downgraded to Neutral from Buy at BTIG

Energy

· Transocean (RIG) will acquire Ocean Rig (ORIG) in a cash and stock transaction valued at about $2.7 billion, inclusive of Ocean Rig’s net debt. Deal consideration is comprised of 1.6128 newly issued shares of Transocean plus $12.75 in cash for each share of Ocean Rig’s common stock, for a total implied value of $32.28 per Ocean Rig share https://on.mktw.net/2wD45BA

· PG&E (PCG) upgraded to Buy on reduced risk at BofA/Merrill

· Russia’s top-5 oil producers Rosneft, Lukoil, Gazprom Neft, Surgutneftegas and Tatneft increased output modestly last month after jump in July, according to emailed data from Russian Energy Ministry’s CDU-TEK unit.

· Exxon Mobil (XOM) said that a blockade by former employees threatens crude production at one of its oil terminals in Nigeria, according to Reuters

· Ballard Power Systems (BLDP) announced that it has entered into a definitive agreement to divest certain non-core assets of its subsidiary, Protonex, related to the Power Manager business to Revision Military Ltd., a private U.S.-based company, for up to $16M in cash

· California lawmakers passed legislation to help utility giant PG&E Corp. (PCG) pay for billions of dollars in potential liabilities from wildfires that ravaged Northern California wine country last year.

Financials

· Société Generale SA (GLE.FP) said that it expects to settle U.S. investigations into alleged sanctions violations “within the coming weeks,” and that the final penalty will probably be broadly in line with its estimates. SocGen had already set aside around 1.2 billion euros ($1.4 billion) to settle an investigation that has involved the U.S. Treasury, federal and New York state attorneys’ offices, and others

· Scor SE SCR shares jumped Tuesday after the French reinsurer rejected a takeover offer from Covea that valued the company at 8.25 billion euros ($9.58 billion) https://on.mktw.net/2wDp3zj

Healthcare

· United Therapeutics (UTHR) and MannKind (MNKD) in pact for development and commercialization of a dry powder formulation of treprostinil, an investigational product being evaluated as a pulmonary arterial hypertension treatment

· Boston Scientific (BSX) upgraded to Buy from Hold at Jefferies and raised tgt to $42 from $34

· Vertex Pharmaceuticals Inc.’s (VRTX) cystic fibrosis medicine Orkambi will be subsidized by the Australian government from next month.

Industrials & Materials

· Kansas City Southern (KSU) mentioned positively in Barron’s saying it is one of the companies that controls the trains pulling cars full of corn, plastic, and auto parts between Mexico and the U.S. and is bound to profit under a new deal between the two countries

· Hub Group (HUBG) agrees to sell its Mode Transportation subsidiary to an affiliate of York Capital Management for $238.5M

· UPS (UPS) upgraded to Strong Buy from Market Perform at Raymond James

Technology, Media & Telecom

· China is exploring a merger between wireless carriers China United Network Communications Group (CHU) and China Telecommunications Corp. (CHA) in order to accelerate the development of 5G mobile services amid a race with the U.S. over the technology https://bloom.bg/2Ci1q5w

· JD.com (JD) shares down -3% after CEO Liu Qiangdong was arrested Friday in Minnesota on suspicion of sexual misconduct but then released, and went back to China this weekend

· Facebook (FB) downgraded to Neutral from Buy at MoffettNathanson

· WPP PLC (WPP) shares fall-8% after Q2 results showed a weak performance in North America and also lowered the guidance for its operating margin this year

· Leaders from Facebook (FB) and Twitter (TWTR) will testify before the Senate Intelligence Committee this week on their efforts to police political content

 

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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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