Mid-Morning Look: September 6, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Thursday, September 6, 2018

U.S. equities are once again mixed, with the Dow modestly higher, while the tech bloodbath moves into its second day, with semiconductors taking the brunt of selling pressure early amid analyst comments and commentary at a tech conference. Tech underperformed yesterday, with the Nasdaq Comp falling about 1% amid a drop in Internet names as social media executives faced questioning from U.S. senators, as the Senate Intelligence Committee members raised the prospect for government regulation. In early trading today, ahead of the deadline for public input on tariffs targeting $200 billion of Chinese goods, the U.S. and Canada continue trade talks regarding a new Nafta. There was also an onslaught of economic data today with mixed jobs data (ADP private payrolls missed while jobless claims slide again), better services data with ISM topping estimates while factory goods orders missed and nonfarm productivity reported mostly in line with a decline in labor costs. Retailers outperform early with 52-week highs for DG, TJX, COST, ROST, TGT, and JWN, while technology and casino stocks are down the most. The dollar slides, lifting commodity prices with Treasuries little changed.

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar extended its early losses following a weaker than expected private payrolls report from ADP; the dollar index (DXY) falls slightly back to the 95 level, while the euro, yen, pound rally; emerging markets are mixed after recent selling pressure (Canadian dollar, Turkish Lira, Argentine and Mexican peso)

· Commodity prices; precious metals getting a lift amid the weaker dollar, as gold prices move firmly back above the $1,200 an ounce level. Oil prices with small gains ahead of the EIA weekly inventory data at 11:00 this morning. Overnight, the API reported that U.S. crude supplies fell -1.2M barrels for the week ended Aug. 31, while supplies of gasoline rose 1 million barrels and distillate stockpiles climbed by 1.8 million barrels

· Treasury markets edging slightly higher, as yields pullback from recent 3-week highs (10-yr down from 2.9% yesterday and the 30-yr slightly lower from its 3.07% Wednesday)

Economic Data

· Private payroll data missed as the U.S. created 163K private-sector jobs in August, payrolls processor ADP said, down from 217,000 in July and below the 200K estimate. By sector, professional and business, education and health and leisure and hospitality drove the growth. The natural resources and mining sector lost 1,000 jobs.

· ISM Non-Manufacturing for August rises to 58.5, topping the 56.8 estimate and above the 55.7 prior month; business activity rose to 60.7 vs 56.5 prior month; new orders rose to 60.4 vs 57.0 prior and employment rose to 56.7 vs 56.1; prices paid fell to 62.8 vs 63.4

· Nonfarm productivity rose 2.9% in Q2, mostly in-line with the 3% estimate (prelim 2Q productivity was also up 2.9%), while unit labor costs fell (-1%) in 2Q vs. the (-0.9% est.); output rose 5% in 2Q vs. up 4.8% preliminary while compensation per hour rose 1.9% in 2Q

· Weekly Jobless Claims fell 10K to 203K, below the 213K estimate and was in line with last weeks unrevised 213K figure; the 4-week moving average drops 2,750 to 209,500; continuing claims fell 3k to 1.707m in the week ending Aug. 25

· Markit Services PMI for Aug was 54.8 vs. flash reading 55.2 as index falls from 56 in July and was the lowest reading since April 2018; new Business falls to 55.2 vs 56.6 in July (lowest reading since Dec. 2017); employment falls vs prior month

· Factory Goods Orders fall (-0.8%) in July vs. est. (-0.6%); Factory orders for June revised down to 0.6%; new orders ex-trans. for July rise 0.2% and new orders ex-defense for July fall 0.4% after rising 0.9% in June

Sector Movers Today

· Retailers; LB reported August Comp Sales up 1%, slightly better than the 0.3% estimate as Victoria’s Secret comp sales fall (-5%), below the (-3.8%) est. while Bath & Body Works comp sales up 15%, topping the 5.1% est.; URBN says retail segment comparable net sales thus far during the third quarter of fiscal 2019 of 10% as of September 3, 2018; BKS shares weak after the book seller reported a Q1 loss that widened and sales that fell from a year ago; LE posted larger than expected Q2 EPS loss of (16c), missing estimates by 12c and on lower revs; GIII reports net sales rose 16.1% in Q2, driven by excellent results across wholesale businesses and also raised its FY19 outlook to $2.52-$2.62 from $2.27-$2.37

· Heavy duty trucks get a double dose of positive news as NAV boosted its industry and financial forecasts for the year after quarterly results; also helping the group (CMI, PCAR, ALSN) was prelim Class 8 truck orders for August setting an all-time monthly record again at 53,100, or up 150% y/y and up 1% MoM (the data follows impressive data the month prior)

· Internet; NFLX tgt raised to $440 at RBC Capital following positive U.S. & UK survey results and a deep dive into the Indian market; AMZN debuts Fire HD 8 with hands-free access to Alexa and Fire HD 8 Kids edition; CTRP Q2 ADS beat by 9c as revs of $1.11B top estimates; SNAPshares traded to all-time lows, dropping below the $10 mark while FB shares dropped below $165 to its lowest levels since April

· Casino & Leisure movers; boating stocks (BC, MPX, MCFT) active after MBUU Q4 results topped estimates across the board (EPS beat by 16c on higher sales and Ebitda) – said results driven by a robust retail demand environment and Cobalt’s increasing contributions; PII said it will acquire WSCI for $7.00 per share in cash, enterprise value of ~$23.9M https://bit.ly/2PJJ2nP ; casino stocks were broadly lower, with declines in MLCO, WYNN, LVS

· Software movers; CLDR Q2 results that beat estimates with a 23% Y/Y revenue growth, billings beat by 7% and raised its annual guidance outlook $440M-$450M vs. est. $441.69M; ZS posted a beat and raise quarter but shares slipped early as the company’s lock-up period expires next week (September 12th); MDB Q2 results beat across the board with total revenue of $57.5M growing ~57% Y/Y topping estimates; GWRE posts better Q2 results and raised guidance

       Stock GAINERS

· ARWR +53%; as presents new ARO-HBV Clinical Data Demonstrating HBsAg Reductions at World Gastroenterologists Summit (says study shows HBV surface antigen reductions)

· CLDR +20%; on Q2 results that beat estimates with a 23% Y/Y revenue growth, billings beat by 7% and raised its annual guidance outlook $440M-$450M vs. est. $441.69M

· GIII +7%; reports net sales rose 16.1% in Q2, driven by excellent results across wholesale businesses and also raised its FY19 outlook

· MBUU +3%; Q4 results topped estimates across the board (EPS beat by 16c on higher sales and Ebitda – said results driven by a robust retail demand environment

· NFLX +2%; rebounding after falling 6% yesterday, as RBC raised its tgt to $440

· SPPI +4%; as Phase 2 clinical trial evaluating poziotinib in EGFR exon 20-mutant non-small cell lung cancer continues to show positive action

· TIF +3%; among top S&P 500 gainers as retailers outperform across the board

Stock LAGGARDS

· BEN -3%; downgraded to underweight at JPMorgan underweight saying recent weakness in emerging markets, and EM debt in particular, will weigh on the company’s organic growth and earnings potential

· BKS -7%; after the book seller reported a Q1 loss that widened and sales that fell from a year ago

· CBS -1%; after CNBC’s David Faber reported the board of CBS is deep in settlement talks that would result in the departure of embattled CEO Les Moonves, and the board is offering a roughly $100M exit package (though notes Moonves due as much as $180M)

· IOVA -13%; after disappointing initial results in an abstract for the World Conference on Lung Cancer for an immunotherapy using what is known as tumor-infiltrating lymphocyte

· KLAC -7%; says at Citi conference sees December quarter up a little less than they thought

· MU -7%; removed from top picks list and tgt cut to $75 from $100 – DRAM pricing is likely peaking in C3Q, while NAND oversupply has worsened recently

· ZS -6%; posted a beat and raise quarter but shares slipped early as the company’s lock-up period expires next week (September 12th)

_______________________________________________________

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.

Live Trading

Open an Account

Paper Trading

Register