Mid-Morning Look: September 7, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Friday, September 7, 2018

U.S. equities are again mixed, as technology rebounds following two-days of selling pressure (NASDAQ down about 2% last 2-days), while the S&P is little changed, with markets focusing on strong jobs data, trade issues with China and Canada, and weaker emerging markets. Asian markets slumped overnight, led by a 6th straight decline for the Nikkei after President Donald Trump’s comments late yesterday about turning an eye toward Japan next on trade. Jobs data came in very strong this morning as U.S. wages rose at their quickest pace in nine years in August (up +0.4% vs. est. +0.2%), a standout in a report that topped Wall Street forecasts and keeps the Federal Reserve on track to raise rates two more times this year as the economy continues its outperformance. Following the better jobs report, Treasuries have since sold off, sending yields to their best levels in weeks (10-yr above 2.94% and 2-yr 2.69%). A bounce in semiconductors after the Philly semi index (SOX) slumped more than 3% the last 2-days, is helping pace the gains in tech, along with strength in Internet and software names, helped by better earnings from AVGO, PANW, MRVL, FNSR, overnight. Markets anxiously await an expected decision today on new trade tariffs on Chinese goods.

Treasuries, Currencies and Commodities

· In currency markets, the dollar rebounds after the better jobs data and subsequent hike in wages, while emerging market currencies rebound after an awful few weeks from the Turkish Lira, Argentine, Mexican Peso and latest drop in Russian ruble. Meanwhile, Treasury market’s slide, as yields jump across the board following the better than expected monthly jobs report (10-year trades to 2.94% and 2-yr around 2.7%)

· Commodity prices are weaker given the bounce in the dollar and strong outlook for the economy after the stellar jobs report; gold prices drop back to the $1,200 an ounce level, while oil prices also extend losses, moving back to lowest levels in over a month around $67 per barrel for WTI

Economic Data

· Strong jobs report for August as Nonfarm Payrolls rose 201K, topping the 190K estimate while private payrolls rose 204K vs. est. 194K; the unemployment rate held steady at 3.9% (above the 3.8% est.) while U.S. wages rose at their quickest pace in nine years in August, jumping 0.4% and topping the 0.2% increase estimated; the participation rate dipped to 62.7% vs prior 62.9%; manufacturing payrolls fell 3k after rising 18K in the prior month vs. est. 23K

Sector Movers Today

· Financials; CMA and WFC both downgraded to neutral at Macquarie saying due to compressing LIBOR spreads and rising funding costs, they believe industry is in the late stages of the NIM story with margins peaking in 2Q19; ZION was downgraded to neutral at UBS and tgt cut to $56 from $67 as reduced loan growth forecast; TROW was downgraded to hold at Deutsche Bank saying thru August, trends are worsening for active managers and T. Rowe Price has posted weaker performance relative to peers

· Refiners; Goldman Sachs downgraded CVE to sell from neutral and cut tgt to $8 given negative exposure to WTI-WCS differential, along with acceleration of higher royalty payments and downgraded CVRR to neutral from buy following outperformance. Goldman upgraded PBF to neutral from sell given positioning to benefit from wider WTI-WCS spread, and potential upside from IMO 2020 sulfur standards, along with more balanced risk/reward. Also upgraded CVI to Buy to take advantage of sharp relative underperformance and exposure to improving Mid-Continent refining fundamentals

· Metals & Materials; AKS double upgraded to buy from underperform at Bank America as expects 85% of AKS’s sheet business to benefit from fixed-contract prices in 2019 and said near-term global sheet prices should be high with lesser Chinese exports due to mandated winter closures for sheet mills; form also downgraded RS to underperform and cut tgt to $90 from $107 saying construction end market could peak in 2019, raising concerns over late-cycle earnings; TAHO announced it has restarted mining operations at its La Arena mine in Peru following an agreement to end the protests there that caused operations to be suspended for eight days; VALE was upgraded to buy at Jefferies on expectation for better pricing of higher grade iron ore

· Consumer Staples; CPB confirms receipt of Dan Loeb’s Third Point director slate and says its board open and committed to evaluate all options; MDLZ new CEO announced the company’s long-term strategy, affirmed its year outlook, now expects share repurchases to be about $2B in 2018 and boosts capital expenditures to $2.3B

       Stock GAINERS

· AVGO +6%; reported quarterly results and guidance above estimates on continued strong demand from data center customers as well as initial iPhone builds

· AYI +6%; Baird upgrading to Outperform as their quarterly Baird Lighting Survey shows accelerating industry volumes and flattening price comparisons

· COST +1%; posted better than expected August comps (+8.9% US core comp vs. consensus of ~5.8%) as traffic growth remained robust (+5.5% US)

· DOMO +21%; after Q2 revenue topped expectations

· FIVE +11%; 2Q EPS ahead of expectations, driven by strong comps and new-store productivity, and raised 2018 guidance – 2Q was a standout quarter with comps of +2.7% accelerating by over 600 bps on a 2-yr stack

· FNSR +10%; in-line sales but higher EPS on higher GM, while next quarter sales guide was light but offset by better GM/opex

· MRVL +5%; posted better than expected F2Q revs/margins for its core business in its first report from the Cavium acquisition, which Deutsche Bank said revs in the qtr/guide were below

· OKTA +21%; record highs after 2Q19 results and elevated FY19 guidance beat driven by continued migration trends to the cloud

· PANW +4%; trades to record all-time highs after its beat-and-raise quarter with analysts noting strong quarter outperforming on all metrics

Stock LAGGARDS

· DOV -1%; received an analyst upgrade and downgrade as BMO cut its rating amid concerns over Refrigeration’s end-market, while Citi raised its rating to buy

· CRTO -13%; after Goldman Sachs cut its tgt to a street low $24 after it was de-certified as a Facebook Marketing Partner as of July

· EGAN -20%; posted largely in-line results for the quarter, after adjusting for currency impact and guided to strong SaaS revenue growth, but services revenue was guided to decline

· TROW -3%; downgraded to hold at Deutsche Bank

· TSLA -5%; adds to overnight losses after its chief accounting officer resigns (after 5-weeks on the jobs), and its HR chief said she isn’t returning from leave

· WLK -1%; downgraded at Cowen saying expects increasingly challenging environment for ethylene and PE margins to be extending out to at least until end of 1H19 and possibly beyond

Syndicate

· At Home Group (HOME) 10M share Spot Secondary priced at $33.20

· Dicerna (DRNA) 7.68M share Secondary priced at $13.02

· nLight (LASR) 4.5M share Secondary priced at $26.50

· ProQR Therapeutics (PRQR) 5.75M share Secondary priced at $15.75

· Tilly’s (TLYS) 5.5M share Secondary priced at $18.50

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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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