Tuesday, September 11, 2018
Equities quickly rebound off the lows – erasing initial losses! Stocks opened to the downside as the S&P 500 Index fell for the fifth time in in six sessions following reports that China plans to ask the World Trade Organization (WTO) for authority to impose trade sanctions on the U.S. Earlier, the AP reported that Chinese regulators are delaying license applications from American companies in financial services and other industries until the countries resolve a tariff dispute. The news hit stocks overnight, though markets quickly pared those losses with the NASDAQ surging as much as 65 points off the intraday lows and the S&P and Dow both turning positive as well. The other top story outside of trade and tariff news with China, the EU and Canada was Hurricane Florence, as the storm approaches the Carolinas and Virginia, with all declaring state of emergencies. Several related sectors seen potentially greatly impacted by the storm, with insurers, restaurants, retailers, auto, and home improvement/building material companies’ active the last few days. Treasury yields spike with the 2-year yield above 2.73% to fresh decade highs while the 10-year yield is a few points from 3%. Oil prices jump, gold slides while the dollar looks to recover after yesterday’s slide.
Treasuries, Currencies and Commodities
· In currency markets, the dollar bounced off overnight lows (DXY touched 94.88), rising to highs of 95.35 amid volatility in the British Pound, which declined to lows of 1.2965 (well off overnight best 1.3087) as markets try and sort out conflicting headlines pertaining to Brexit (exit from the European union). The Pound tumbled from a six-week high after a report the EU sees the U.K. as too optimistic, then pared some losses after Ireland’s Prime Minister said a deal could be done in weeks (echoing the comments from chief negotiation Barnier yesterday).
· Commodity prices; precious metals decline, as gold trades further below the $1,200 an ounce level as the dollar rises; oil prices however have rebound nicely after yesterday’s late day pullback, with WTI crude moving back above the $68 per barrel level ahead of weekly inventory data tonight (API) and tomorrow morning (EIA).
· Treasury markets slip as yields rally; 10-year yield up 2 bps at 2.957% while the 2-year yield decade highs above 2.736% and the 30-yr 3.10%; rising expectations the FOMC will continue its gradual rate hike agenda following ongoing better-than-expected economic data
· Wholesale Inventories for July rose 0.6%, compared to the 0.7% estimate as July wholesale inventories increased to $636.3B from $632.7B the prior month; wholesale sales unchanged in July after falling 0.2% the prior month; wholesale sales excluding automobiles 0% in July
· U.S. job openings (JOLTs) climb to record 6.9 million in July, up from 6.822M in June; July job opening rate (job openings as a % of total employment plus openings) 4.4% vs 4.4% prior month
· The National Federation of Independent Business (NFIB) said its small-business optimism index rose 0.9 points to a 108.8, eclipsing the previous record of 108 some 35 years ago
Sector Movers Today
· Restaurants; YUMC declines after Bloomberg reported a Chinese consortium including Hillhouse Capital is planning to drop its pursuit of a takeover after its initial proposal was rejected. ; Goldman Sachs upgraded DRI to buy and up tgt to $130 as believe off-premise can continue to act as a 1%-plus comp tailwind in F19 and note positive recent data points in search trends; upgraded BLMN to neutral on valuation while remain well below consensus estimates and downgraded WING to neutral, taking profits as shares are up 178% since adding WING to the Americas Buy list on April 1, 2016; Raymond James notes BOJA (59% of system stores), TAST (23% system stores), CBRL (10%) most hurricane path exposed in coverage
· Casino stocks; Deutsche Bank said they think Macau is at the start of a downward earnings revision cycle and cut Macau 2019 GGR growth from 11% to 4% (VIP 2%, Mass 6%), resulting in industry EBITDA growth of only 5%, much lower than consensus (13%) – firm downgraded GALAXY from buy to sell, MGM china from buy to hold, Sands China from buy to hold, SJM from Hold to sell, and Wynn Macau from $31 to $22
· Industrial & Machinery; DOV unveils a right-sizing plan aimed at delivering $130M of annualized pre-tax earnings by year-end 2019, of which $30M will be reinvested in high-return growth initiatives; PNR rises after Trian Management Partner Matthew Peltz resigned from Pentair’s board on Sept. 10.; Tran said Peltz played an active role in the spinoff of nVent Electric and the fund believes Pentair is currently well positioned to succeed; AIR was downgraded @to hold at SunTrust as believe MRO headwinds will pressure near-term growth; JCI was downgraded to neutral from buy at UBS as sees lower than expected growth
· ATVI +5%; replaced by EA on Stifel’s select list citing expectations for a solid holiday season led by “Call of Duty: Black Ops 4,” anticipation ahead of BlizzCon and continued momentum for the Overwatch League
· CASY +10%; trades to 2-year highs after quarterly results
· IDTI +11%; acquired by Renesas Electronics Corp. for $6.7B, paying $49 a share, a 29.5% premium over yesterday’s closing price
· IVTY +28%; to be acquired by SYK for $7.40 per share, in deal valued at around $190M
· LGND +1%; price tgt raised to $300 at Argus as believe that LGND is on track to post solid earnings growth over the next several years, driven by its two primary partnered products
· NKE +1%; upgraded to buy from hold and raise tgt to $95 from $78 at Canaccord saying after two years of a soft product cycle, NKE has regained its footing
· SNAP +3%; upgraded to outperform at Wedbush and raising tgt to $12.25 from $11.50 saying key hires and execution over the past six months suggest increased focus on shareholder value
· TLRY +9%; after the cannabis production and distribution company said its 2:100 medical cannabis product was successfully imported into the United Kingdom. The product was for a pediatric patient in need, the company said.
· FRAN -32%; as lowers FY18 revenue view to $453M-$463M from $485M-$499M (est. $482.7M) and lowers FY18 EPS view to 15c-25c from 53c-63c/sees FY18 comp sales decrease of 8%-10%
· LMNR -15%; shares decline after Q3 EPS missed by 5c and narrowed narrows FY18 EPS view to 65c-70c from 65c-75c (est. 70)
· SD -12%; after saying it had ended its strategic review and rejected all bids, saying they undervalued the company
· SONO -15%; as Q3 results came in at the high end of the preliminary results ($208M vs. $206-208M, while investors were looking for a raise on the FY guide, but was in line with Street
· TSLA -2%; after being downgraded at Nomura Instinet (long-time bull) and cut tgt to $300 expressing concern that the “erratic behavior” of CEO Elon Musk will taint the Tesla brand
· USAT -31%; after saying it is conducting an internal investigation into the accounting of certain of its present and past contractual arrangements and financial reporting controls.
· WDC -3%; downgraded to Sector Perform at RBC Capital as they think NAND oversupply will persist through mid-2019 and GMs are unlikely to stabilize for next several quarters resulting in sustained downward revisions for FTM estimates
· YUMC -15%; as Bloomberg reported a Chinese consortium including Hillhouse Capital is planning to drop its pursuit of a takeover after its initial proposal was rejected.
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.