Mid-Morning Look: September 12, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, September 12, 2018

U.S. equities have reversed to the downside after opening mixed (Dow Industrials and S&P 500 opened higher before slipping), while the tech heavy Nasdaq Composite underperformed, with semiconductors a major drag on tech. The Philly semi index (SOX) is now down 5 of the last 6 days, led lower after Goldman Sachs cautious comments on MU (downgraded) and semi equipment names (cut sector and LRCX) while Stifel also downgraded four names in the sector (MXIM, MTSI, NXPI, POWI) – which follows negative shipment outlook from KLAC last week at investor conference (INTC shares down a 7th straight day as well). Chip suppliers to Apple could get a bounce later as the company hosts its annual product announcement at 1:00 PM EST, with new phones and other products expected. A boost in energy stocks amid positive comments at a conference and surging oil prices on bullish inventory data is helping keep the market declines in check.

Hurricane Florence the other big story as it is closing in on the Southeast as officials warned more than 1 million people in its projected path to leave now or face disaster. Florence is a category four hurricane with sustained winds of 130 mph, and computer models on Wednesday morning show it will make landfall around Wilmington, North Carolina on Friday as a major hurricane, the National Hurricane Center said. Markets also await central bank meeting results from both the ECB and BOE tomorrow morning, along with press conference from ECB President Draghi as well.

Treasuries, Currencies and Commodities

· In currency markets, the dollar index (DXY) moves to lows, down -0.3% as moves back below the 95 level following the headline monthly inflation reading miss for August PPI, reported down an unexpected (-0.1%) vs. an estimate increase of 0.2%; the dollar moves broadly lower vs. other counterpart currencies; euro, yen, Canadian dollar all advance, though the Pound slips

· Commodity prices active; Precious metals are unchanged, holding just above the $1,200 an ounce level, failing to get despite the pullback in the dollar. Oil prices get a boost overnight after the API reported that U.S. crude supplies dropped by -8.6M barrels for the week ended Sept. 7 (bigger draw bullish) though showed big builds for gasoline and distillates. Oil got an additional boost after the EIA said weekly draws were -5.2M barrels, more than the -2.0M estimate – as the data pushes WTI crude back above $70 per barrel

· Treasury markets gain slightly, as yields pull back from monthly highs, especially on the short-end of the curve, as inflation data (PPI) came in “tamer” than expected with its first headline decline in 18-months; the 2-yr yield off recent 10-year highs above 2.74%, while the 10-yr slips only 1 bps to 2.96%

Economic Data

· Producer Price Index (PPI) for August fell (-0.1%), missing the expected estimate for a rise of 0.2%, posting the first decline since Feb. 2017; final demand ex food, energy (core) fell (-0.1%) MoM vs. est. up 0.2% as well; final demand rose 2.8% y/y vs est. up 3.2%; final demand ex food, energy rose 2.3% YoY, below the 2.7% estimate

Sector Movers Today

· Semiconductors; NXPI analyst day results failed to lift shares as the company announced dividend of 25c/q implies only modest 1.1% yield vs comps yielding 2%+ while provided unchanged 5%-7% sales growth and 53%-57% GM targets despite mix shift to faster growth autos/IoT which are 70% of sales now vs. 65% in 2016; AMD dropped after closing above $30 for the first time in 12-years on Tuesday while INTC falls a 7th straight day; Stifel also cautious on the group today, downgrading MXIM and POWI to hold from buy and cuts NXPI and MTSI to sell as multiple industry data points in recent months appear to suggest a peaking in the AMS markets

· Memory stocks lower after Goldman Sachs downgrade MU to Neutral from Buy and lowered price target to $50 from $68 as sees weaker fundamentals for DRAM and NAND in calendar Q4 and the first half of 2019; expects Micron’s gross margin to decline sequentially from Q4 of 2018 through mid-2019 (also downgraded Hynix and Tokyo Electron from Buy to Neutral and remove Buy-rated Samsung Electronics and SUMCO from the Conviction List)

· Semi-equipment sector weak after Goldman Sachs downgraded the sector from Attractive to Neutral as they reduce 2018/2019 memory capex expectations following early signs of excess supply in DRAM combined with further weakness in NAND pricing. Goldman downgraded LRCX to neutral saying it is unlikely to outperform our broader coverage group in the face of negative estimate revisions/they also removed ENTG from their conviction list

· Casino sector; Casino shares fell a sixth day as WYNN, MLCO, LVS drop early as Morgan Stanley joined a growing chorus of brokers warning about the industry outlook. Factors including yuan depreciation and weaker economic data could prompt negative earnings revisions for 2018-2019 – recall Deutsche Bank had cautious comments yesterday cutting ratings on several Macau names; MLCO was downgraded to neutral at UBS

· Oil drillers rise, led by gains in ESV after the CFO said bottom of offshore rig market is behind us at conference today (as per Bloomberg); RIG, NE, DO shares also higher. In E&P sector; SLCA and PXD enter long-term sand supply agreement where Pioneer will purchase an interest in U.S. Silica’s sand reserves at its Lamesa, Texas, mine/U.S. Silica to process and supply sand to Pioneer for 15 years

       Stock GAINERS

· BHC +15%; as announces resolution of IP litigation with Actavis acknowledging Xifaxan patent

· DISCA +6%; reiterated the company’s previously provided guidance in CNBC interview while expands partnership with HULU for live on-demand programs

· FOMX +8%; as the company’s lead drug, a topical foam to treat acne called FMX101, meets main goals of late-stage study

· GLPG +18% and GILD rise as announced that FINCH 2, a global, randomized, placebo-controlled, Phase 3 study of filgotinib in adults with moderately-to-severely active rheumatoid arthritis achieved its primary endpoint

· MO +6%; as the FDA is threatening to pull flavored electronic cigarettes like Juul off the market if the tobacco industry doesn’t do more to combat use of the products by children and teens

· NLSN +3% said it expanded its previously announced strategic review to assess a potential sale of the company/said it continues to assess a separation of its buy and watch segments

· TLRY +9%; as upward momentum continues in cannabis related stocks


· AYI -5%; downgraded to sell at Goldman from neutral citing margin concerns related to mix, costs and pricing power

· LUV -1%; cuts Q3 capacity view to 3.5%-4% from 4.5%-5% citing cancellation of almost 2,000 flights in July and August due to thunderstorms and weather-related disruptions; also sees 3Q RASM up 1%-1.5% y/y, vs. prior view down 1% – up 1%

· MU -6%; Goldman Sachs downgrade to neutral and cut target to $50 from $68 as sees weaker fundamentals for DRAM and NAND in calendar Q4 and the first half of 2019

· SNAP -9%; BTIG downgraded to sell with $5 tgt saying they believe it could fall another 50% as engagement weakens with revenue consensus far too high/bleeding cash could force company to raise capital by 2020

· VTL -88%; after biotech says it will scrap treatment for liver failure after it failed to meet primary and secondary endpoints of improvement in survival through at least 91 days

· WBC -5%; said it sees FY EPS guidance in lower half of $7.10-$7.40 view as the “recent intensification of geopolitical dynamics” is negatively impacting markets and currencies in some of WABCO’s regions (downgraded at Baird)


· Annaly Capital (NLY) 75M share Spot Secondary priced at $10.17

· Cadence Bancorp (CADE) 12.1M share Spot Secondary priced at $27.55

· Endocyte (ECYT) 9.459M share Secondary priced at $18.50

· First Republic (FRC) 2M share Spot Secondary priced at $102.00

· Heron Therapeutics (HRTX) 2.7M share Block Trade priced at $36.75

· NIO Inc. (NIO) 160M share IPO priced at $6.26

· Nuvectra (NVTR) 28.25M share Spot Secondary priced at $21.25

· Pacific Biosciences (PACB) 14.118M share Secondary priced at $4.25


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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