Friday, September 14, 2018
Equities continue to trend higher, though gains today are more modest than Thursday, while small cap Russell 2000 outperforms after lagging broader indexes yesterday. It was a very busy morning of economic data, with monthly retail sales and import prices coming in well below expectations, but industrial production and sentiment figures topped economist views. Retail sales slowed to 0.1% in August, undercutting expectations of 0.3%, but industrial production beat the consensus, expanding 0.4% in the same month, versus the 0.3% forecast. Markets also remain hopeful on trade between the US and China tensions. Recall yesterday President Trump tweeted “we are under no pressure to make a deal with China”, but stocks rallied anyway. The other top story Mother Nature as Hurricane Florence made landfall near Wrightsville Beach, North Carolina, battering the region with water and wind, threatening to unleash widespread destruction and stranding some people. The Category 1 storm carried maximum sustained winds of 90 miles (145 kilometers) an hour, menacing the coast with life-threatening storm surges and heavy rains. Treasury prices decline following the data, lifting the 10-year yield back near 3%, while the dollar rallied and commodity prices sunk. Stocks in Europe gained earlier as prospects for U.S.-China trade talks and action by Turkey and Russia to support their currencies.
Treasuries, Currencies and Commodities
· In currency markets, the dollar rebounds after yesterday’s decline, as the dollar index (DXY) rises about 0.3% to 94.80 after mixed economic data; the Russian ruble advanced vs. the dollar after its central bank raised interest rates by 25 bps to 7.5%; the euro and British pound both traded in slipped after earlier strength. Note the dollar fell yesterday amid softer-than-expected inflation read in the U.S., as well as a less dovish than expected ECB and BoE lifting growth forecasts
· Commodity prices are lower, with gold reversing yesterday gains and highs around $1,218 an ounce to lows around $1,200 this morning as the dollar rebounds on mixed economic data; oil prices meanwhile extend yesterday’s 2.5% decline after the IEA said in its monthly report that crude oil output in OPEC climbed in August by 420K barrels a day, to average 32.63M barrels.
· Treasury market’s slide, as yields back to monthly highs for the 10 and 30-year yields, while the 2-year yield moves back near 10-year highs above 2.78%; the 10-year yield knocking on the door of 3% after stronger sentiment and industrial data overshadowed weaker import/retail sales data.
· The Preliminary Sept. Michigan Sentiment jumped to 100.8, above the 96.6 estimate and topping the 96.2 prior month; the current economic conditions index rose to 116.1 vs. 110.3 last month and the expectations index rose to 91.1 vs. 87.1 last month.
· Import Prices fell (-0.6%) MoM more than the (-0.2%) estimate, the largest monthly decline since Jan. 2016, after falling (-0.1%) in July; import prices rose 3.7% y/y in Aug. and import prices ex-fuels fell 0.1% after falling 0.3% in July; export prices fell (-0.1%) after falling 0.5% in July
· Retail Sales for August rose 0.1%, missing the 0.4% estimate, as it marked the weakest sales in six months and only an increase in purchases at gas stations prevented an outright decline; the numbers would have been even worse if not for a 1.7% spike in spending at gas stations. Retail sales less autos rose 0.3% in Aug., vs. est. 0.5% gain
· Industrial production rose 0.4% in August, the third monthly increase and topped expectations of a 0.3% increase; over the past year, output is up 4.9%; utility output rose 1.2% after a 0.1% gain in July; Capacity utilization rose to 78.1% in August, the highest rate since April (est. 78.2%)
· Business inventories in the U.S. jumped 0.6% in July, the Commerce Department said while sales rose 0.2% in the month
· Housing data provider CoreLogic late downgraded its initial estimate of losses from Hurricane Florence to $3-5 billion. The company says 250,000 homes are at risk
Sector Movers Today
· Asset managers; Data just out from Morningstar Direct for August shows active equity mutual fund outflows increased to $21bn vs. $16bn in July, while passive equity fund and ETF flows remained solid at $24bn vs. $27bn in July (said Deutsche Bank); WDRreported preliminary assets under management of $80.2 billion for the month ended August 31, 2018, compared to $79.2 billion on July 31, 2018; LM said prelim assets under mgmt were $751.8B at end of August; MN reported preliminary AUM as of August 31 of $23.1B compared with $23.0B at July 31 and $22.8B at June 30; AB prelim AUM increased to $551B during August 2018 from $546B at the end of July
· Cannabis-related stocks (TLRY, CGC, CRON, WEED and MJ) shares dropped in after-hours trading Thursday following a report that the U.S. may bar Canadians who invest in the companies from entering the U.S. Politico reported Thursday afternoon that an official with the U.S. Customs and Border Protection agency said that Canadians who smoke marijuana, work in the industry or invest in the companies could be permanently banned from the U.S.
· Medical equipment and devices; BEAT tgt raised to $66 from $57 at Raymond James saying citing visibility into potential upside and accelerating organic growth in the near-term; Canaccord raised price targets on ILMN to $375, IDXX to $270 and GHDX to $70 on medical devices as continues to see strength despite the diagnostics coverage being up +46% YTD; TNDM was downgraded to neutral at Baird citing the strong run-up in shares this year
· Retailers; VFC upgraded to Outperform at Cowen and upped tgt to $106 saying VF’s disclosure of a 23% operating margin for Vans implies that the brand alone could generate $1B-plus in free cash flow by fiscal 2022; COST downgraded to market perform at Wells Fargo saying long-term earnings growth outlook is attractive, but maybe not as impressive as the stock price; HAS was added to Franchise picks at Jefferies as see 50% stock appreciation potential over the next 1-2 years as underlying toy sales stand to grow and generate strong cash flow
· REITs; Citigroup downgraded ESS and DDR to Neutral from Buy, MRT to Sell from Neutral & upgraded REG to Buy from Neutral – said their 8th annual “Fantasy REIT draft” herein highlights our top picks heading into the fall, REITs’ current valuation & model portfolio weights. Picks include top line players AVB, FRT, HST, PLD, SPG, draft risers AMH, DLR, DRE, HPP, KRC, RHP, SLG, VNO and injured reserve EQIX, INVH, REG, RPAI
· ADBE +3%; reported 3Q earnings results that solidly exceeded expectations across all major metrics/ net profits rising 58% on 24% revenue growth driven by Creative Cloud growth of nearly 28% y/y; Creative Cloud revenue now represents 59% of sales vs. 47% three years ago
· AMD +4%; top gainer in the S&P 500 index – Argus raises tgt to $40 as latest analyst to sound upbeat on Epyc server chip represents a current/future threat to INTC in data center CPUs
· BLBD +12%; as is commencing a tender offer to buy up to $50 million shares at $28 per share, and 7.625% Series A Convertible Cumulative Preferred Stock, at a price of $241.69 per share
· GLW +1%; upgraded to buy at Citigroup as believe Corning shares are poised to continue to grind higher in the next 12-18 months
· OI +6%; after Atlantic Investment in a 13D said the company should explore the sale of its European business, may see proceeds of the $3.2B-$3.8B and use proceeds for buyback/pay debt
· PLAY +6%; as Q2 EPS and revs topped consensus and Q2 comp sales fell (-2.4%), less than the expected (-2.9%) decline/midpoint of year guidance also above estimates
· RLGT +13%; as Q4 results handily topped consensus estimates
· NI -10%; after closing at a record high yesterday, following a series of gas explosions near Boston; the explosions killed at least one person, injured 12 others
· TLRY -7%; as Cannabis related stocks fall after reports Thursday that U.S. authorities may make it more difficult for cannabis industry workers, investors and users to enter the country
· TNDM -6%; downgraded to neutral at Baird citing the strong run-up in shares this year
· VVV –7%; downgraded at JPMorgan on AMZN fears, citing report they online giant has launched its first private label motor oil called AmazonBasics Full Synthetic Motor Oil
· WAB -6%; after JPMorgan said details from the GE/Wabtec deal suggest caution is warranted in taking those forecasts to the bank
· Americold Realty Trust (COLD) 37.3M share Secondary priced at $24.50
· DocuSign (DOCU) 8.06M share Secondary priced at $55.00
· Foamix (FOMX) 11.67M share Secondary priced at $6.00
· FVCBankcorp (FVCB) 1.75M share IPO priced at $20.00
· NN, Inc. (NNBR) 12.5M share Secondary priced at $16.00
· PGT, Inc. (PGTI) 7M share Secondary priced at $23.00
· Principia Biopharma (PRNB) 6.25M share IPO priced at $17.00
· Qutoutiao (QTT) 12M share IPO priced at $7.00
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.