Mid-Morning Look: September 17, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, September 17, 2018

U.S. equities are mixed to start the week, as stocks appear poised to end five consecutive days of advances led by a decline technology shares, while fears that the Trump Administration is said to plan to announce as early as Monday that it’s imposing a 10% tariff on $200 billion of Chinese goods (which Beijing has already said it will retaliate against) weighs on sentiment. Asian equities slumped with the latest American threats to expand tariffs on Chinese goods, sending the Hang Seng and Shanghai markets lower (region also hurt by catastrophic typhoon in region) while the Nikkei was closed for holiday. The dollar slipped and emerging-market currencies declined on weaker US data and trade fears reignited. The Nasdaq 100 pulled down by declines in AMZN and JD while semiconductor stocks also weighed. Earnings tonight from ORCL in software and FDX in transports the only highlights.

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar starts the beginning of the new week on a soft note, as China threatens not to accept the invitation for trade talks in Washington if the US imposes new tariffs on $200B of its goods, which the Wall Street Journal reports could come as early as today. The MSCI Emerging Markets Index is giving back half of the 2.5% rally seen in the second half of last week. Euro near highs vs. US dollar, up more than 0.5% as approaches the 1.17 level (overnight lows 1.1618). The Turkish lira and Indian Rupee leading the emerging market currencies lower.

· Commodity prices edging higher on dollar weakness as China/U.S. trade/tariff talk heats up over the weekend; gold prices rise back above $1,200 while WTI crude trading just below $70 per barrel; lone piece of economic data weaker, also hitting the dollar

· Treasury markets steady after early weakness; the yield on the benchmark US 10-year Treasury note climbed to its highest level since May, back above the 3% level as expectations build the Federal Reserve will lift interest rates again next week, but now little changed just below that level; lone piece of US economic data today (NY Manufacturing) missed views

Economic Data

· Empire Manufacturing index for Sept fell to 19.0 from 25.6 prior and was below the 23.0 estimate as prices paid rose to 46.3 vs 45.2 prior while new orders fell to 16.5 vs 17.1; the number of employees rose to 13.3 vs 13.1 and inventory rose to 8.9 vs 0.0; six-month general business conditions fell to 30.3 vs 34.8

Sector Movers Today

· Cannabis sector active again; ACBFF outperforms on Bloomberg report that KO is in discussions with Aurora Cannabis Inc. about new products https://on.mktw.net/2QHVaam ; CGC said its Tweed Farms Inc. site has received license amendments that approve remaining greenhouse space, expanding the company’s licensed footprint to about 3.2 million square feet;

· Monthly Master Trust credit card data: 1) AXP August net write-off rate 2.2% vs. 2.2% last month and 30 day delinquency 1.3% vs. 1.3% last month; 2) ADS August net charge offs 5.8% vs. 5.9% last month and delinquency rate 5.6% vs. 5.7% last month; 3) COF August net charge-offs 4.54% vs. 4.39% last month and delinquencies 3.58% vs. 3.46% last month; 4) BAC August card write-offs 2.75% vs. 2.57% last month and delinquencies 1.56% vs. 1.55% last month; 5) JPM August net credit losses 2.36% vs. 2.30% last month and delinquencies 1.10% vs. 1.10% last month

· Metals & Materials; mining shares and metal prices have rebounded off early declines following reports that President Trump plans to unveil an additional $200B in tariffs on Chinese goods; shares of steel, aluminum, iron ore and copper producers mostly higher; VALE was downgraded to Underperform at RBC Capital citing negative short-term outlook for iron ore suggests Vale is at risk of underperformance until expectations for key iron ore buyer China settle

· Auto retailers: AZO was downgraded to neutral from buy at Bank America due to overexposure to the DIY segment and competition and upgraded AAP to neutral from underperform based on expectations for accelerating growth in DIY auto parts demand, but believes most of the opportunity is reflected in valuation/ORLY tgt raised to Street high $390 tgt at Banc America

· Chemicals; MOS, MTR, IPI shares advanced early after BMO Capital said Chinese potash buyers agreeing to a new 2018-2019 deal at $290/ton positive for potash exposed companies; said the new deal is at the same price as India, even though historically China settles at a discount to India; Citigroup downgraded LYB to neutral as rising ethane price are likely to persist for 2-3 quarters and says higher ethane price likely to hurt WLK as well, but the impact will be mitigated for the company due to its short position in ethylene; SHW was downgraded at Seaport Global on valuation while firm upgraded VVV to buy as believes last week’s selloff is overblown

       Stock GAINERS

· ACBFF +14%; outperforms on Bloomberg report that KO is in discussions with Aurora Cannabis Inc. about new products https://on.mktw.net/2QHVaam

· LULU +2%; upgraded to outperform at Wells Fargo and upped tgt to $200 as views the upscale yoga-wear maker’s “industry-leading momentum” as sustainable through 2H/year

· MOS +5%; BMO Capital said Chinese potash buyers agreeing to a new 2018-2019 deal at $290/ton positive for potash exposed companies

· NI +3%; rebounds after near 12% decline last week on gas explosion

· OBSV +11%; positive mention in Barron’s this weekend

· SIR +15%; agreed to be acquired by fellow real estate investment trust GOV with SIR shareholders to receive the equivalent of $29.26 for each Select Income share they own, or 46% above Friday’s $20.06 closing price https://on.mktw.net/2xedVde

· TEVA +5%; after FDA approval of its migraine drug, Ajovy/medicine is the second of its kind, behind Amgen’s Aimovig

Stock LAGGARDS

· AMZN -2%; underperformed broader tech and Internet space, trading down as much as 3.5% around its 50-day moving average support 1,880

· GOV -18%; after agreed to acquire SIR (details and link above)

· JD -5%; tgt cut to Street low $25 from $37 at Morgan Stanley, citing downside risk to near-term earnings and margins

· MRSN -5%; FDA lifted a partial clinical hold on its phase I trial of its cancer treatment XMT-1522/the hold was imposed in July after a patient enrolled in the trial died/the trial is testing the drug in individuals with breast, gastric and non-small cell lung cancers

· ST -6%; downgraded at Morgan Stanley as automotive data points have gotten progressively worse in the past month, heightening the risk of a Sensata miss in Q4

· TSN -1%; after CEO to step down after less than 2 years on the job

· TWTR -4%; tgt cut to Street low of $21 from $23 by MoffettNathanson who flagged “smoke and mirrors on the cost line

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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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