Tuesday, September 18, 2018
U.S. equities rebound from Monday losses, as markets try to look past the ongoing trade issues between the U.S. and China after the Trump administration late Tuesday followed through on a threat to impose tariffs on an additional $200 billion of Chinese imports, at 10% on Sept. 24 and to more than double the rate in January if Beijing refuses to offer trade concessions. China responded in kind this morning as it announced it will take retaliatory tariff action against $60 billion of U.S. goods, as the Trump administration considers imposing duties on virtually all Chinese imports. China’s retaliatory tariffs, ranging from 5%-10% on more than 5,000 items, will take effect on Sept. 24th as well. Stocks sunk yesterday on the expectations, but recovering partial losses today as news came with no major surprises. Tech stocks rebound after the Nasdaq Comp fell -1.5% on Monday, led by losses in Internet related names, though ORCL slides after mixed quarterly results. Transports down slightly, with declines led by FDX after its quarterly EPS missed estimates (but raised year view). The other big mover today are Treasuries, as yields pop across the board, with the 10-yr topping 3.03%, highest in 4-months.
Treasuries, Currencies and Commodities
· After sliding sharply yesterday vs. most major currencies (euro, pound, yen), the dollar index (DXY) is little changed as currency traders digest the impact of trade tariffs between the U.S. and China; no major economic data to move currencies this morning; the British pound little changed, trading at its best levels in over a month ahead of Brexit news
· Commodity prices are mixed as oil prices climb ahead of an upcoming OPEC meeting where members will weigh how to address the loss of supply from Iran, which faces U.S. sanctions, but gold prices are down slightly, but holding above the $1,200 an ounce level
· Treasury market’s fall as the yield on the 10-year rises to its best levels since late May; yields spike across the board with the 10-yr yield rising above 3.02%; 30-yr yield up above 3.17% and 2-yr yield steady at 2.78%
Sector Movers Today
· Autos sector active; auto suppliers (AXL, LEA, DLPH) slipped early after BWA cut its 2018 forecast on weaker industry volumes primarily in China and added short-term issues in Europe (guided 2018 adjusted EPS $4.35-$4.40, saw $4.45-$4.50); auto retailers slumped after AZO Q4 EPS of $15.02 missed the lowest estimates (est. $17.97) on lighter sale and comp sales of up 2.2% just missed the 2.3% estimate (AAP, ORLY fell in sympathy). The European Union’s antitrust body said it opened an investigation into “possible collusion” between German car manufacturers BMW, Daimler (DDAIF) and Volkswagen (VLKAY) to limit the development of less-polluting technology; RACE share were active after providing long-term forecasts for 2022
· Consumer Staples; in food space, GIS shares dropped as Q1 EPS topped estimates despite sales and gross margin shortfall – but the 7c EPS beat is not being carried through to year guidance, as maintained its previous view of FY19 constant-currency adj. EPS of unchanged to down 3%; few deals in Staples as NSRGY agreed to sell the Gerber Life Insurance Company, to Western & Southern Financial Group for $1.55B in cash ; AVP shares rallied on reports Brazil’s Natura Cosmeticos SA recently approached the cosmetics company about a takeover, according to reports (Natura later denied that it was in talks to buy AVP saying “there is no negotiation in progress)
· Chemicals sector; NXEO to be acquired by UNVR in cash and stock deal valued at about $2 billion, including the assumption of Nexeo’s debt, or $11.65 per share; deal to be accretive to Univar adj. EPS in full year after closing. ; specialty chemicals maker Clariant (CLZNY) raised its earnings guidance and said it has reached a governance agreement with Saudi Basic Industries Corp. 2010 which has bought a quarter of the Swiss chemicals company; sees year EBITDA margin of 20% by 2021, up from previous guidance of 16% to 19%
· Healthcare services and providers; ATHN shares slipped after the NY Post reported Paul Singer’s Elliott Management has backed away from its $160-a-share bid for the company while other suitors have also gone quiet (ATHN pared losses after CNBCs David Faber said sales process “not broken” refuting Post story; Bank America positive on psych business growth as they upgraded UHS to buy and upped tgt to $155 as it nears a Department of Justice (DoJ) settlement and has easier comps in 2H/SGRY also upgraded to buy saying the company is getting closer to an inflection point on its turnaround and upgraded MD to neutral and raise tgt to $55 as fundamentals appear stabilized with a more balanced risk/reward
· NTNX +6%; shares defended by analysts after falling yesterday on a report from The Information indicated that GOOGL might be working on a competing hyperconvergence product.
· NXEO +13%; to be acquired by UNVR in cash and stock deal valued at about $2 billion, including the assumption of Nexeo’s debt, or $11.65 per share; deal to be accretive to Univar adj. EPS in full year after closing.
· THO +3%; agreed to buy Erwin Hymer Group for an enterprise value of about EU2.1 billion (shares of CWH, WGO also active)
· TLRY +15%; received approval from the Drug Enforcement Administration to import cannabis into the U.S. for medical research, the first Canadian company to do so
· UNM +4%; said it expects to increase its long-term care GAAP reserves in Q3 by about $590M after-tax as a result of completing its reserve review for its long-term care block of business
· UNP +4%; upgraded to buy at Loop Capital and raised target to $188 from $153, citing the company’s announcement of a rollout of precision Scheduled Railroading principles on 10/1
· VKTX +86%; following positive results from a Phase 2 clinical trial evaluating VK2809 in patients with nonalcoholic fatty liver disease (NAFLD) and elevated low-density lipoprotein cholesterol
· APOG -12%; posted Q2 EPS miss by 9c while lowers year EPS view to $3.13-$3.33 from $3.48-$3.68 vs. est. $3.53 and cuts FY19 revenue growth view to 8%-10% from approximately 10%
· ATHN -7%; after the NY Post reported Paul Singer’s Elliott Management has backed away from its $160-a-share bid for them while other suitors have also gone quiet
· AZO -1%; Q4 EPS of $15.02 missed the lowest estimates (est. $17.97) on lighter sale and comp sales of up 2.2% just missed the 2.3% estimate
· BWA -4%; cut its 2018 forecast on weaker industry volumes primarily in China and added short-term issues in Europe
· CBRL -4%; posted Q4 EPS and sales that missed estimates on a comp decline of (-0.4%) while guided year EPS $8.95-$9.10, below the consensus $9.60
· FDX -4%; posted Q1 earnings miss, mainly due to wage increases that followed last year’s tax cut legislation and its operating margins in Q1 were also lower as a result of higher hourly pay rates, though the company raised its FY19 earnings guidance
· GIS -7%; as Q1 EPS topped estimates despite sales and gross margin shortfall – but the 7c EPS beat is not being carried through to year guidance as only maintained outlook
· MDGL -13%; as competitor rival fatty liver drug results from VKTX reported
· ORCL -1%; Q1 license revs meeting expectations and cloud/support slightly below Street/guidance for Q2 was below consensus, pressuring the stock
· RHT -; as JPMorgan downgraded to neutral and cuts tgt by $10 to $150 saying the equity will trade between $120 and $180 until headwinds normalize
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.