Mid-Morning Look: September 19, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, September 19, 2018

Equities jump on the open, with triple-digit gains for the Dow Industrials (moving to within 1% of its January record high of 26,616.71) as markets showing no fear despite trade issues with China and Canada as well as Brexit concerns in Europe. The CBOE Volatility index (VIX) edges back below the 12 level, as every tariff related headline has been met with additional stock market buying. Overnight, the Bank of Japan kept interest rates unchanged at its September meeting as the threat of a global trade war looms over the country’s exports. Emerging markets also playing catch-up after stocks/currencies recently battered amid several concerns, rising US rates (China, Turkey). Interest rate sensitive stocks moving today along with the extended spike in treasury yields, as the 10-year tops 3.08% (highest in 4-months), which is providing an early boost to financials, while utilities and REITS slide. Technology stocks are underperforming, with the Nasdaq Comp falling as much as 50-poiings from morning highs.

Treasuries, Currencies and Commodities

· In currency markets, the dollar rebounds off overnight lows to trade little changed for the dollar index (DXY) around 94.60. The British Pound volatile, spiking to overnight highs of 1.3215 after U.K. inflation unexpectedly accelerated in August to 2.7% from a prior 2.5%, with the core reading picking up to 2.1% from 1.9% – however, prices have since fallen following a report that Prime Minister May plans to reject a revised offer from the EU on the Irish border issue. Meanwhile, a gauge of UK retail investor sentiment has fallen to the lowest level since 1995. Recently slammed emerging market currencies (Rand, Turkish Lira, Rupee, Ruble, Peso) have been bouncing

· Commodity prices; precious metals, as has been the case, moving with currency markets, with gold bouncing to around $1,208 an ounce as the dollar remains volatile. Oil prices are also pushing higher following weekly inventory data as WTI crude holding around $70.50 per barrel

· Treasury markets extend declines over the last week, sending yields surging; the 10-year yield rises as high as 3.08% (best levels since May), while the 2-year yield above 2.8% (back near 10-year highs) and the long bond 30-yr yield rising over 15 bps the last week topping 3.22%. Yields have been rising into next week’s FOMC meeting where another rate hike is widely expected

Economic Data

· Housing Starts for August rose 9.2% to a 1.282M seasonally adjusted annual rate, tops the view of a 5.7% rate to 1.238M and 9.4% higher than a year ago (prior month fell -0.3% to 1.174M); single family starts rose to 876K and multifamily starts rose to 406K in August. Building permits fell (-5.7%) to annualized rate of 1,229M, missing the 1.31M estimate and below 1,303M in July;

· The Q2 Current account deficit narrowed to (-$101.5B) from (-$121.7B) last quarter and was below the economist estimate of (-$103.4B); the current account deficit is the smallest since 4Q 2015, when it was (-$99.6B); the balance of goods and services deficit narrowed to (-$133.8B) compared to (-$154B) prior quarter; current account deficit represents 2.0% of gross domestic product in the second quarter after 2.4% in the prior quarter

Sector Movers Today

· Software mover; MSFT announced new AI and mixed-reality applications for its Dynamics 365 online business software, putting to use its augmented-reality goggles HoloLens for businesses; MSFT also boosted quarterly dividend to 46c from 42c (Morgan Stanley said dividend increase below growth in trailing 12-month operating income may fall short of investor expectations; SAPand BABA said they plan to expand their partnership in online platform services; RHT expected to report earnings later tonight; PANW failed to invalidate FNJN patent 8,225,408 for methods and systems to detect malware in data streamed from a network, U.S. Court of Appeals for the Federal Circuit said

· Oil services; Morgan Stanley raised its industry view for oil services to attractive from in-line as they see increasing visibility on a broadening global capex upcycle and recommend balanced long positioning across all OFS verticals – firm top picks are over weighted BHGE, HAL, NBR, RIG as they think the stage is set for a coordinated global increase in upstream capex in 2020

· Internet; space weak as shares of AMZN, NFLX, GRUB, GOOGL, TWTR all negative; NFLX tgt to $420 from $360 at Guggenheim as believe that Netflix subscriber penetration will significantly exceed what is implied in the company’s current valuation; AMZN business model is under the spotlight in Europe after the EU’s antitrust watchdog launched a preliminary investigation into how the platform uses data about merchants

· Cannabis sector euphoria continues as TLRY surged as much as 50% this morning, bringing its rally to more than 160% since the end of August (and up about 500% over the last 30-days) – getting another boost after CEO Brendan Kennedy was a guest last night on Jim Cramer’s Mad Money program on CNBC, touting the company’s growth prospects. TLRY soared 29% Tuesday after announcing the U.S. DEA approved plans for it to import medical marijuana to supply a clinical trial in California (shares of CRON, ABCFF, CGC, WEED have also rallied)

· In solar space, analysts turn positive on SPWR after shares rallied 14% Tuesday after being granted an exclusion from the U.S. tariffs on imported solar panels. Credit Suisse upgraded shares to outperform and raised tgt to $10 saying near-term tariff overhang is removed; Goldman Sachs reiterated sell rating on SEDG saying its facing increasing competitive risk, and this will be on “full display” at the Solar Power International (SPI) show next week. Roth Capital said news SPWR was granted an exclusion from Section 201 import tariffs, is also positive for ENPH, given SWPR’s “exclusive relationship” as a supplier of its residential microinverter

       Stock GAINERS

· ETFC +3%; after Jefferies upgraded to buy saying as speculation around timing of a potential sale gets pushed, they view the current valuation as attractive for the core business

· FIT +2%; after HUM selects Fitbit Care as preferred coaching solution/over 5M Humana members will have the potential to access Fitbit health

· JNPR +2%; Nomura upgraded shares to buy and raised price target to $34 as believes Juniper will finally be able to catch the webscale capex growth tailwind in 2019.

· MGM +2%; rose early after the NY Post reported overnight Starboard had built a stake valued at more than $500 million in the company and was planning to push for changes – but Starboard later responded by saying it has no economic exposure to the company

· RIG +3%; was upgraded to outperform at Wells Fargo and raised tgt to $16 from $13 citing increased demand and tightening availability for high spec ultra-deepwater rigs, which is quickly pushing dayrate expectations higher

· SPWR +2%; Credit Suisse upgraded shares to outperform saying near-term tariff overhang is removed after co granted an exclusion from the U.S. tariffs on imported solar panels

· TLRY +38%; surged as much as 50% this morning, bringing its rally to more than 160% since the end of August (and up about 500% over the last 30-days) – getting another boost after CEO Brendan Kennedy was a guest last night on Jim Cramer’s Mad Money program on CNBC

Stock LAGGARDS

· AMD -4%; leading tech and semi’s lower after recently trading to best levels in 12-years

· CPRT -13%; after Q4 EPS of 42c missed estimates by 6c and operating income $134.8M missed the $161M estimate (Q4 res slightly beat)

· PANW -2%; failed to invalidate Finjan patent 8,225,408 for methods and systems to detect malware in data streamed from a network, U.S. Court of Appeals for the Federal Circuit said

· SEDG -5%; Goldman Sachs reiterated sell rating on SEDG saying its facing increasing competitive risk, and this will be on “full display” at the Solar Power International (SPI) show next week

· TSLA %; The New York Times reported that Goldman Sachs Group Inc. and private equity firm Silver Lake both received subpoenas from the SEC seeking materials about the companies’ interactions with Tesla

Syndicate

· Argenx (ARGX) 3.48M share Secondary priced at $86.50

· G1 Therapeutics (GTHX) 3M share Secondary priced at $60.00

· Izea (IZEA) 1.41M share Spot Secondary priced at $1.50

· Revere Bank (REVB) 1.4M share Secondary priced at $29.25

· X Financial (XYF) 11M share IPO priced at $9.50

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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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