Tuesday, September 25, 2018
U.S equities appear to be in a holding pattern as the Federal Reserve began a two-day meeting on monetary policy while trade and tariff uncertainty remains an issue. The S&P 500 is little changed as gains in energy and consumer discretionary shares offset losses in utilities and communication stocks. Consumer confidence data handily topped expectations for September, rising to its highest level in 18-years. Restaurant stocks got a lift after Inspire Brands (owner of Arby’s/Buffalo Wild Wings) agreed to buy SONC in a $2.3B deal. Transportation stocks extend yesterday losses, led by weakness in airlines as oil prices trade to their highest levels in 4-years. The Philadelphia Semiconductor Index (SOX) is down about 1.3%, rebounding off its 50-DMA, but down about 2% this month amid concern about weakening industry demand and an overall tech selloff (more analyst downgrades today in space). Investors will focus on the Fed’s policy statement, forecasts and, in particular, remarks by Fed Chairman Jerome Powell in his news conference tomorrow afternoon where the FOMC is widely expected to raise interest rates for a third time this year to a range of 2%-2.25%.
Treasuries, Currencies and Commodities
· In currency markets, the dollar index (DXY) erases overnight gains, falling to around the 94 level (off overnight highs 94.37) ahead of the FOMC meeting results tomorrow (rate hike expected); the Argentina Peso falls over 6% after its Central Bank head unexpectedly resigned; the dollar little changed against the yen while the euro rises near 1.18 and the Pound inches higher
· Precious metals rise early as the dollar erases overnight gains, falling to session lows; gold prices holding steady above the $1,200 an ounce level ahead of FOMC policy meeting tomorrow where a 25 bps hike is widely expected
· Energy futures extend recent gains, with WTI up nearly 2% yesterday after a 2.6% advance last week, as the dollar slides, OPEC maintains output (not raising as President trump asked), and inventory data continues to show increased demand (ahead of API and DOE data points today/tomorrow). WTI crude and Brent both up around fresh 4-year highs.
· Treasury markets down/little changed (extending recent declines) as the yield on the benchmark 10-year rises near 2018 highs above 3.10% ahead of the FOMC rate decision tomorrow (expected to see the third rate hike of 2018).
· Consumer Confidence for September rose to 138.4, well above the 132.1 estimate and vs. 134.7 prior month; the present situation confidence rose to 173.1 vs. 172.8 last month and the consumer confidence expectations rose to 115.3 vs. 109.3 last month
· S&P CoreLogic Case-Shiller 20-City Index rises 5.92% YoY vs. Bloomberg est 6.20%; S&P CoreLogic Case-Shiller National Home Price index rose 6.00% y/y in July after rising 6.22% in prior month; S&P/Case-Shiller 20-city NSA index at 213.76 after 213.17 in June
· Richmond Fed’s Sept. Manufacturing Survey rises to 29 from 24 last month and above the 20 economist estimate; shipments rose to 33 after 23 the prior month while new order volume increased to 34 after 25 the prior month and order backlogs rose to 20 after 15 the prior month
Sector Movers Today
· Semiconductors; lot of analyst commentary today; Bank America raised tgt to street high $360 on NVDA; Raymond James turned cautious as they cut INTC to underperform (after meetings in Asia showed a negative shift in sentiment and several trends that have “clearly worsened”), cut AMD, MCHP, ON to market perform and MPWR downgraded to outperform; KeyBanc downgraded CY to sector weight, citing concerns about a slowdown in the automotive market.
· Metals & Materials; aluminum stocks underperformed yesterday (AA, CENX), while today, Credit Suisse lowered estimate for AAsaying Q3 results will be negatively impacted by dynamics with higher profitability in the alumina segment and some cost creep in the smelter portfolio; VALE was downgraded to neutral at Macquarie; gold miners jumped yesterday after $18B tie-up between ABX/GOLD – today Citigroup downgraded GG given outperformance vs. ABX this year, while raised ABX to buy with $14 tgt seeing the Randgold merger as a win; GLNCY announced stock buyback of up to $1B in shares; TS upgraded to buy from underperform at Bank America and raised its price target to $40 as expects to benefit from a sustained, broad based recovery in its end markets that should result in a multi-year period of strong earnings momentum
· Chemicals; estimates cut for chemicals DWDP, LYB, WLK, OLN by two firms (Susquehanna and RBC Capital) noting ethane prices have nearly doubled to $0.60/gal from June levels of $0.30/gal which has increased ethylene production costs by $0.12/lb (1 lb of ethylene requires 0.43 gal of ethane). Ethane represents 70-80% of the US ethylene cracker feedstock slate due to its low-cost position
· Retailers; KORS said an agreement has been signed to acquire all of Gianni Versace S.p.A. for a total enterprise value of EU1.83 billion or about $2.12 billion. ; Dow component NKE expected to report earnings after the close tonight; ASNA, the parent of Justice and Dressbarn, gained after 4Q consolidated comparable sales grew for first time in more than three years, led by a 15% increase at children’s brand Justice; WMT Q3 comp sales trending above consensus according to Cleveland Research
· Auto movers; sector was pressured after BMWYY was the latest car company to lower its profit outlook, citing trade tensions and pricing pressure (follows suit of major auto OEMs in the past month GM, F, FCAU); there was also related weakness in auto supply chain; watch DAN, THRM, MPAA, MTOR, SMP, LEA, APTV, ADNT, TEN, VC, SRI, AXL, BWA
· Consumer finance and lending; EBAY has now begun managing payments on its Marketplace platform in the U.S., allowing shoppers to complete their purchases without leaving eBay (watch shares of PYPL); SQ tgt raised to $125 at Nomura/Instinet saying similar to FANG stocks that have disrupted traditional markets with massive global TAMs, SQ’s fully cohesive solutions and rapid rate of innovation suggest that it is en route to disrupt the global payments ecosystem
· ASNA +8%; gained after 4Q consolidated comparable sales grew for first time in more than three years, led by a 15% increase at children’s brand Justice
· BAS +11%; says its board rejected the unsolicited merger proposal from KEG, saying only that the deal is not in the best interests of the company and its shareholders
· SONC +19%; to be acquired by Inspire Brands for $2.3B, with holders to receive $43.50 per share; Inspire portfolio includes over 4,700 Arby’s, Buffalo Wild Wings and Rusty Taco locations worldwide
· TLRY +15%; volatility in cannabis stocks continues
· TNDM +9%; boosted estimates amid sustained domestic sales and the recent launch of the t:slim X2 Insulin Pump in select international markets – raised year sales guidance to ~$150M-$158M vs. prior guidance of $140M-$148M
· XOXO +25%; after the company agreed to be acquired, and merge with WeddingWire, in a deal valued at $933M, getting $35 per share in cash
· BMWYY -4%; as warned on that 2018 earnings, margins and profits would all be lower than previously thought, as they battle both rising costs and trade headwinds
· CTL -7%; as CFO Sunit Patel departs, leaving for similar role at TMUS as plans to lead strategic integration business with Sprint
· CY -6%; KeyBanc downgraded to sector weight, citing concerns about a slowdown in the automotive market
· FB -1%; after the company confirmed the departure of the co-founders of its Instagram app
· INTC -2%; downgraded to underperform at Raymond James
· JBL -9%; Q4 results that beat estimates with a 15% Y/Y revenue growth; in-line Q1 guidance has revenue from $5.8B-$6.4B (vs. est. $5.91B) and EPS of 79c-99c vs. est. 88c
· NEOG -11%; as Q1 EPS 29c in-line with estimates but revenues of $99.6M missed estimates
· SNDX -2%; after announcing a one month delay of its Phase 3 “E2112” trial of entinostat plus exemestane in advanced hormone receptor positive, human epidermal growth factor receptor 2 negative breast cancer
· TGTX -34%; fall sharply as backs away from response rate endpoint in late-stage study of U2 in CLL/accelerated approval off the table
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.