Mid-Morning Look: September 26, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, September 26, 2018

U.S. equities open higher, rising modestly into this afternoons FOMC monetary policy and projection announcement (results at 2:00 PM and Fed Chair Powell press conference following on outlook and projections at 2:30 PM EST). Today should mark the first time since 2005 that the committee has hiked rates in September, and the first time since 2014 that the dot plot hasn’t been marked lower during that month. The S&P 500 and Dow Industrials not trading far off last week’s all-time highs into the announcement. More news on trade this morning as China said it will cut import tariffs on 1,585 tax items of goods from November 1, Bloomberg reported, citing a State Council meeting chaired by Premier Li Keqiang. The tariff cuts involve textile, building material, paper products and electromechanical device. Overall tariff rate will be lowered to 7.5% from 9.8% last year. Commodity prices pulling back, with gold (on dollar bounce) and oil (on bearish inventory report) sliding.

Treasuries, Currencies and Commodities

· In currency markets, the dollar trades to 2-month high vs. the Japanese yen, topping the 113 level; the dollar overall moving higher ahead of the FOMC decision later today, where a 25 bps hike is widely expected; dollar index (DXY) up 0.2% above 94.30; euro and British pound slip

· Precious metals slide, led by a decline in gold prices, dropping back below the $1,200 an ounce levels ahead of today’s monetary policy decision by the Fed

· Energy futures pulling back from over 4-year highs after mixed inventory data this morning and overnight; the EIA reported a surprise weekly crude build of 1.8M barrels vs. est. est. -1.5M barrels and larger build in gasoline; WTI crude moves back below $72 per barrel

· Treasury markets small pullback ahead of FOMC rate decision; the 10-year yield down around 3.08% with 2-year around 2.83% – follows strong push in yields the last 2-weeks into the Fed meeting where markets will watch for outlook on future hikes with today widely expected hike

Economic Data

· FOMC Policy Decision at 2:00 PM EST and Powell press conference at 10:30 AM

· New home sales for August rose 3.5% to 629K annual rate, in line with the 630K estimate; previous three months’ new home sales data revised down by 40K; median new home price rose 1.9% y/y to $320,200; average selling price at $388,400; 20% of new homes sold in Aug. cost more than $500K, up from 17% MoM; months’ supply at 6.1 in Aug. compared to 6.2 prior month

Sector Movers Today

· Auto’s; DDAIF CEO Dieter Zetsche will step down next year from the post he’s held since 2006, handing the reins to Ola Kaellenius; auto dealers active after KMX posted Q2 results above views for EPS (2c beat), revs and comp sales (up 2.1% vs. est. 1%) – shares of LAD, PAG, AN also active; Ford (F) CEO said metals tariffs were “very negative” for Ford

· Software mover; ARCE 11.111M share IPO priced at $17.50; SVMK 15M share IPO priced at $12.00; MANH downgraded to hold at SunTrust saying the stock’s risk/reward is much more balanced now though research continues to point to solid growth for the company’s cloud business and improving professional services

· Media & Telecom movers; NLSN has drawn interest from suitors including Blackstone Group LP and the Carlyle Group LP, Bloomberg reported. https://bloom.bg/2zu1ag2 ; CMCSA defended at KeyBanc as raise tgt to $43 and up estimates as expect cable business to outperform expectations, which should drive improved sentiment and profitability; VIAB was upgraded to buy at B Riley; CBS named ex Time Warner CEO Parsons as interim Chairman, replacing Moonves

· E&P sector; KOS was downgraded to outperform at Raymond James as shares are close to a five-year high (dating back to the days of $100+ Brent) and close to our target price; COG was downgraded to equal-weight at Morgan Stanley and tgt cut to $23 from $29) as firm lowers its long-term (2022+) natural gas price deck to $2.50 from $2.75 (remains underweight on RRC, GPOR, SWN and lowers Marcellus-Utica PTs by 23%); HCLP announced that it has temporarily idled dry plant operations at its Whitehall facility; PES lowered its Q3 production services revs to down 5%-7% vs 2Q, compared to a prior est. of down 3%-5% sequentially

· Gas related news; Morgan Stanley says market entering into a new cycle of even lower nat gas due to oversupply and demand stagnation as the firm cuts long-term price deck to $2.50 from $2.75, slash estimates on gassy E&Ps (downgraded COG and upgraded LNG); Cowen shifts ratings on LNG-related companies to favor those with existing operations, upgraded LNG to outperform while downgraded NEXT and TELL; UPL shares slipped after the company said that talks with senior secured loan holders ended without an agreement

       Stock GAINERS

· ALDX +42%; announced positive results from a phase 1/2 trial of its treatment for pleural malignant mesothelioma saying “the MESO-2 results are highly encouraging”

· CYH +4%; to pay $260M to settle with DOJ investigation into Health Management Associates’ (HMA) Medicare, Medicaid and Tricare billing for inpatient admissions following emergency room visits between Jan. 2008 and Dec. 2012

· GPRO +6%; upgraded to outperform at Oppenheimer citing optimism surrounding new product launches and a new focused strategy

· IBM +1%; upgraded to buy at UBS saying that consensus revenue estimate of a 0.2% decline is beatable and a sum-of-the-parts analysis indicates the market isn’t applying any value to IBM’s hardware business

· KMX +3%; posted Q2 results above views for EPS, revs and comp sales (up 2.1% vs. est. 1%)

· NLSN +2%; has drawn interest from suitors including Blackstone Group LP and the Carlyle Group LP, Bloomberg reported. https://bloom.bg/2zu1ag2

· TLRY +4%; as Supreme Cannabis unit 7ACRES enters into supply pact to provide dried cannabis to Tilray Canada Ltd., a subsidiary of Tilray

· VNDA +10%; to replace INGN in the S&P SmallCap 600 index

Stock LAGGARDS

· AA -3%; trades to 52-week lows amid broad weakness in metals space on increasing trade tensions between US/China

· KBH -4%; posted better-than-expected Q3 earnings, orders and gross margins, but shares slipped from overnight highs amid rising rates and impact on housing

· LRCX -1%; after being downgraded to neutral from buy at UBS citing ongoing delays in memory wafer capacity expansion/tgt cut to $170 from $200

· NKE –1%; reports mostly in-line Q1 results as EPS 4c beat on slightly better revs, though margins slightly disappoint Street at 44.2%

· OMN ; as Q3 EPS sales miss views (18c/$193.6M vs. est. 22c/$198.5M)

· PES -9%; lowered its Q3 production services revs to down 5%-7% vs 2Q, compared to a prior est. of down 3%-5% sequentially and cut gross margin as well

· WOR -3%; Q1 EPS missed by 10c while revs of $988M missed the $1B Street estimate

Syndicate

· AnaptysBio (ANAB) 2.2M share Secondary priced at $94.46

· Arco Platform (ARCE) 11.111M share IPO priced at $17.50

· Ashford (AINC) 270K share Secondary priced at $74.50

· Capital Bancorp (CBNK) 2.229M share IPO priced at $12.50

· CenterPoint Energy (CNP) 17M share Secondary priced at $27.25

· CyrusOne (CONE) 8M share Spot Secondary priced at $62.00

· Digital Ally (DGLY) 2.4M share Spot Secondary priced at $3.05

· Entasis Therapeutics (ETTX) 5M share IPO priced at $15.00

· FlexShopper (FPAY) 10M unit Secondary priced at $1.00

· SurveyMonkey (SVMK) 15M share IPO priced at $12.00

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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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