Friday, October 5, 2018
U.S. stocks opened little changed to start the day as investors assessed September jobs data and kept an eye on a continued climb in U.S. Treasury yields. However, U.S. stocks have since slipped, led by a reversal to the downside in technology shares and interest rate sensitive names as Treasury yields inch back to multi-year highs. Overall, despite the big headline miss in the monthly nonfarm payroll report (134K jobs added vs. 185K estimate and 121K private payroll jobs vs. 180K estimate), markets took the headline miss in stride, pointing to the much higher revisions (Nonfarm payrolls, net revisions, 87K from prior two months), as well as taking into account the potential impact from Hurricane Florence to the Sept figures. The unemployment rate fell to a 49-year low of 3.7%, while average hourly wages grew an in-line 0.3%. The data likely did nothing to dampen expectations for the Federal Reserve to continue on its path of gradual rate rises. U.S. markets are coming off one of their worst days in months, dealing with trade tensions with China (which intensified yesterday on reports that China used a tiny chip in a hack that reached U.S. companies including Amazon and Apple), as well as budget concerns in Italy, Brexit fears between the UK/EU and as markets prepare for upcoming earnings season, with the large cap banks starting things off next Friday.
Treasuries, Currencies and Commodities
· In currency markets, the dollar whipped around immediately after this mornings’ jobs report, but has settled in down slightly vs. the euro, yen and British Pound; however, for the week, the dollar index (DXY) is on track for a weekly gain of about 0.5% (touching mid-week high of 96.12)
· Precious metals looking to close out the week higher, rising more than $6 to around $1,207 an ounce (well off last week lows of $1,187 an ounce – 6 week lows) as investors digest the impact and/or meaning of this mornings mixed jobs report
· Energy futures are up slightly, bouncing off earlier lows (WTI crude low $73.83) after prices for both Brent and WTI slipped from 4-year highs yesterday after a week of bearish inventory data reports, though the energy complex remained fixed on declines in Iranian exports ahead of an approaching deadline for further U.S. sanctions on the nation next month
· Treasury markets slip following mixed monthly jobs data (headline jobs figures missed estimates – but strong upward revisions last 2-month – also Hurricane Florence disruption skews numbers, as yields edge higher; the benchmark 10-year yield rises 2 bps to 3.21% (after touching fresh 7-year highs of 3.2309% after the data); it has been a strong week of yield returns, with the 10 and 30-year yields up more than 10 bps on the week.
· U.S. nonfarm payrolls showed a big headline miss, creating 134K new jobs in September, missing the estimate of 184K, though was enough to push the U.S. unemployment rate down to a 49-year low of 3.7% (below est. of 3.8%). Nonfarm private payrolls rose 121K vs. prior 254K (est. 180K). However, employment gains for August and July were revised up by a combined 87,000 as the government said 270K new jobs were created in August instead of 201K, while July’s gain was raised to 165K from 147K. The average hourly wage paid to American workers rose 0.3% to $27.24 an hour, in-line with consensus views.
· The U.S. trade deficit jumped 6.4% to (-$53.2B) in August, a 6-month high and widened from (-$50.0B) in the prior month, but was mostly in-line with consensus of (-$53.6B); The U.S. trade deficit added up to almost $390B in the first eight months of 2018…compared to about $361B in the same span in 2017; imports rose 0.6% in Aug. to $262.67B from $261.14B in July, while exports fell 0.8% in Aug. to $209.43B from $211.10B in July
Sector Movers Today
· Autos; TSLA shares pressured after CEO Elon Musk last night fired off several tweets targeting the SEC and short sellers, referring to the regulator as the “Shortseller Enrichment Commission” and sarcastically quipping that it was “doing incredible work.”; TM announced a total of about 2.43 million vehicles voluntary recall affected, 94% are the Prius and its derivatives; auto parts supplier DLPH said its CEO is stepping down, after less than a year in the role, to pursue other interests, and also cut its full-year revenue outlook citing “more challenging industry dynamics as well as other factors/now expects 2018 revenue to be flat with a year ago, compared with previous guidance of 2%-to-4% growth and lower operating margin views
· Housing & Building Products; the homebuilder ETF (XHB) comes into the day with a 12-day losing streak amid rising rates and yields, weaker housing data, and disappointing margins, new orders and forecasts from recent homebuilder earnings (LEN this week); SunTrust lowered Q4 estimates on TILE and MHK on another round of carpet input increases which have come in late 3Q18.
· Transports; several analysts raised their price target on CP following its analyst day presentation yesterday ($255 at CSFB, $260 at Citi) while was upgraded to outperform at Wolfe; in the trucking sector, Wolfe Research lowered the croup to underweight from market weight saying truckload spot rates have inflected negative and that Wolfe’s Q4 survey results indicate shipper pricing expectations are beginning to moderate (downgraded ARCB, CVTI, LSTR, PCAR, WERN, SNDR to underperform from peer perform and upgraded WBC)
· Pharma movers; LLY upgraded to outperform at BMO Capital with $130 tgt saying facts have changed and LY’176 has the potential to significantly improve Lilly’s growth prospects after 2022; MYL downgraded to neutral and cut tgt to $37 at Mizuho as view generic Advair risk/reward as unfavorable at this point, and we do not expect Mylan to get acquired; ADMS downgraded to neutral at Bank America saying Gocovri could take more time to ramp; PGNX PET imaging agent for prostate cancer shows positive action in Phase 2/3 study
· REITs: JPM made cautious comments on the REITs as they are backing off their constructive REIT call after becoming bullish back in June; negative FFO forecast revisions are a headwind for the group; prefer the residential and retail areas, and they worry about office more despite accelerating growth; REIT valuations are reasonable but the rise in yields is a concern; top picks: TCO, FRT, PLD, WELL, TIER, AMH, ESS, VER; ratings changes: BXP, KRC, SPG all upgraded to overweight from neutral and downgraded CLI, HCP, SLG, WRE to neutral from overweight
· CP +3%; following its analyst day presentation yesterday ($255 at CSFB, $260 at Citi) while was upgraded to outperform at Wolfe
· GPRO +1%; said its Hero7 Black camera model had the best first week of retail sales in the company’s history
· LLY +1%; upgraded to outperform at BMO Capital with $130 tgt saying facts have changed and LY’176 has the potential to significantly improve Lilly’s growth prospects after 2022
· SGH +24%; reported a beat-and-raise showing good progress in the specialty business and a strong Q1 from Penguin and Brazil Mobile Memory businesses
· TPX +5%; and SNBR shares were active after Mattress Firm has filed for chapter 11 bankruptcy protection, according to its parent company, Steinhoff International
· CUTR -20%; guides Q3 revs to be about $40M (vs. est. $45.8M), and lowers year revs outlook to $165M-$170M from prior view of $178M-$181M
· DLPH -10%; said its CEO is stepping down, after less than a year in the role, to pursue other interests, and also cut its full-year revenue and operating margin outlook
· IPGP -9%; guided Q3 EPS $1.68-$1.72 on revs $355M-$356M, below the company’s prior guidance range of $1.80-$2.05 and $360M-$390M due to foreign currency headwinds
· LMAT 17%; cuts FY18 EPS view to $1.01-$1.03 from $1.04-$1.11 (est. $1.07) and cuts FY18 revenue view to $102.8M-$103.6M (est. $107.15M
· MYE -15%; as Q3 adjusted EPS 14c-16c, below est. 21c and reports preliminary Q3 revenue $135M vs. est. $140.67M; cuts FY18 revenue view
· SIMO -1%; guides Q3 revenue within lower half of guidance range of $136M-$142.9M based on its preliminary Q3
· TSLA -4%; after CEO Elon Musk last night fired off several tweets targeting the SEC and short sellers, referring to the regulator as the “Shortseller Enrichment Commission” and sarcastically quipping that it was “doing incredible work.”
· XNCR -4%; said its Phase II study of XmAb 5871 in patients with systemic lupus erythematosus didn’t meet primary statistical significance in portion of efficacy-evaluable patients who did not experience loss of improvement by day 225
· AtriCure (ATRC) 2.5M share Secondary priced at $30.75
· Azure Power (AZRE) 14.8M share Secondary priced at $12.50
· Elastic (ESTC) 7M share IPO priced at $36.00
· KemPharm (KMPH) 8.3M share Spot Secondary priced at $3.00
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.