Morning Preview: October 8, 2018

Scott GreenDaily Market Report

Early Look

Monday, October 8, 2018

U.S. stock futures are on track to open the week lower, dragged down by weakness in Asia as the Chinese Shanghai Index dropped over 3.7% despite the latest rate cut by the People’s Bank of China while European markets edge lower on Italian budget fears yet again. Italian bonds were under selling pressure, pushing the 10-year yield to its highest intraday level since May, after EU officials criticized the government’s fiscal plans, reinforcing expectations for a budget clash with Brussels. Meanwhile, China drops sharply despite the PBOC making a 1%-point cut in banks’ reserve-requirement ratios. US oil futures are lower by around 1.5% as a global sell-off in risker assets continues, while Treasury markets are closed in observance of Columbus Day (equity markets remain open today).

In Asian markets, The Nikkei Index was closed, though the Shanghai Index plunged after reopening from its week-long holiday, dropping-104 points (or 3.7%) to settle at 2,716, and the Hang Seng Index fell -370 points to settle at 26,202. In Europe, the German DAX is down around -75 points at 12,035, while the FTSE 100 is down around -20 points moving under 7,300. In South America, Brazil shares active as market favorite Jair Bolsonaro led the first round of the Brazilian presidential election.

Treasury yields hit fresh multiyear peaks on Friday, extending their weeklong advance, as the 10-year Treasury note yield rose 3 bps Friday to a seven-year high of 3.227%, contributing to a weeklong climb of 17.1 bps. The 30-year bond yield rose 4.2 bps to 3.396%, extending its weeklong rise to 20 basis points, its biggest such climb since the week of President Donald Trump’s election. Homebuilders were among the biggest casualties last week of the soaring Treasury yields, as the homebuilder ETF (XHB) fell for a record 13th straight session. U.S. oil ended nearly flat on Friday, as Brent declines, but both benchmarks tally fourth weekly climb in a row.

Market Closing Prices Yesterday

· The S&P 500 Index dropped -16.04 points, or 0.55%, to 2,885.57

· The Dow Jones Industrial Average fell -180.43 points, or 0.68%, to 26,447.05

· The Nasdaq Composite dropped -91.06 points, or 1.16%, to 7,788.45

· The Russell 2000 Index declined -14.80 points, or 0.90% to 1,632.11

Events Calendar for Today

· No Major U.S. Economic Data Released Today

World News

· The Senate confirmed Brett Kavanaugh to the Supreme Court on Saturday, delivering a major victory to President Trump who has now locked in a conservative majority on the court.

· The People’s Bank of China said it would reduce the amount of reserves most commercial banks are required to hold by 1% to 14.5% from 15.5%, a move coming as the U.S. has imposed tariffs on $250B of Chinese goods and has vowed additional import taxes on $257B of products. The central bank said the cut will free up 1.2 trillion yuan ($174.72 billion) in total. Of that, 450 billion yuan ($65.52 billion) will be for banks to repay short-term debt coming due this month and 750 billion yuan will be released into the financial market.

· Activity in China’s service sector expanded at a faster pace in September, a private gauge showed Monday, as the Caixin China services purchasing managers’ index rose to a 3-month high of 53.1 in September from 51.5 in August

· German industrial production fell for the third-straight month in August, as the German economics ministry said that total industrial output–which comprises output in manufacturing, energy and construction–fell 0.3% in August from the month before.

Sector News Breakdown

Consumer

· Amazon’s (AMZN) move to raise the minimum wage it pays its U.S. workers to $15 an hour will have ripple effects, with blue-collar workers throughout the country to benefit as their employer’s scramble to keep up with the retailer, said Barron’s

· Barnes & Noble (BKS) is on the block noted Barron’s, which means that investors and potential buyers will be perusing the bookseller more intensely, and should conclude that there are reams of opportunity in a company seen as a casualty of Amazon (AMZN)

· Kimberly-Clark (KMB) downgraded to Neutral from Buy at Goldman Sachs

· Conagra Brands (CAG) upgraded to Buy from Neutral at UBS

Energy

· A tropical storm formed Sunday near the Gulf of Mexicoand is forecast to strengthen to a hurricane that could threaten the U.S. Gulf Coast by midweek, the National Hurricane Center said

· U.S. President Donald Trump is expected to announce the lifting of a federal ban on summer sales of higher-ethanol blends of gasoline on Tuesday in Washington DC ahead of a trip to Iowa the same day, Reuters reported. The lifting of the summer ban on so-called E15 gasoline is expected to be coupled with restrictions on trading biofuel credits that underpin the program (watch shares of PEIX and GPRE)

· SolarWinds Corp. said it plans to raise up to $323 million in its initial public offering, according to an updated filing with the Securities and Exchange Commission late Friday

Financials

· Barron’s noted the fund industry is overdue for change and seems certain that big firms will get bigger and the niche firms will grow more specialized. Giants that have powerful brands, technology, and distribution such as Fidelity, Vanguard, Capital Group, BlackRock (BLK), Charles Schwab (SCHW), State Street (STT), and T. Rowe Price Group (TROW) will become mega giants

· Western Union (WU) is somewhere in between MoneyGram International (MGI) and PayPal (PYPL), according to Barron’s noting the company’s $1.4B in quarterly revenue is more than triple MoneyGram’s, but that business is not valued much more richly

· Mastercard (MA) and Visa (V) mentioned on Barron’s saying they occupy a unique space somewhere between the financial heavyweights and the big tech firms, and though being viewed virtually interchangeable for years, Mastercard shares have recently broken ahead

Healthcare

· Akcea Therapeutics (AKCA) and Ionis Pharmaceuticals (IONS), announced that the U.S. Food and Drug Administration has approved TEGSEDITM (inotersen) for the treatment of the polyneuropathy of hereditary transthyretin-mediated amyloidosis in adults. TEGSEDI is now approved in the U.S., European Union and Canada.

· Akcea Therapeutics Inc. (AKCA) plans to use competitive pricing for its first drug to win patients from market leader Alnylam Pharmaceuticals Inc. (ALNY).Akcea’s Tegsedi, used to treat a rare disease called hereditary transthyretin-mediated amyloidosis, will be priced at no more than $450,000 a year

· Acacia Pharma (ACPH.BB) shares fall after the company receives a complete response letter from the FDA for its new drug application for Barhemsys that raised concerns about the manufacturer of treatment’s active ingredient amisulpride.

· Loxo Oncology (LOXO) announced updated interim clinical data for LOXO-292 from the global Phase 1/2 LIBRETTO-001 trial in patients with RET-mutant medullary thyroid cancer and RET fusion-positive thyroid cancer who were initially included in the LOXO-292 presentation at the 2018 ASCO Annual Meeting

Industrials & Materials

· Blackstone Group LP (BX), Carlyle Group LP (CG), Onex Corp and Canada Pension Plan Investment Board have joined forces in a bid to acquire aluminum products maker Arconic Inc. (ARNC), according to Reuters https://reut.rs/2E6mY5Y

· General Electric (GE) upgraded to Overweight from Equal Weight at Barclays

· Norsk Hydro (NHYDY) said it was preparing to resume production at its giant alumina refinery in Brazil following government approval to use new filter technology on its waste deposits

· Spending on data centers and gear to supply them is on the rise, a boon for companies like Eaton (ETN), which makes electrical systems, and Terex (TEX), which makes boom lifts and Ingersoll-Rand (IR), the maker of Trane climate systems according to Barron’s

· Gold may have hit bottom for the year according to Barron’s. The precious metal has declined for the past six months in a row and lower prices have contributed to a boost in global central bank purchases. Another sign that gold is near its bottom is the recent industry consolidation — the planned Randgold Resources (GOLD) and Barrick Gold (ABX) merger, for example

Technology, Media & Telecom

· Verizon Communications (VZ) could get a boost from the onset of residential 5G broadband services according to Barron’s noting the stock has recently fetched 11x forward earnings estimates; a 20% return, including dividends, would merely bring shares up to their 10-year average of 13x

· Barron’s said the top four U.S. cloud players, namely Alphabet (GOOGL), Facebook (FB), Amazon (AMZN)and Microsoft (MSFT), are ramping up capital spending, especially on data centers, which will account for more than 60% of their combined outlays this year

· Sony Corp.’s (SNE) “Venom,” collected a robust $80 million in first place, unseating the October opening record set by the $55.8 million debut of “Gravity” in 2013. “A Star Is Born,” from AT&T (T) Warner Bros., followed with $42.6 million in second place

 

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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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