Mid-Morning Look: October 8, 2018

Scott GreenDaily Market Report

Mid-Morning Look

Monday, October 8, 2018


U.S. equities trade down overnight before quickly bouncing off the lows, as the Nasdaq Composite spikes as much as 60 points off the intraday lows to turn positive. Early market gains were led by defensive sectors (Utilities, REITs, Telecom), while Energy and Financials were among the biggest decliners. Markets overall quiet today with bond markets closed in observance of the Columbus Day Holiday, and no major economic data on the agenda as well to sway markets. European and Asian markets sunk overnight following another round of macro developments, while major US averages prepare for the start of earnings season, kicking off unofficially Friday with big bank earnings (JPM, WFC, and C). Note all three major benchmarks come into the day with a 2-day losing streak, sliding after a jump in government bond yields over the past several sessions and trade concerns with China. Note, the NASDAQ and Russell are each coming off their worst week since late March. Oil prices dip slightly with WTI crude back below $74 per barrel, while the dollar rises vs. counterpart currencies.

Amid top news overnight, China stock markets fell, with the Shanghai Composite dropping over 3.7% (follows a week long holiday market closure), despite news that China’s central bank cut the amount of cash lenders must hold as reserves for the fourth time this year (to 14.5% from 15.5%, a move coming as the U.S. has imposed tariffs on $250B of Chinese goods), as policy makers seek to shore up the weakening domestic economy amid a worsening trade war. In Europe, stocks are falling after Italy’s new deputy premier said the government won’t deviate from its plan to increase spending. Their bond market is not reacting well to the government’s hardline position, with yields on the country’s 10-year bond climbing above 3.5% for the first time in four years according to Bloomberg.

Sector Movers Today

· Industrial & Machinery; GE was upgraded to overweight at Barclay’s with $16 tgt as think further reductions to estimates may soon draw to a close as restructuring savings are realized; separately, funds managed by Apollo Global have agreed to acquire a portfolio of equity investments worth about $1 billion from GE Capital’s energy financial services unit https://on.mktw.net/2E7WNvD ; ARNC rises early after Reuters reported earlier Blackstone, Carlyle, Onex Corp and Canada Pension Plan Investment Board have joined forces in a bid to acquire it https://reut.rs/2E6mY5Y

· Metals & Materials; aluminum prices sink after Norsk Hydro (NHYDY) said on Saturday it’s ready to restart the world’s biggest alumina refinery at 50% capacity/decision comes just days after Norsk Hydro said it would stop production and lay off 4,700 people at Alunorte, which has been operating at half capacity since March (shares of AA declined in reaction to the news); SCCO was upgraded to neutral at Citigroup

· Chemicals; Susquehanna said see current fertilizer price momentum continuing into 2019 as global NPK supply-demand balances tighten/expect NTR and MOS to raise the bottom end of their 2018 guidance on a stronger Q4 outlook for nitrogen and potash prices; AXTAnamed Robert Bryant interim CEO as Terrence Hahn resigned by mutual agreement with the board following an investigation by outside counsel into conduct by Hahn unrelated to financial matters; PPG said it is increasing prices on all automotive original equipment manufacturers products by an average of 10% as it works to combat rising inflationary pressures; SON to increase prices for rigid plastic packaging by 6% to 10%

· Pharma movers; AKCA/IONS announced FDA approval of antisense oligonucleotide (ASO) RNA therapeutic TEGSEDI (inotersen) for patients with polyneuropathy associated with hereditary transthyretin-mediated (hATTR) amyloidosis late Friday; NVO was downgraded to neutral at Bank America; EXEL initiates a 300-subject Phase 3 clinical trial, COSMIC-311, evaluating single-agent CABOMETYX (cabozantinib) in patients with radioiodine-refractory differentiated thyroid cancer; LCI said that it has engaged and/or expanded the role of existing advisors to assist in evaluating a range of alternatives regarding the company’s debt and capital structure

· Consumer finance and lending; SQ tgt raised to $108 from $77 at Goldman Sachs on higher estimates and an increased multiple; ONDK was upgraded to neutral from sell at BTIG saying its shares are now more reasonably valued after mid-August sell-off; Bloomberg reported GS is looking to restrain the rapid expansion of its online lending platform Marcum as the firm grows more cautious on the consumer debt market that’s a key area of growth

Stock GAINERS

· ARNC +3% after Reuters reported earlier Blackstone, Carlyle, Onex Corp and Canada Pension Plan Investment Board have joined forces in a bid to acquire it https://reut.rs/2E6mY5Y

· CAG +2%; upgraded to buy from neutral at UBS and raise tgt to $40 from $38 rating change takes advantage of the stock’s underperformance

· ESV +1%; agreed to buy RDC with RDC shareholders will receive 2.215 Ensco shares for each of their Rowan shares (ESV holders will own 60.5% of the combined company, with Rowan shareholders owning the remaining) https://on.wsj.com/2y70In0

· GE +2%; upgraded to overweight at Barclay’s with $16 tgt as think further reductions to estimates may soon draw to a close as restructuring savings are realized

· PBR +9%; upgraded at both JPM and Bank America after conservative congressman Jair Bolsonaro’s strong showing in Sunday’s presidential election/says there’s a lower perceived policy risk than had been priced into Petrobras’ stock

Stock LAGGARDS

· AA -5%; aluminum prices sink after Norsk Hydro (NHYDY) said on Saturday it’s ready to restart the world’s biggest alumina refinery at 50% capacity

· AKCA -11%, IONS -4%; late Friday the FDA 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

· JELD -1%; after Baird downgraded to neutral and tgt cut to $23 (RBC cut tgt to $28) following a ruling late Friday that may result in a divestiture of the company’s Towanda, PA facility

· MNLO -28% as a Phase 2 clinical trial, TUSSIX, evaluating Menlo Therapeutics’ Serlopitant in patients with refractory chronic cough failed to beat placebo

· WAT -3%; downgraded to market perform at Leerink

 

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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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