Mid-Morning Look: October 11, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Thursday, October 11, 2018

After a very negative tone overnight for U.S. futures, extending yesterday’s broad market declines with big sell-offs in Asia (more than 3% across the board, China fell to 4-year lows down over 5%) and Europe, major US averages are attempting to rebound this morning, turning modestly positive after a cooler-than-expected report on inflation (CPI data). Following President Trump’s “attack” on the Fed for a second consecutive day, calling the central bank’s recent rate increases “a mistake” and that “they’re making a mistake and being too aggressive”, the somewhat tamer inflation report is good news for markets. It is notable that several individuals including IMF leader Lagarde and Treasury Secretary Mnuchin, both backed the Fed overnight. Stocks also get a bounce off the lows after reports President Trump and Chinese leader Xi to meet at G-20 meeting in November, WSJ reported, helping ease trade tension fears. Technicals remain a focus as the S&P 500 fell to the lowest since July and flirted with its 200-day moving average before the rebound, while the Dow Industrials also managed to rise before testing its 100-day moving averages. With macro factors driving markets the last few weeks, attention will now turn to fundamentals as earnings kick into high gear next week (banks report tomorrow). Don’t forget rising borrowing costs, though the 10-year yield is down about 8 bps from its week highs of 3.25%

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar is trading lower, on track to book its third consecutive losing session, as the global equity rout shows no signs of abating; the dollar index fell as low as 94.98 (well off week highs of 96.155 on 10/9); the buck is suffering from political uncertainty as the public battle between President Donald Trump and the Federal Reserve plays out

· Precious metals jumping, with gold and silver both up more than 1%, as gold trades above $1,210 an ounce on dollar weakness and macro market fears/calls from President Trump to the Fed to stop the rate hike increases

· Energy futures slide again, headed for the biggest two-day drop since July as fears over a worsening trade war rattled global markets; WTI crude down to $72 per barrel ahead of EIA weekly inventory data (API data overnight was bearish with crude supplies up 9.7M barrels

· Treasury markets active again, with yields pulling back from early week multi-year highs, as the 10-year yield at 3.18% (down from week high of 3.25%); mixed economic data, comments from Trump on rate hikes and concerns in Europe all playing a part for volatility

Economic Data

· Weekly Jobless Claims rose 7K to 214K, above the 207K estimate (prior week unrevised at 207K); the 4-week moving average rose 2,500 to 209.5K in the latest week; continuing claims rose 4K to 1.660M in the week ending Sept. 29

· Consumer price index rose 0.1%, missing the 0.2% estimate, while core CPI prices rose 0.1% as well, also missing the 0.2% estimate; YoY, Consumer prices rose 2.3% and core 2.2%, both coming in 0.1% below the economist forecasts (two months ago, the yearly rate hit a six-year high of 2.9% – so with prices coming down, inflation fears easing for the time being)

· The 30-year fixed mortgage rate for week ended today rose to 4.90% from 4.71%, Freddie Mac said; the 15-year rate avg 4.29%, up from 4.15% a week earlier.

Sector Movers Today

· Retailers; LB reports total sales growth of 8% to $1.06B in September as comp sales grew 5% during the month, comprising of 13% rise in Bath & Body Works and +1% for the Victoria’s Secret business; CATO Sept. comp sales fell (-1%), missing estimates of +2.0% saying had a slight negative effect from the net result of 2018’s Hurricane Florence offset by last year’s Hurricane Irma; COST Sept total comp sales rose 8.4% vs. Bloomberg est. 5.1% and Sept US comp sales ex-gas and FX 7.7% vs. est. 4.3%; ZUMZ Sept. comp sales up 1.2% vs. estimate of 2% increase

· Auto’s; DLPH was downgraded to neutral at Goldman Sachs following last week’s negative pre-announcement and CEO departure; LEA was upgraded to buy at Goldman as believe there is upside potential to growth and margin expansion long-term given its E-Systems product portfolio; RACE downgraded to hold at Jefferies saying higher upfront investment and lower quality of earnings lead them to re-base expectations of returns

· E&P and oil services; Frac sand names CVIA and SLCA both downgraded to underweight at Morgan Stanley as they are most concerned about the frac sand market, which continues to deteriorate faster than expected; separately on oil servicers, says the bank is constructive on a 12-18 month view, though agrees with many investors’ concerns that near-term estimates still too high; thinks CJ, FRAC, and HAL have lower risk as management teams have been proactive in communicating these risks and setting expectations; more cautious on stocks such as CLB, FTSI, LBRT and RES where estimates have moved less

· Internet; group slammed yesterday in market rout but trying to rebound today; SNAP tgt cut to $11 from $17 at Goldman Sachs though rates buy and cuts user growth forecasts to reflect recent traffic data, but says still believes “a Twitter-like turnaround is possible,” particularly with a new Android app; GDDYupgraded to buy at Citigroup with $86 tgt as believes GoDaddy has reached valuation levels that warrant a Buy rating; SFIX tgt cut to $23 from $31 at Piper after factoring in the firm’s Fall 2018 Women’s Survey; firm found a substantial churn rate of 60% to 70% for the Stitch Fix platform and low usage frequency per year

       Stock GAINERS

· CGEN +6%; after BMY investment in the company as part of a clinical trial collaboration to evaluate the safety & tolerability of Compugen’s COM701 in combination with BMS’ Opdivo

· CRSP +4%; after the FDA lifted a clinical hold on CTX001 for a pending study with partner VRTX into an experimental gene editing treatment for sickle cell disease

· DAL +5%; mixed Q3 results as EPS beat by 6c though revs of $11.85B misses views slightly/guides year revenue growth at the high end of its prior 7%-8% view

· DLGNF +32%; after AAPL signed a deal with the company to license the U.K. chip designer’s power management technology and acquire certain assets

· GPRE +12%; agreed to sell three of its ethanol plants to Valero Renewable Fuels for $300 million in cash and an additional $28 million of working capital

· HEAR +11%; pre-announces Q3 results: Revenues of $73M-$74M vs. $65M guidance, EPS 74c-78c vs. 44c guidance, adjusted EBITDA $17M vs $11M guidance

· LB +11%; total sales growth of 8% to $1.06B in September as comp sales grew 5% during the month, comprising of 13% rise in Bath & Body Works and +1% for the Victoria’s Secret

· PYPL +1%; announces pact with WMT to roll out PayPal cash in and cash out money services at Walmart for an exclusive fee of $3 per service

· RH +8%; after announcing share buyback of up to $700M


· ANET -2%; as JPM trimming estimates following a closer look at data center capex trends for the top 4 US cloud service providers

· CVIA-6%; Frac sand names CVIA and SLCA both downgraded to underweight at Morgan Stanley as they are most concerned about the frac sand market

· FLR -14%; after guiding preliminary Q3 revenue $4.6B, below the Street consensus $4.95B (watch shares of other E&C related names on guidance – JEC, KBR, ACM)

· HII -4%; downgraded to sell at Goldman Sachs and cut tgt to $208 saying it is now the most expensive stock in his Defense coverage on economic, price-to-earnings and free cash flow yield

· SQ -8%; said CFO Sarah Friar will be stepping down to assume a CEO role at Nextdoor


· Allogene Therapeutics (ALLO) 18M share IPO priced at $18.00

· Atomera (ATOM) 2.625M share Spot Secondary priced at $4.75

· Audentes Therapeutics (BOLD) 5.2M share Secondary priced at $29.00

· ENDRA Life Sciences (NDRA) 1.285M share Spot Secondary priced at $2.10

· Livent (LTHM) 20M share IPO priced at $17.00

· SeaSpine (SPNE) 3.25M share Spot Secondary priced at $15.50


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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