Morning Preview: October 11, 2018

Terrie AmengualDaily Market Report

Early Look

Thursday, October 11, 2018

U.S. stock futures are pointing to another sharply lower open, building on yesterday’s massive losses as markets saw their biggest daily declines since February. Wednesday’s U.S. losses were followed by selloffs in Asia and Europe, with major benchmarks off sharply. Overseas, the Nikkei Index plunged -915 points (3.89%) to settle at 22,590, the Shanghai Index toppled -142 points (5.2%) to finish at 2,583 (its lowest level in about 4-years) and the Hang Seng Index dropped -926 points (3.54%) to end at 25,266. The Shanghai Composite Index is now down 20% for 2018. In Europe, the German DAX is off around -130 points under 11,600, while the FTSE 100 is down over -100 points to around the 7,000 level to the lowest levels since March. Australia’s ASX 200 dropped to levels last seen in late April and New Zealand’s NZX 50 posted its first nine-day losing streak since July 2011. Factors that are weighing on market sentiment include: a sudden rise in long-dated interest rates since late September (rising borrowing costs), President Donald Trump stepped up his criticism of the Fed late Wednesday, blaming the central bank’s rate-hiking efforts for the stock-market weakness, continuing trade tensions with China and concerns about global growth as well. The decline in stocks comes ahead of earnings season, with big banks (JPM, C, WFC) reporting tomorrow and also coincides with a scheduled “black-out period” in which major corporations are unable to buy back company stock ahead of there quarterly results (they can resume buybacks generally a few days after they report). Also note that major U.S. averages have enjoyed a long run of almost undisrupted gains, and profit taking also playing a part.

U.S. stocks plummeted on Wednesday as the S&P 500 fell for a 5th straight session, falling -3.3% for its worst drop since February and now down roughly 5% from its last record high in September (falling below the 2,800 level and its 100-day moving average). The Nasdaq 100 dropped -4.4%, its worst drop since 2011 while the Nasdaq Composite slides 4.1%, for its biggest loss since 2016 (dropping below its 200-day MA for the first time since July 2016). The Dow Industrial Average slumped -3.1%, with all 30 components falling as the index ends lower by more than 800 points (below its 50-day MA). The Dow Transport Index dropped over -400 points closing below its 200-day MA as several key technical support levels were breached. Wednesday’s plunge came as growing concern about the U.S. trade war with China and Treasury yields above 3.2% triggered a broad selloff in stocks. The VIX jumped to almost 23, its highest level since April.

Market Closing Prices Yesterday

· The S&P 500 Index plunged -94.66 points, or 3.29%, to 2,785.68

· The Dow Jones Industrial Average sunk -831.83 points, or 3.15%, to 25,598.74

· The Nasdaq Composite dropped -315.97 points, or 4.08%, to 7,422.05

· The Russell 2000 Index declined -46.45 points, or 2.86% to 1,575.41

Events Calendar for Today

· 8:30 AM EST Weekly Jobless Claims…est. 207K

· 8:30 AM EST Continuing Claims…est. 1.66M

· 8:30 AM EST Consumer Price Index (CPI) MoM for Sept…est. 0.2%

· 8:30 AM EST CPI Ex: Food & Energy MoM for September…est. 0.2%

· 8:30 AM EST CPI Ex Food & Energy YoY (core) for September…est. 2.3%

· 9:45 AM EST Bloomberg Consumer Comfort Index…prior 61.6

· 10:30 AM EST Weekly EIA Natural Gas Inventory Data

· 2:00 PM EST Monthly Budget Statement for Sept…est. $75.0B

Earnings Calendar:

· Earnings Before the Open: CBSH, DAL, WBA

· Earnings After the Close: None

World News

· Christine Lagarde, head of the IMF, came to the defense of the Federal Reserve at its annual meetings in Bali on Thursday, calling its interest rate rises “legitimate and necessary” less than a day after President Bush once again questioned the Fed’s rate hike cycle

· The European Union’s chief negotiator, Michel Barnier, said a deal is “within reach” as negotiations over the thorny Northern Irish border seem close to resolution. The pound is trading above $1.3200 this morning amid the optimism

· Former British Prime Minister Tony Blair said there was a 50-50 chance of getting another Brexit referendum as Prime Minister Theresa May will be unlikely to secure a majority for any divorce deal in parliament.

Sector News Breakdown

Consumer

· Costco (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%

· Zumiez (ZUMZ) Sept. comp sales up 1.2% vs. estimate of 2% increase (vs. up 9.3% last year); total sales for the five-week period drop 8% to $77.7 million, compared to $84.4M for the five-week period ended September 30, 2017.

· S&P Homebuilders ETF (XHB) falls -1.8% to 20-month low, its 15th decline in 16 sessions

· BMW AG said it agreed to increase its stake in its Chinese joint venture to 75% from 50% in a 3.6 billion-euro ($4.1 billion) deal set to close in 2022. BMW and its Chinese partner, Brilliance China Automotive Holdings Ltd., also agreed to extend the contract of their BMW Brilliance Automotive Ltd. joint venture to 2040

· Elon Musk denied a report late Wednesday that James Murdoch is the “favorite” candidate to replace him as chairman of Tesla Inc (TSLA)

Energy

· The American Petroleum Institute (API) reported that U.S. crude supplies rose 9.7M barrels for the week ended Oct. 5, showed supplies of gasoline climbed by 3.4M barrels, while distillates fell -3.5M barrels

· Natural gas futures climbed to an eight-month high ($3.27 mln btu) on concern that U.S. Gulf of Mexico production shut as Hurricane Michael hit Florida will slow additions to stockpiles that are already 18% below normal for this time of year. Prices have surged 19% since Sept. 14

· Southern Co. (SO) subsidiary Georgia Power said there are more than 200,000 customers without power in Georgia as of 5:30 a.m. ET, in the wake of Hurricane Michael

Financials

· Square (SQ) announced that Sarah Friar has informed the company of her intention to step down as CFO in order to accept an offer to become Chief Executive Officer of Nextdoor

· Commerce Bancshares (CBSH) Q3 EPS $1.03 vs. estimate 96c; 3Q efficiency ratio 55.7%; 3Q provision for loan losses $10.00 million

· HSBC Holdings PLC (HSBC) will pay $765M to settle Justice Department claims that it covered up risks associated with residential-mortgage products in the run-up to the last housing-market downturn.

· Waddell & Reed Financial, Inc. (WDR) reported preliminary assets under management of $79.5B for the month ended September 30, 2018, compared to $80.2B on August 31, 2018

· Saratoga Investment (SAR) Q2 EPS 45c vs. est. 56c; Q2 total investment income of $11.4M increased $1.1M, or 11.2%, compared to $10.3M for the three months ended August 31, 2017

· French payment service company Ingenico (INGC.PA) has received two separate expressions of interest from French bank Natixis and Paris-based Edenred (EDEN.PA) – Reuters https://reut.rs/2PnCOdw

Healthcare

· CRISPR (CRSP) and Vertex (VRTX) say the clinical hold has been lifted on CTX001, a treatment for sickle cell disease; the companies remain on track to initiate Phase 1/2 clinical study in SCD by the end of 2018

· Select Medical (SEM) sees Q3 revs $1.264B-$1.268B vs. est. $1.28B; sees Q3 adjusted Ebitda to be in the range of $150M-$154M

Industrials & Materials

· Fluor (FLR) shares fell -13%; sees preliminary Q3 revenue $4.6B, below the Street consensus $4.95B (watch shares of other E&C related names on guidance – JEC, KBR, ACM)

· Huntington Ingalls Industries (HII) downgraded to Sell from Neutral at Goldman Sachs and lowered price target for the shares to $208 from $220

· Livent Corp. (LTHM) priced its initial public offering at $17 a share, for 20 million shares which was below the $18- to $20-a-share range

Technology, Media & Telecom

· Apple Inc. (AAPL) has signed a deal with Dialog Semiconductor Plc (DLGNF) to license the U.K. chip designer’s power management technology and acquire certain assets, including more than 300 staff

· Lenovo Group Ltd. took the top spot in both IDC’s and Gartner’s reports on personal-computer shipments for the September quarter. Lenovo reclaimed the top spot from HP Inc. (HPQ) according to IDC’s numbers, amassing 24% of the market compared with 22.8% for HP. Dell Inc., Acer, and Apple Inc. (AAPL)rounded out the top five.

· Foxconn said that revenue rose 30 percent to T$584.93 billion ($18.8 billion) in September, extending a streak of double-digit growth since May.

· VOXX (VOXX) Q2 EPS loss (85c) on revs $108.87M

 

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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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