Mid-Morning Look: October 12, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Friday, October 12, 2018

U.S. equities open quite strong, looking to put the 2-day carnage in US markets (Dow fell -1,375 over that span) behind them, helped by news overnight that the U.S. Treasury Department’s staff has advised Secretary Steven Mnuchin that China isn’t manipulating the yuan. The conclusion would avert an escalation of the U.S.-China trade war (which has been one of the key drivers for the market pullback). Also in macro news, a Turkish court set free U.S. Pastor Andrew Brunson after holding him in prison for almost two years, removing a key source of tension between Turkey and the United States. Banks were helping the global rebound after mostly better quarterly results from JPM, C and WFC earlier today – but couldn’t hold gains as financials rolling late morning, having since turned negative (one of the main causes for the pullback off intraday highs for stocks as risk fading). Technology very strong, led by gains in software stocks, along with semis and Internet as the Nasdaq Composite briefly rebounded above its 200-day MA resistance (7,503) which it fell below this week. The dollar and oil prices rebound while Treasury prices hold steady (10-year 3.15%) as investors turn to kick off of earnings season next week.

Treasuries, Currencies and Commodities

· In currency markets, the dollar, much like broader US stocks, are in rebound mode; the dollar index (DXY) near highs up around 95.30 (0.3%) as tries to recover from the pullback this week; the euro moves to lows off the session, while the Pound also at lows -0.4% at 1.317 (off overnight highs 1.3258); Turkish Lira jumped on news a Turkish court set free U.S. Pastor Andrew Brunson, helping ease sanction fears from the U.S., but has since reversed

· Commodity prices mixed as oil prices look to rebound after its worst 2-day pullback of 2018, on track to end the week lower amid pullback in risk assets; meanwhile, gold prices pare some of yesterday’s near 3% spike to best levels in 10-weeks as stocks rebound

· Treasury markets little changed, slipping slightly as yields inch modestly higher

Economic Data

· Import prices for September rose 0.5% MoM, easily topping the 0.2% economist estimate while the prior month was upwardly revised to a decline of (-0.4%) from (-0.6%); import prices rose 3.5% YoY in Sept.; import prices ex-fuels unchanged after falling 0.2% in Aug. Export prices unchanged after falling 0.2% in August

· Preliminary Oct. University of Michigan sentiment fell to 99.0 from 1200.1 in prior month and was below the 100.5 estimate; the current economic conditions index fell to 114.4 vs. 115.2 last month while the expectations index fell to 89.1 vs. 90.5 last month.

Sector Movers Today

· Oil drilling sector; JPMorgan moving to Neutral on both ESV and RDC (upgrading ESV and downgrading RDC) and downgrade DO to underweight while stay underweight NE and RIG – says after a strong run since their August lows (+30% v. OSX +4%), our analysis signals the stocks are now discounting long-term “normalized” drillship dayrates in the mid-$300k range; NE won contracts for two of its idle drillships, according to the company’s latest fleet status report. Societe Generale rotates more fully into offshore drillers as the firm reduces U.S. land exposure amid growth constraints (upgrades ESV, NE and OII to buy from hold; HAL downgraded to hold from buy and WFT cut to sell from buy)

· Internet; Morgan Stanley cutting FB 2019 ad revenue estimate on the overweight-rated stock due to growing headwinds, with the largest being lower-monetizing Stories engagement/tgt cut to $175 from $185 and 2019 advertising revenue estimate lowered; Pivotal Research updated Internet space ahead of earnings, upgrading both SNAP (to buy) and TWTR (to hold) saying prior trajectories around growth are only slightly changed, with margin erosion continuing for FB and GOOGL and improving for other companies in the space; NFLX was upgraded to buy at Citigroup and $375 tgt saying fundamentals remain strong and the opportunity to continue growing international subs and to exert pricing power leverage remain

· Consumer finance and lending; the FinTech/payments sector (MA, V, SQ) with strong rebound after its recent pullback; SQ was upgraded to buy at Canaccord following pullback in shares, but noting they have been on the wrong side of stock for some time, as believe the recent sharp selloff creates a long-term opportunity in a truly disruptive and well-run company

· JPM Q3 EPS of $2.36 beat by 10c though results were mixed as weakness in fixed income markets were offset by strong performance in equities (FICC sales & trading revenue $2.84B vs est. $2.96B; equities sales & trading revs $1.60B vs est. $1.42B; 3Q investment banking revs $1.73B vs est. $1.82B)/strong performance in its US consumer bank helped JPMorgan Chase to comfortably beat profit and earnings expectations

· WFC Q3 profit rose $6B, but EPS missed estimates and said total average loans were $939.5B, down $4.6B from Q2/NIM of 2.94% was in-line with estimates, while charge offs of $680M was above views but provision for credit losses of $580M missed the $613M Bloomberg est.;

· Citigroup (C) Q3 EPS of $1.73 beat estimates by 5c on mostly in-line revs of $18.4B as 3Q net income rose 12% YoY to $4.62B, mainly due to a lower tax rate and lower expenses and cost of credit; Fixed income markets revs $3.20B vs. estimate $2.95B, equity markets revs rose 1% y/y to $792M and investment banking revs fell 8% YoY to $1.18B

       Stock GAINERS

· ATVI +6%; video game stocks very strong early with gains in ATVI, TTWO after Piper noted Activision’s new Call of Duty launched to strong reviews

· CORI +50%; to be acquired by Gurnet Point Capital, a private investment firm focused on the healthcare and life sciences sectors, for $12.50 per share in cash https://yhoo.it/2Ebg6Ei

· CRM +6%; big rebound in software related stocks after recent plunge (ADSK, APPN, TTWO)

· IOVA +22%; sees enrollment for metastatic melanoma study early 2019/prices 22M share secondary at $9.97 per share

· NFLX +5%; upgraded to buy at Citigroup after pullback in Internet space – whole group rebounding after blood bath last 2-sessions

· SQ +6%; upgraded to buy at Canaccord after pullback; (follows back to back days of more than 10% declines – and fell -8.5% on Monday – SQ had Monday high of $92.64)


· BMY -1%; said Phase III CheckMate-311 study evaluating Opdivo vs chemotherapy in relapsed small cell lung cancer didn’t meet primary endpoint of overall survival.

· IMDZ -42%; downgraded at Leerink after company announced Thursday they will focus on and expand development of intratumoral IO agent G100 and discontinue CMB305

· NEM -3%; reversal of gains in the gold miners space after yesterday’s surge

· PM -1%; weakness in tobacco stocks amid new vaping product crack down/FDA warns e-cigarette makers they could be violating law

· PNC -4%; Q3 EPS of $2.82 beat estimates by 10c, on in-line NIM of 2.99% but markets point to Basel III ratio of 9.3% missing the Bloomberg est. 9.46%

· WNC -20%; guides Q3 EPS 27c-30c, below the 52c estimate and sees year EPS $1.50-$1.55, missing the $1.96 est.; says total new trailer shipments/revs below views


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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