Monday, October 15, 2018
U.S. equities open the day mixed, with major averages sliding after Friday’s modest rebound in comparison to its week look decline, following many distractions globally ahead of the start of earnings season this week. Tech underperforms as the Nasdaq Comp trades down to the 7,400 level, falling more than 90 points or 1.2% (last week lows 7,274.036 on 10/11) before bouncing, while defensive assets rise (gold). Tensions between the U.S. and Saudi Arabia over the disappearance and alleged murder of Jamal Khashoggi have failed to boost oil prices, with WTI crude sliding. Economic data was mixed in the U.S. today as Manufacturing in the NY region topped views, but consumer’s tightened spending again in September, making for back-to-back months of unexpectedly weak retail sales. Trade tensions with China remain, the EU/UK Brexit talks and the debt fears in Europe all remain market concerns.
Treasuries, Currencies and Commodities
· In currency markets, the dollar retraced last Friday’s gains (still finished last week lower), given mixed economic data and another sell-off to start the week for stocks; the British Pound slides after negotiations over the UK departure from the European Union suffered a setback Sunday as the two sides failed to resolve differences, chiefly over how to avoid the re-emergence of a physical border in Ireland (raising no Brexit fears); the dollar falls vs. the euro and yen
· Precious metals rise, on track for the highest close since July as tension between the U.S. and Saudi Arabia and concerns about an escalation in the global trade war boosted the metal’s appeal as a haven, lifting gold prices above the $1,230 an ounce level
· Energy futures slip despite tension between the U.S. and Saudi Arabia. President Donald Trump has dispatched his secretary of state Pompeo to meet King Salman of Saudi Arabia over the disappearance of journalist Jamal Khashoggi – note several high-profile individuals (JPM CEO Dimon, Ford CEO, BLK’s Fink) have pulled from the Saudi investment conference on news; WTI crude falls to $71 per barrel and Brent down around $80 per barrel
· Treasury markets little changed to start the week after yields pulled back from multi-year highs last week (10-yr finished around 3.15%, where it is today), off weekly highs of 3.25% early last week); President Trump call for FOMC to slow pace of rate hikes has dented yields over the last few days, though the Fed appears to be on course with an additional rate hike in December and three additional in 2019 – unwavering despite Trump petition. The 2-year yield remained largely range bound near 2.85%; and the 30-year yield dipped to 3.33% from 3.342%.
· Empire Manufacturing Index for October reported at 21.1, slightly topping the 20 estimate vs. general business conditions were 19 in the last month; component breakdown: prices paid fell to 42 vs 46.3 prior, while new orders rose to 22.5 vs 16.5 MoM (highest since Sept. 2017)’ the number of employees fell to 9 vs 13.3 prior and work hours fell to 0.2 vs 11.5
· Retail Sales for Sept rose 0.1%, well below the 0.6% estimate (prior month had risen 0.1% as well), while retail sales less autos fell (-0.1%) in Sept. also well below the 0.4% est.; retail sales rose to $509.041B in Sept. vs. $508.514b in Aug.
· Business Inventories for August rose 0.5% MoM, in-line with estimates after rising 0.2% the prior month; July business inventories rose 0.7% MoM, revised from 0.6% gain
Sector Movers Today
· Bank movers; group was among top decliners last week after mostly better to mixed results from large caps on Friday (WFC, C, JPM) and as borrowing costs pulled back from multi-year highs; this morning BAC reported better than expected earnings and SCHW posted in-line top and bottom lines; for BAC, reported Q3 trading revenue excluding DVA that was 1.6% below estimates; PNC was defended by a few analysts after falling sharply on Friday after mixed results; Deutsche Bank and Bernstein both upgraded shares to outperform/buy after sell-off; financial earnings coming this week: Tuesday MS, GS, CMA, BLK; Wednesday earnings MTB, MTG, NTRS, USB and Thursday BBT, BK, BX, KEY, TRV, AXP and Friday STI, STT, SYF
· Metals & Materials; the U.S. steel sector was downgraded to market weight from overweight at Credit Suisse and downgraded CLF, NUE and STLD to neutral due to cautious supply and demand outlook for the sector/firm sees limited potential for multiple expansion given late cycle fears/says while a near-term agreement with Canada remains unlikely, odds are in favor of a deal being sorted out by early 2019. Gold miners rise (NEM, AEM, GG) as investors sought refuge after a slide in European equities compounded jitters on global stock markets/gold best levels since late July earlier today before paring gains
· Monthly Master Trust credit card data; SYF monthly Sept net charge-offs (NCO’s) were 4.50% vs. 4.81% MoM while delinquencies 2.88 vs. 2.74%; JPM said Sept NCO’s were 2.22% vs. 2.36% MoM and September delinquencies 1.14%, vs. 1.10% in August; ADS September net charge offs 5.9% vs. 5.8% last month and the delinquency rate 5.8% vs. 5.6% last month; DFS September charge-off rate 3.2% vs. 3.1% MoM and delinquency rate 2.3% vs. 2.2% last month
· Retailers; group weak initially following softer retail sales data; RL was upgraded to overweight at JPMorgan saying fieldwork points to North America same-store-sales inflecting positive in 2Q for the first time in 3+ years/predicts consolidated comps following suit in 3Q; LULU and AEO both upgraded to outperform from neutral at Wedbush citing positive data ahead of third quarter earnings, with the current price level as an attractive entry point; PVH at JPMorgan as we see upside to 2H18 Street EPS (both 3Q & 4Q) despite unfavorable weather QTD; SHLD officially announces bankruptcy; TPR was downgraded to hold at Lop Capital
· E&P and services; Jefferies upgraded CRZO and OAS to buy saying underlying commodity fundamentals remain supportive of shale returns and an outlook for increasing FCF generation across our coverage/despite a strong outlook for E&Ps, they continue to see valuations at extremely attractive levels, particularly for Permian players; WTI was upgraded to buy at Roth Capital and raise tgt to $10.75 citing the combination of lower debt and new higher price deck; CLR was upgraded to buy at Seaport Global and raised tgt to $75 from $64
· ABCD +19%; to be acquired by certain affiliates of private equity firm Veritas Capital, for $14.50 in cash per share
· ACRX +17%; after an FDA panel on Friday voted to support its painkiller Dsuvia for approval/Jefferies upgraded shares to buy from hold, raised its price target to $8 from $3
· KRYS +18%; after interim results in two patients of Krystal’s lead drug candidate, a topical gene therapy KB103, met a study goal
· LLL +9%; rises alongside HRS after the two agree to merge that will create the United States’ sixth-largest defense contractor with a market value of $34B
· NEM +3%; as gold miners rise again in reaction to spike in defensive names/gold prices
· PNC +1%; defended by a few analysts after falling sharply on Friday after mixed results; Deutsche Bank and Bernstein both upgraded shares to outperform/buy after sell-off
· ADBE -3%; amid another sell-off in sector outperformers this year/likely profit taking with CRM, ADBE, ADSK among top decliners in S&P (all software names)
· BAC -1%; reported better than expected earnings while Q3 trading revenue excluding DVA that was 1.6% below estimates
· MNST -1%; downgraded to in-line at Evercore/ISI as research suggests that the energy space may be at an initial point of disruption with fitness/sports energy drinks poised to take share from traditional energy drinks
· NTRI -9%; downgraded to underperform at Davidson as they have lower confidence that NTRI can achieve the >30% EBITDA growth in 4Q18 that is implied guidance
· OXY -3%; among top S&P 500 decliners given pullback in energy stocks as oil slips
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.