Morning Preview: October 17, 2018

Terrie AmengualDaily Market Report

Early Look

Wednesday, October 17, 2018

U.S. futures are lower, giving back a portion of yesterday’s 2% across the board gains amid profit taking and coming ahead of the Fed minutes later today, to be released at 2:00 PM EST from the prior FOMC meeting. Markets are also on edge as details are slowly trickling out of what may have happened to the missing journalist that disappeared two-weeks ago in Saudi Arabia. President Trump said in an interview with Fox Business that it “would be bad” if the king and crown prince knew what happened. Technology stocks rallied as earnings from Netflix, ASML and Lam Research boosted sentiment. Much like yesterday’s action, stocks are volatile, but gold, bonds and the dollar are little changed. In Asian markets, The Nikkei Index gained 291 points to settle at 22,841, the Shanghai Index rose 15 points to close at 2,561 and the Hang Seng Index was closed. In Europe, the German DAX is down around -50 points at 11,725, while the FTSE 100 is up a few points around 7,075.

Stock futures soared on Tuesday, with major averages reclaiming key technical levels, pushing well above their 200-day moving averages which were breached last week in the stock market slaughter. The last time every stock in the Dow Industrials, Transports, and Utilities indices finished higher on the day was the Monday before the 2016 election according to Bespoke, a feat achieved again yesterday. The Dow Jones Industrial Average rose 547.87 points, or 2.2% its biggest point gain since March while the S&P 500 gained 2.2% as all 11 sectors finished higher. However, the Nasdaq Composite Index was a standout rising nearly 3% with the biggest single-day advance for all three indexes since March 26. Gains were led on upbeat earnings and robust economic data. For the day, markets put behind them the pace of rising bond yields, global trade tensions and issues in Europe between Italy and the EU on debt concerns and negotiations between the European Union and Britain related to Brexit.

Market Closing Prices Yesterday

· The S&P 500 Index gained 59.13 points, or 2.15%, to 2,809.92

· The Dow Jones Industrial Average surged 547.87 points, or 2.17%, to 25,798.42

· The Nasdaq Composite spiked 214.75 points, or 2.89%, to 7,645.49

· The Russell 2000 Index jumped 43.74 points, or 2.82% to 1,596.84

Events Calendar for Today

· 7:00 AM EST MBA Mortgage Applications Data

· 8:30 AM EST Housing Starts MoM for September

· 8:30 AM EST Building Permits MoM for September

· 10:30 AM EST Weekly DOE Inventory Data

· 2:00 PM EST FOMC Minutes from Sept 26th meeting

Earnings Calendar:

· Earnings Before the Open: ABT, ASML, BMI, KMI, MTB, MTG, NYRS, RHHBY, UBSH, USB, WGO

· Earnings After the Close: AA, CCI, CCK, KALU, SLG, STLD, TCBI, UMPQ, URI

World News

· U.S. Secretary of State Mike Pompeo met Turkish President Tayyip Erdogan in Ankara following talks with Saudi Arabia’s king and crown prince about the disappearance of journalist Jamal Khashoggi.

· Saudi operatives beat, drugged, killed and dismembered a dissident Saudi journalist in the presence of the kingdom’s top diplomat in Istanbul, Turkish officials said Tuesday, as Washington urged Riyadh to provide answers https://on.mktw.net/2PEF4x4

· U.S. Net Long-Term Portfolio Securities Inflow (TIC) $131.8B in Aug. and U.S. total cross-border investment inflows at $108.2B in Aug.; China holds $1.17T of U.S. Treasuries, a decrease of $5.9B from last month while Japan holds $1.03T, a decrease of $5.6B from last month

· UK inflation rate fell much more than expected during September with food cited as the biggest drag on price growth as the annual rise in the consumer price index fell to 2.4% from 2.7%

Sector News Breakdown

Consumer

· Sonic (SONC) Q4 EPS 52c/$111.75M vs. est. 51c/$113.17M; Q4 system same-store sales rose 2.6%, consisting of a 2.6% same-store sales increase at franchise drive-ins and a 2.5% increase at company drive-ins

· Del Taco Restaurants (TACO) Q3 EPS 15c/$117.8M vs. est. 14c/$120M; 3Q system-wide comparable sales +1.4% vs. est. +2.1%; 3Q Company-owned restaurant comp sales +0.3%, vs. estimate +1.7%; sees FY revenue $504M-$507M vs. est. $511.6M and lowers year EPS view; said to begin offering delivery in Los Angeles through GrubHub (GRUB) next month

· Home improvement retail Home Depot (HD) and Lowe’s (LOW) both downgraded to neutral from outperform at Credit Suisse

· Building products Vulcan (VMC) and Martin Marietta (MLM) both cut to neutral at Bank America

· Tesla Inc (TSLA) has signed an agreement with the Shanghai government for an 860,000 square meter plot of land to build its first overseas Gigafactory, the electric carmaker said in a Chinese social media post https://reut.rs/2yMzWzF

Energy

· The American Petroleum Institute (API) reported that U.S. crude supplies fell by -2.1M barrels for the week ended Oct. 12; also showed supplies of gasoline declined by -3.4M barrels, while distillates fell -246K barrels

· Frac sand stocks downgraded at Jefferies as they cut Hi-Crush Partners (HCLP) and Smart Sand (SND) to Underperform from Hold as well as Covia (CVIA)and U.S. Silica (SLCA) to Hold from Buy citing “sinking” Northern white sand demand and prices

· Superior Drilling Products, Inc. (SDPI) entered into a service agreement with Smith International Gulf Services to support the deployment of its flagship wellbore conditioning tool, the Drill-N-Ream, in the Middle East

Financials

· Interactive Brokers (IBKR) Q3 EPS 50c/$439M vs. est. 50c/$445.53M. Total DARTs increased 10% from the year-ago quarter to 763,000

· LegacyTexas (LTXB) Q3 EPS 92c vs. est. 83c; 3Q net interest margin 3.90% vs. est. 3.91% and Q3 provision for credit losses $2.66M

· Watch Nasdaq (NDAQ) and Intercontinental Exchange (ICE) after the WSJ reported late yesterday the SEC is expected to rule that the NYSE and Nasdaq didn’t justify increases in fees they charge for certain market-data products that brokers and traders consider essential

· Pinnacle Financial (PNFP) Q3 EPS $1.21 vs. est. $1.19; Q3 net interest margin 3.65%

· Fulton Financial (FULT) Q3 EPS 37c vs. est. 33c; 3Q net interest margin 3.42%

· Hope Bancorp (HOPE) Q3 EPS 36c vs. est. 36c; 3Q net interest margin 3.47%; 3Q provision for loan losses $7.3M

Healthcare

· Fresenius (FMS) lowered its outlook for FY net constant currency and guides year revenue growth to up 2%-3% from prior view 5%-7%

· Roche Holding AG (RHHBY) said its nine-month group sales rose to 42.08 billion Swiss francs ($42.55 billion) up from CHF39.43 billion the year.

· SI-BONE (SIBN) 7.2M share IPO priced at $15.00

· Eiger Biopharmaceuticals (EIGR) said its Prevent Study met primary endpoint of improved postprandial glucose nadir during mixed meal tolerance testing was achieved with statistical significance; the secondary endpoint of reduced postprandial insulin peak was also statistically significant

· Eiger (EIGR) said its Ubenimex study did not meet its primary endpoint as results demonstrated no improvement over placebo in the primary endpoint of skin thickness and secondary endpoints of limb volume; plans no additional clinical work on Ubenimex

· Evolent Health (EVH) to offer $125M in convertible senior notes due 2025

Industrials & Materials

· CSX Corp. (CSX) Q3 EPS $1.05/$3.13B vs. est. 94c/$3.05B; Q3 operating ratio 58.7% vs 68.4% last year; expenses declined 2% year over year to $1.84B, as expenses associated with increased volume and higher fuel prices were more than offset by efficiency gains

· United Continental (UAL) Q3 EPS $3.06/$11B vs. est. $3.10/$10.93B; raises FY18 EPS view to $8.00 to $8.75 from $7.25-$8.75 (est. $8.21); currently expects to recapture approximately 90% of the estimated $2.5B year-over year increase in full-year 2018 fuel expense

· The Iraqi government will give a $15 billion power-generation contract to General Electric (GE), rather than to rival bidder Siemens AG, the FT reports https://on.mktw.net/2Etvqwm

· Marten Transport (MRTN) Q3 EPS 28c/$199.6M vs. est. 26c/$203M

· Universal Forest (UFPI) Q3 EPS 66c/$1.2B vs. est. 73c/$1.19B

Technology, Media & Telecom

· Netflix (NFLX) shares rose 10%; Q3 EPS 89c/$4.0B vs. est. 68c/$4.0B; reports 1.09M domestic streaming additions vs. 674K consensus and guidance for 670KM; said Q3 international streaming additions were up 5.87M vs. 4.42M consensus and guidance for 4.35M; said total streaming adds were 6.96M for Q3 (est. 5.09M) and total memberships were 130.14M at the end of the quarter; Q3 operating margin improved to 12.0% from 11.8% in Q2; sees Q4 total streaming adds of 9.40M vs. 7.14M consensus and int’l streaming 7.6M (Netflix did say part of the Q3 EPS beat is attributable to marketing costs being pushed into Q4)

· IBM Corp. (IBM) Q3 operating EPS $3.42/$18.8B vs. est. $3.40/$19.1B; backs FY18 adjusted EPS view of at least $13.80 (in-line with estimates); revenue declines in quarterly earnings report, after two straight quarters of growth (when it broke a streak of 23 consecutive quarters of declining revenue in January); Total cloud revenue over the last 12 months was $19.0B, up 20%

· Lam Research (LRCX) Q1 EPS $3.36/$2.33B vs. est. $3.22/$2.31B; reports Q1 gross margin 46.4% vs. 48.0% last quarter; reports Q1 operating margin 27.0% vs. 31.8% last quarter; sees Q2 EPS $3.45-$3.85 on revs $2.5B, +/- $150M vs. est. $3.35/$2.38B; sees Q2 operating margin 26.5%-28.5% and gross margin 45%-47%

· Japan’s Fujifilm Holdings Corp (4901.T) has won an appeal in its legal battles with Xerox Corp (XRX), with a New York court overturning preliminary injunctions requested by an activist investor that had blocked their planned merger. https://reut.rs/2pUNANi

· ASML Holdings (ASML) 3Q net sales EU2.78B vs. est. EU2.75B and 3Q net income EU680.0M vs. est. EU674.4M

· Adtran (ADTN) Q3 EPS 21c/$140.3M vs. est. 4c/$146.5M

· Cree (CREE) Q1 adjusted EPS 22c/$408M vs. est. 12c/$407.32M; sees Q2 adjusted EPS 15c-19c on revs $398M-$418M vs. est. 13c/$419.89M

· Roku Inc. (ROKU) said it would resume sales in Mexico. Roku device sales had been banned in Mexico for more than a year amid a court battle resulting from hackers offering pirated content from HBO, ESPN among others through Roku devices

· Pearson PLC (PSO) raised its 2018 adjusted earnings-per-share guidance as underlying revenue for the first nine months of the year was flat; said it now expects adjusted EPS of 68 pence to 72 pence due to one-off tax benefits resulting in a lower finance charge above previous guidance of adjusted EPS of between 49 pence and 53 pence

· ICF International (ICFI) wins $200M contract by USAID; was awarded a re-compete contract by the U.S. Agency for International Development to continue to implement its Demographic and Health Surveys Program

 

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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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