Morning Preview: October 18, 2018

Terrie AmengualDaily Market Report

Early Look

Thursday, October 18, 2018

U.S. stocks are pointing to a lower open, with major averages sliding ahead of a busy day of earnings and as macro stories (China trade/Saudi Arabia/EU and UK) continue to play a roll. After the close yesterday, the U.S. didn’t label China an FX manipulator but warned it’s keeping a close eye on the yuan and is concerned about Beijing’s lack of transparency. The news didn’t help Asian markets as the Shanghai index fell to multi-year lows. There are also several economic data points to potentially move markets along with a raft of earnings results. In Asian markets, The Nikkei Index dropped -182 points to settle at 22,658, the Shanghai Index plunged over -73 points (to 2.94%) to settle at 2,486, and the Hang Seng Index slipped -7 points to 25,454. In Europe, the German DAX rises 60 points to 11,770, while the FTSE 100is up a few points at 7,070. The British pound stabilizes amid reports that U.K. Prime Minister Theresa May is considering a longer transition period within the EU.

Stocks ended slightly lower Wednesday after minutes from the Federal Reserve’s September meeting highlighted the central bank’s willingness to raise rates until the economy slowed. The Dow Jones Industrial Average declined over 90 points to around 25,707, after having fallen by more than 300 points earlier in the day. Minutes from the September FOMC meeting showed Fed officials were in favor of pushing rates into restrictive territory. The headlines had a delayed reaction in Treasury markets, as the yield on the 10-year held steady around 3.15% initially, before spiking to 3.19% late day. Markets remain concerned over the prospect of higher borrowing costs. Softer than expected September housing data hit the consumer discretionary group with home builders and improvement retailers Home Depot and Lowe’s falling. Energy stocks dropped as WTI crude oil sank 3% to $69.75 per barre, a one-month low, after EIA data showed another big increase in domestic crude inventories.

Market Closing Prices Yesterday

· The S&P 500 Index slipped -0.71 points, or 0.03%, to 2,809.21

· The Dow Jones Industrial Average fell -91.74 points, or 0.36%, to 25,706.68

· The Nasdaq Composite slid -2.79 points, or 0.04%, to 7,642.70

· The Russell 2000 Index declined -7.23 points, or 0.45% to 1,589.60

Events Calendar for Today

· 8:30 AM EST Weekly Jobless Claims…est. 212K

· 8:30 AM EST Continuing Claims…est. 1.665M

· 8:30 AM EST Philly Fed Outlook for Oct…est. 20.0

· 8:30 AM EST Fed’s Bullard speaks to Economic Club of Memphis

· 9:45 AM EST Bloomberg Consumer Comfort Index

· 10:00 AM EST Leading Index for September…est. 0.5%

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

Earnings Calendar:

· Earnings Before the Open: ADS, BBT, BK, BX, DHR, DOV, ERIC, GPC, KEY, LNN, NSRGY, NUE, NVS, PM, POOL, PPG, SON, TRV, TXT, UN, WBC, WBS

· Earnings After the Close: ASB, AXP, BXS, CE, CP, EBAY, ETFC, ISRG, PBCT, PYPL, LLNW, OZK, WERN

World News

· The Treasury Department again declined to label China a currency manipulator, instead settling for a stern warning about a recent slide in the value of the Chinese yuan. “Of particular concern are China’s lack of currency transparency and the recent weakness in its currency,” Treasury Secretary Steven Mnuchin said in a statement that accompanied the formal report

· Japan’s exports fell for the first time in nearly two years, edging down 1.2% in Sept from a year ago, hitting Japan’s trade surplus, which fell 79% from the previous year to Y139.6 billion ($1.24 billion), although that still beat market expectations for a deficit of Y53 billion in a Nikkei survey.

· U.K. retail sales fell more than forecast last month as food spending slumped the most in almost three years. Headline sales dropped 0.8% from August, compared with consensus for a 0.4% decline. Core sales also fell 0.8%.

Sector News Breakdown

Consumer

· Nestle (NSRGY) said sales in the nine months ended Sept. 30 were 66.4 billion Swiss francs ($66.9 billion) compared with CHF65.1 billion for the period last year; Organic growth for the period was 2.8%, reaching 2.9% in the third quarter, and reported growth was 2.0%

· Unilever (UN) said its underlying sales growth was 3.8% in the quarter, bringing its rate for the year to date to 2.9%.; revenue totaled 12.5 billion euros ($14.4 billion), down 4.8% on year following the sale of Unilever’s spreads business

· Constellation (STZ) said CEO Rob Sands company will step aside on March 1

· Studio City (MSC) 28.75M share IPO priced at $12.50

Energy

· Kinder Morgan (KMI) Q3 adjusted Ebitda $1.86B, 3Q distributable cash flow per share 49c and 3Q adjusted EPS 21c (in-line with ests) on revs $3.52B; sees exceeding financial targets for year

· SRC Energy (SRCI) lowers FY18 production guidance to 50 MBoe/d as a result of gas processing developments and incremental increases reflecting the second closing of the GCII acquisition; adjusted guidance for drilling and completion cap-ex to approximately $580M from $540M

· Oil States (OIS) sees Q3 revenue at low end of $273M-$298M vs. est. $288.81M

Financials

· BancorpSouth Bank (BXS) Q3 EPS 57c on revs $55M; 3Q net interest margin 3.67% below Bloomberg estimate 3.72%; 3Q provision for credit losses $0

· Berkshire Hills Bancorp (BHLB) Q3 EPS 70c vs. est. 70c; Q3 6% annualized commercial loan growth; 3.32% net interest margin; 57.2% efficiency ratio; 1.08% ROA; 0.19% net loan charge-offs/average loans; 0.30% non-performing assets/assets

· Cohen & Steers (CNS) Q3 EPS 64c/$98.33M vs. est. 62c/$98.77M; Q3 ending AUM of $60.1B, average AUM of $60.4B

· Eagle Bancorp (EGBN) Q3 EPS $1.14 vs. est. $1.11; 3Q non-interest income $5.64M and 3Q provision for credit losses $2.44M

· RLI Corp. (RLI) Q3 EPS 46c/$240.6M vs. est. 51c/$201.88M; Q3 Net premiums earned $200.8M vs. $182.0M last year; 3Q net premiums written $200.6M

· SL Green (SLG) Q3 FFO $1.66/$307.5M vs. est. $1.69/$298.3M; 3Q net operating income $140.9M; to sell New York City Properties for $143.8M

· Texas Capital (TCBI) Q3 EPS $1.65 vs. est. $1.70; Q3 net interest income $232.2M and Q3 provision for credit losses $13M

· Umpqua (UMPQ) Q3 EPS 41c vs. est. 36c; Q3 provision for loan losses $11.7M vs. Bloomberg est. $15.2M; 3Q net interest margin 4.09%; 3Q book value per share $18.18; 3Q tangible book value per share $9.95; 3Q net interest income $241.4 million

· Visa Inc. (V) raised its quarterly dividend to 25 cents a share from 21 cents a share

Healthcare

· Novartis AG (NVS) agreed to buy cancer-drug maker Endocyte Inc. (ECYT) for $2.1B, paying $24 per share, as it refocus’ on higher-value medicines https://on.mktw.net/2RWQnCo

· Danaher (DHR) Q3 EPS $1.10/$4.85B vs. est. $1.08/$4.8B; raises FY18 adj. EPS view to $4.49-$4.52 from $4.43-$4.50

· PhaseBio (PHAS) 9.2M share IPO priced at $5.00

· Eiger BioPharmaceuticals (EIGR) reports positive data with Pegylated Interferon Lambda in the Phase 2 LIMT HDV study; Lambda interferon demonstrated better tolerability in HDV-infected patients who were previously treated with Alfa interferon

· Proteostasis (PTI) rises after hours as a Phase 1 study testing Proteostasis’ combination of PTI-801 and PTI-808 for patients with cystic fibrosis met its primary goal of showing statistically significant changes in percent predicted forced expiratory volume in the highest dose tested

· Krystal Biotech (KRYS) files to sell $60M in common stock

· OncoMed Pharmaceuticals (OMED) fell after hours after Celgene (CELG) will not exercise its option to license rosmantuzumab and has terminated their collaboration agreement effective February 12, 2019. OncoMed will retain global rights thereafter.

Industrials & Materials

· Alcoa (AA) Q3 adjusted EPS 63c/$3.39B vs. est. 30c/$3.31B; narrows higher FY18 EBITDA view to $3.1B-$3.2B from $3.0B-$3.2B; sees FY global aluminum demand 3.75%-4.75% (had seen 4.25%-5.25%); Q3 adjusted EBITDA $795M vs. $582M last year; announces $200M stock buyback plan; Sees FY global alumina deficit 400,000 to 1.2M metric tons, saw 200,000 to 1M

· Crown Holdings (CCK) Q3 EPS $1.71/$3.17B vs. est. $1.64/$3.17B; sees Q4 EPS 97c-$1.02 vs. est. $1.08

· Kaiser Aluminum (KALU) Q3 EPS $1.43/$393M vs. est. $1.55/$382M; still sees year mid-single-digit growth in shipments and value-added revenue with adjusted EBITDA margin in the mid-20% range

· Sealed Air (SEE) sees Q3 EPS 60c-61c below consensus 66c an sees Q3 revenue ~$1.2B vs. est. $1.19B saying experienced higher absorption costs due to lower global volumes in our utility business, which accounts for 30% of the division’s sales; lowers FY18 EPS view to $2.40-$2.45 from $2.45-$2.55

· Textron (TXT) Q3 EPS 61c/$3.2B vs. est. 76c/$3.53B; narrows FY18 adjusted EPS view to $3.20-$3.30 from $3.15-$3.35

· Steel Dynamics (STLD) Q3 EPS $1.69/$3.2B vs. est. $1.64/$3.14B

· United Rentals (URI) Q3 EPS $4.74/$2.12B vs. est. $4.56/$2.02B; to pause share repurchase program after completing BlueLine deal; raises FY18 revenue view to $7.77B-$7.87B from $7.64B-$7.84B (est. $7.75B) and raises FY18 adjusted EBITDA view to $3.765B-$3.815B from $3.715B-$3.815B; Q3 adjusted EBITDA $1.06B vs. $880M last year

Technology, Media & Telecom

· SAP SE (SAP) raised its 2018 guidance for the third consecutive quarter; now expects 2018 non-IFRS revenue of between EUR25.20 billion and EUR25.50 billion, compared with a previous estimate of EUR24.98 billion to EUR25.30 billion; posted Q3 net profit 973 million euros and said revenue climbed 8% to EUR6.02 billion from EUR5.59 billion in the same period

· Ericsson AB’s (ERIC) Q3 net profit exceeded estimates by a significant margin as quarterly net profit ballooned to 2.75 billion Swedish kronor ($307.7 million) from a loss of SEK3.56 billion as sales rose 8.9% to SEK53.81 billion; gross margin rose to 36.5% from 26.9%

· Crown Castle (CCI) Q3 revs $1.38B vs. est. $1.35B; Q3 adjusted Ebitda $793M and sees Q4 Ebitda $820M-$830M and year Ebitda $3.14B-$3.15B; raises stock dividend

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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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