Friday, October 19, 2018
U.S. equities start the final day of trading for the week higher, on track to snap a two-day losing streak, but still also on track to end the week broadly lower. Earnings season kicking into gull gear, with several misses and/or disappointments for guidance in the industrial/material sectors of late dragging those sectors to the downside. The Dow however got a boost from better-than-expected earnings from PG (lifting the consumer staples sector) and AXP (lifting financials along with SYF/PYPL beats), while DIS rises to 52-week high on Barclay’s upgrade. Energy stocks look to rebound as WTI crude looks to bounce back above $80 per barrel, with SLB higher after earnings. Homebuilders and autos among the biggest decliners after weeks of selling pressure (rising rates/tariffs), while trust banks extend losses after STT earnings miss today. According to CNBC, out of the 83 S&P companies that have reported already…80% earnings beating and 65% have beaten on revenues (better than historical averages). Treasuries slide, gold steady and the dollar is mixed.
Macro concerns still linger after President Donald Trump warned of “severe” consequences for the disappearance of journalist Jamal Khashoggi, with his administration awaiting the conclusion of investigations. He added it “certainly looks” like the Saudi national is dead. Treasury Secretary Steven Mnuchin said yesterday in a tweet that he will not be attending the ‘Davos in the Desert’ event as pressure continues to mount on Saudi Arabia. In Asia, China Q3 GDP rose at a slower than expected 6.5% rate, the slowest pace since the aftermath of the financial crisis in 2009, but the Shanghai index rebounded off multi-year lows to finish higher. Italy budget problems with the EU and the ongoing UK/EU Brexit saga also continued this week with no official resolution.
Treasuries, Currencies and Commodities
· In currency markets, the U.S. dollar is mixed with the index steady around 95.85; the Canadian dollar slid into negative territory following economic data that missed consensus estimates (CPI for September read 2.2% YoY vs. est. 2.7%) but has rallied back; the euro bounces from yesterday weakness while the greenback inches higher vs. the yen
· Commodity prices are generally higher, getting a boost after China’s markets (among largest consumer in metals) rebound off multi-year lows. GDP data came in slower than expected for China at 6.5%, below last quarter 6.7%; oil prices try and move back above the $70 barrel mark (down on the week), while gold steady at $1.230 an ounce
· Treasury market’s slide as yields back on the rise, with the 10-year yield back above 3.20% and the 2-yr at 2.89% (after touching decade highs of 2.9% yesterday); bonds falling as stocks rebound initially – as investors rotate out of defensive sectors
· Existing-Home sales for September fell -3.4% to 5.15M rate, missing the 5.29M economist estimate while August was revised to 5.33M from 5.34M prior; existing-home sales fell 3.4% after falling 0.2% prior month; inventory fell 1.6% to 1.88M homes – sixth straight monthly drop in sales
Sector Movers Today
· Auto space slammed the past few days (GM, F came into the day at 52-week lows), and things did not get better today; German auto maker DDAIF said it sees FY group Ebit “significantly” below prior year citing an increase in expected expenses in connection with ongoing governmental proceedings; in research, Morgan Stanley downgraded Ford (F) to equal-weight citing factors including limited progress on restructuring and an increased credit and estimate risk and also cut estimates and tgt on GM and FCAU after weak 3Q and China auto shipment data
· Auto parts; JPMorgan lowered estimates to suppliers of automobile parts, especially those exposed the most in Europe and China’s light vehicle markets (recommends AXL, MTOR and DAN; DAN upgraded to overweight from neutral on share price underperformance; downgrades THRM to neutral from overweight; says ADNT, LEA, VC, and ALV “may be hardest hit relative to peers given their geographic profiles”; ; recall yesterday, tire maker Michelin lowered views (took GT to 52-week lows)
· Consumer finance and lending; AXP reported a 3Q EPS of $1.88, topping estimates by 12c while revenue growth was a solid 9% YoY, and management now expects a full year growth of 9%-10% (up from prior view of at least 9%); PYPL rises after earnings/upgraded to buy at BTIG after better-than-expected Q3 results and forecasts calling PYPL’s progress monetizing Venmo more eye-catching than the earning beat, noting 24% of Venmo users engaged in a monetization event during 3Q vs 17% in 2Q; SYF posted Q3 EPS beat and higher NIM with provisions at $1.45B and net-charge offs $1.09B
· Leisure and casino stocks; HOG was downgraded to market perform at BMO Capital, touching fresh 52-week lows saying things they thought would happen to drive growth in sales and earnings did not occur; in casino space, Goldman Sachs removed LVS from conviction buy list and LVS, WYNN, MGM gaming revenue and margin estimates were reduced to reflect softer-than-expected Macau gross gaming revenue (GGR) and deceleration in China macro data, which most recently includes a drop in Sept. PMI, slowing China consumer consumption
· Medical equipment and devices; XRAY double upgrade at Goldman Sachs to buy from sell saying it has an opportunity to be an “early turnaround story” given a nearly 50% underperformance year-to-date; DXCM upgraded to buy at Goldman Sachs as previously thought ABT’s new device (FreeStyle Libre) would take significant share from DXCM. Instead, ABT’s investment in the CGM market has created a class effect that is driving new interest for all competitors; Goldman downgraded NVRO to sell as believe the cycle of negative estimate revisions is not yet over; ISRG shares upgraded to buy at Canaccord after company raises FY18 procedure growth view to 17%-18% from 14.5%-16.5% following a Q3 EPS/sales beat
· Refiners; one deal in the space as VLO will acquire, for cash, all of the outstanding publicly held common units of the partnership VLP at a price of $42.25 per common unit, for an aggregate value of approximately $950 million. ; also the WSJ reported the Trump administration is aiming to slow the rollout of new international rules (IMO 2020) to power commercial ships with lower-emitting fuels due to concern the measures will increase costs for consumers and businesses, weighing on refiners (PBF, HFC, PSX, VLO)
· E&P sector; XOG pre-released a worse than expected 3Q, 4Q, and FY:19 guide, with oil being 10%, 11%, and 20% below consensus respectively while capex for FY:19 came in below (follows recent lowered production views from SRCI this week – shares of PDCE down in sympathy); GPOR pre-released 3Q18 production and pricing that both topped estimates as continues to benefit from shallower well declines along with a switch to ethane withdrawal
· AXP +3%; 3Q EPS of $1.88, topping estimates by 12c while revenue growth was a solid 9% YoY, and management now expects a full year growth of 9%-10% (up from prior view of at least 9%);
· IPG +7%; Q3 EPS beat on better revs of $2.3B and reaffirms year organic rev growth views
· PG +8%; as the Dow component reports strong organic sales in its Q1 and maintained year EPS guidance/said Q1 organic sales growth, well ahead of the 1.9% growth estimate
· PYPL +9%; upgraded to buy from neutral at BTIG after better-than-expected Q3 results and forecasts calling PYPL’s progress monetizing Venmo more eye-catching than the earning beat, noting 24% of Venmo users engaged in a monetization event during 3Q vs 17% in 2Q
· SKX +17%; as earnings come in “better than feared” and a strong forecast should ease near-term revenue concern, though comp sales missed (Q3 comp sales rose 1.9% vs. est. 3.6%)
· VLP +6%; VLO will acquire, for cash, all of the outstanding publicly held common units of the partnership VLP at a price of $42.25 per common unit, for an aggregate value of approximately $950 million.
· XRAY +6%; double upgrade at Goldman Sachs to buy from sell saying it has an opportunity to be an “early turnaround story
· AIG -3%; as preannounced 3Q18 catastrophe losses of $1.5-1.7B, pre-tax, well above the losses expected by Deutsche Bank (formerly $530M), primarily driven by Typhoons Jebi and Trami, Hurricane Florence, as well as revisions to the loss estimates for the California mudslides
· DCPH -10%; following updated early-stage DCC-2618 data in patients with gastrointestinal stromal tumors
· DDAIF shares fall in Europe after saying it sees FY group Ebit “significantly” below prior year citing an increase in expected expenses in connection with ongoing governmental proceedings
· EBAY -6%; downgrade at Stifel based on PayPal’s earnings release disclosure of weak eBay 3Q GMV trends/for 3Q, PYPL suggests eBay’s marketplace GMV grew 3.4% y/y FX-adj. relative to their prior estimate of 7.2%
· OZK -22%; substantial miss to Q3 earnings/a massive $41.9M provision vs. UBS forecast of $8.6M forecast drove the miss, while core and GAAP NIM dropped roughly 20 bps apiece
· STT –8%; falls after EPS and revenues miss amid higher provisions
· XOG -14% as pre-released a worse than expected 3Q, 4Q, and FY:19 guide, with oil being 10%, 11%, and 20% below consensus respectively while capex for FY:19 came in below
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.