Mid-Morning Look: October 29, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, October 29, 2018

Equities jumping across the board to start the week as markets look to recover some of last week’s losses. Gains came in the software sector following a $34B deal as IBM acquires RHT, while financial and real estate sectors also advance. Auto sector jumps (GM, F, FCAU, BWA) after Bloomberg reported that China was considering cutting a tax on auto purchases saying regulators are planning to halve the tax on car purchases to 5% to help support the world’s largest automotive market. Markets nice bounce today, but still a long way to go after touching record all-time highs to start the month. Also, with just three trading days left (including today), the S&P has yet to post back-to-back winning days. October weakness has been chalked up to several factors, including concerns about global and domestic growth prospects (slowing China growth), worries that U.S. corporate earnings growth has peaked, impact of tariffs on markets/trade fear, midterm elections and concerns the Fed remains on track to continue rate hike path despite calls from President Trump saying it will slow the economy. Last week, the Dow was off 3%, the S&P 500 3.9% and the Nasdaq is down 3.8% while for the month of October so far, the S&P has lost 8.8%, the Dow is down 6.7%, and the Nasdaq has shed 11% (correction territory). Macro news overnight: Brazil markets rise as Jair Bolsonaro won Brazil’s presidency with 56% of the vote, beating Worker’s Party candidate Fernando Haddad. Brazil’s next president pledged to trim the deficit, pay down debt and reduce the size of government. In Germany, Angela Merkel will quit as head of her Christian Democratic party and won’t run for another term as chancellor. Also another very busy week of earnings

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar trades near its best intraday levels, as the index (DXY) rises above 96.60 up over 0.25%; as the euro falls back below the 114 level, the dollar rises vs. the Japanese yen and the Pound little changed around 1.12815; Bitcoin prices drop out of recent tight trading range, falling over 2% to $6,260

· Commodity prices: Precious metals inch lower amid the further rise in the dollar and also as investors rotate back into riskier assets and out of safe-haven assets (such as gold); gold prices down $4 to $1,231 an ounce. WTI crude slides to lows down over 1% moving back below $67 per barrel as commodity prices generally weak

· Treasury markets edge lower as stocks rise, lifting yields with the yield on the 10-year bounces off multi-week lows; the 10-year yield fell 11 bps last week to 3.08%

Economic Data

· Personal Income for Sept rose 0.2% vs. est. up 0.4% while personal spending rose 0.4%, matching economist estimates; real personal spending rose 0.3% (in-line) while PCE core inflation MoM rose 0.2% vs. est. up 0.1% and up 2.0% YoY (in-line with est.); PCE prices rose 0.1% (in-line) and rose 2.0% YoY; savings rate at 6.2% in Sept. vs 6.4% last month

Sector Movers Today

· Autos moving higher (FCAU, GM, F) after Bloomberg reported China’s top economic planning body is proposing cutting the tax levied on car purchases by half. The National Development and Reform Commission submitted a plan to a group of key policy makers to cut the purchase tax to 5%-10% for passenger vehicles with engines no bigger than 1.6 liters; Ford (F) was upgraded to buy from hold at Goldman Sachs and raised tgt to $12 from $9; DAN Q3 earnings and sales topped consensus views while affirmed its year outlook

· Software sector active after RHT agreed to be acquired by IBM for $190 per share in cash, representing a total enterprise value of approximately $34B, more than a 50% premium from Friday close https://bloom.bg/2yFowi7 (the deal helped spur more speculation in the sector today); PFPT was upgraded by KeyBanc and Goldman after last week’s earnings related pullback; EA was downgraded at KeyBanc as visibility remains low, expect negative estimate revisions, and have diminished confidence in the pipeline

· Consumer Staples; CL was downgraded by two analysts (JPM, SunTrust) as the challenges to the top line and margins will likely linger, leading to low single digit EPS growth in 2019; in grocer space, KR lowers identical sales guidance, excluding fuel, for 2018, citing space optimization and store remodeling work; BUD was upgraded to outperform at RBC Capital after pullback in shares

        Stock GAINERS

· BLMN +9%; after Q3 comps of 2.9% top the 2.7% estimate and boosted its year EPS view

· CTB +14%; mixed quarter as EPS beat on lighter than expected res, but rallies with broader auto sector bounce/tire sector fell last week on softer GT results

· DAN +2%; Q3 earnings and sales topped consensus views while affirmed its year outlook

· DRNA +17%; as LLY is spending $100M for a stake in the co as part of a licensing deal, companies expect to collaborate on developing more than 10 experimental drugs to treat pain, neuro-degenerative diseases and cardio-metabolic disorders

· NXPI +4% as will replace CA in the NASDAQ-100 index starting Nov 5th

· ON +12%; reported Q3 EPS and revs above consensus while Q4 revenue $1.48B-$1.53B topped the est. $1.47B

· PVAC +3%; DNR to acquire Penn Virginia Corporation (PVAC) in a transaction valued at approximately $1.7B, including the assumption of debt in cash and stock https://yhoo.it/2z8Sniv

· RHT +50%; to be acquired by IBM for $190 per share in cash, representing a total enterprise value of approximately $34B, more than a 50% premium from Friday close https://bloom.bg/2yFowi7

Stock LAGGARDS

· ESPR -1%; despite positive results from its final Phase 3 clinical trial evaluating LDL-cholesterol-lowering med bempedoic acid.

· FDC -10%; as Q2 top/bottom line results missed estimates (35c/$2.16B vs. 37c/$2.21B) and forecast year below estimates ($1.38-$1.40 vs. est. $1.45)

· LLL -2%; amid broad weakness in the defense sector to start the day (HRS, LLL, LMT, NOC)

· TSEM -15%; as reports Q3 EPS 34c/$323M below the est. 40c/$335.04M; sees Q4 revs about $340M vs. est. $364.6M

· WFT -11%; posted a smaller than expected Q3 loss but a slight Y/Y decline in revenues to $1.44B

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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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