Mid-Morning Look: November 01, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Thursday, November 1, 2018

Equities bounce off lows in a volatile start to trading for November, as mixed earnings outlooks and slightly weaker US economic data (ISM shows deceleration in growth, falling to 6-month lows), was overshadowed by positive commentary from President Trump on China. After slipping from earlier highs on the weak ISM, President Trump tweeted “just had a long and very good conversation with President Xi Jinping of China. We talked about many subjects, with a heavy emphasis on Trade. Those discussions are moving along nicely with meetings being scheduled at the G-20 in Argentina. Also had good discussion on North Korea!” Those comments helped propel stocks higher ahead of a big earnings night coming up, led by Dow component and tech bellwether Apple. The S&P 500 is trying for its first 3-day win streak in 6 weeks and put the dreadful October declines behind it. Dow component DWDP helping the index after better results and said global growth concerns aren’t hurting its businesses. In the UK, policy makers voted unanimously to leave the Bank of England’s key lending rate unchanged at 0.75%. Concerns over the Brexit process were expected to make the central bank reluctant to further tighten policy at its November meeting.

Treasuries, Currencies and Commodities

· In currency markets, after ending yesterday at the highest levels of the year (rising more than 2% for the month vs. major currencies), the dollar index fallsover -0.8% to 96.30 level (yesterday highs 97.20) amid a combination of weaker US data (ISM at 6-month lows), and a spike in the British Pound after the Bank of England’s Monetary Policy Committee struck a hawkish tone about the path of future interest rate rises if Brexit goes smoothly next year (GBP highs up 1.35%). The euro also a big bounce, moving back above the 114 level

· Precious metals with a big recovery after dropping to 3-week lows yesterday; gold prices jump over $18 to $1,234 an ounce as the dollar plunges vs. the pound and euro. Meanwhile, no bounce in energy prices after WTI crude suffered a 10% decline in October, moving lower again this morning after bearish inventory data yesterday still plaguing the industry

· Treasury markets fairly steady now after falling initially; 10-year yield at 3.15%, little changed from yesterday and the 2-yr 2.85% after mixed news this morning; US data weak, but stocks surge, taking steam out of bonds

Economic Data

· Weekly Jobless Claims fell 2K to 21K, slightly above the 212K est., while prior week was revised to 216K from 215K; the 4-week moving average rose by 1,750 to 213,750; continuing claims fell 7K to 1.631m in the week ending Oct. 20

· U.S. nonfarm productivity rises 2.2% in Q3, slightly above the 2.1% estimate; unit labor costs rose 1.2% in 3Q vs. down 1% prior quarter; output rose 4.1% in 3Q vs. up 5% prior quarter; employee hours rose 1.8% in 3Q vs. up 2% prior quarter; compensation per hour rose 3.5% in 3Q vs. up 1.9% prior quarter and real compensation rose 1.4% in 3Q vs. up 0.3% prior quarter

· ISM Manufacturing falls to 57.7 from 59.8 last month and was below the 59.0 estimate; component breakdown: new orders fell to 57.4 vs 61.8 prior (now lowest level since April 2017), while employment fell to 56.8 vs 58.8 and prices paid rose to 71.6 vs 66.9

· Construction Spending was unchanged, matching the consensus estimate, while Aug. was revised to 0.8% gain from 0.1%; Private construction rose 0.3% in Sept., private residential construction rose 0.6% and private nonresidential construction rose 0.1%

· Markit Oct. Manufacturing PMI 55.7 vs. flash reading 55.9, from 55.6 in Sept. and vs. year ago 54.6 (marks the highest reading since May 2018); employment rises to 55.5 vs 53.6 in Sept., while new orders rise vs prior month

Sector Movers Today

· Auto’s; monthly auto sales released for October: 1) FCAU Oct. U.S. auto sales rose 16%, vs. est. up 12%/Oct. U.S. sales 177,391 vehicles vs 153,373 year ago with Jeep brand sales rose 9% YoY, Ram brand sales rose 14% and Dodge brand sales rose 38% YoY; 2) HMC Oct US auto sales fell (-4.1%) vs. est. down (-0.4%); 3) TM Oct US auto sales rose 1.4% vs. est. (-1.4%); 4) Ford (F) Oct. U.S. light-vehicle sales fell (-4.0%) vs. est. down (-5.5%)/Ford U.S. Sales totaled 192,616 vehicles

· Optical sector; IIVI Q1 results strength incorporated solid guidance for the current quarter as revenues grew 20% overall with gains in all areas, and operating income rose 23% Y/Y on an adjusted basis/order backlog hit a record; AAOI weak after Rosenblatt cut tgt to $15 from $30 and reiterated sell saying laser quality issue seems to have returned, expect no revenue from Facebook going forward; LITE Q3 EPS/revs beat estimates and guides year $1.60-$1.75 vs. $1.50

· Consumer Staples; CHD rises despite mixed outlook, after Q3 results topped views; protein names active as PPC Q3 EPS missed estimates by 8c calling it one of the most difficult pricing environment ever in U.S. commodity chicken (SAFM, TSN also active); INGR misses estimates with its Q3 report/sees full-year EPS of $6.80 to $7.05 vs. $6.91 est.; AVP Q3 EPS and margins missed while revs beat

· Casino & Leisure movers; CHDN announces that it plans to acquire a stake in Midwest Gaming from Clairvest Group for ~$291M and reports better earnings; SEAS upgraded to overweight at KeyBanc saying derisked expectations following the 3Q18 preannounce create an attractive entry point, as see further upside to shares; in gaming, PENN shares slide after Q3 revenue and EBITDA marks fall short of consensus estimates/also expects Q4 revenue of $1.15B vs. $1.24B consensus and full-year below views; NCLH upgraded to neutral at Macquarie

· Aerospace & Defense; Bernstein lowered price tgts on defense names (GD, LMT, NOC and RTN) as recent broad market price declines have them to reduce terminal market multiple as well as a lower outlook for defense budget growth; UBS said after meeting with defense and DoD leaders the tone was upbeat as defense spending has accelerated and revenue pressure remains to the upside (passed budgets are 25% above current spending levels

· E&P sector; APA posted strong Q3 EBITDA (+9% vs. Street) and a modest production beat but on Q3 capex +15% vs. consensus as raised FY18 E&P capex to ~$3.1B from $2.9B prior); JONE Q3 EBITDA/capex miss and weak Q4 liquids/capex guidance; LGCY 4% production beat, but EBITDA miss and heavy capex; MTDR delivered a 7% oil production beat vs. Street expectations along with a strong ops update with impressive well results in the Delaware; WPX Q3 production missed by 6% and hot capex/EBITDA miss and inline 2019 guidance

       Stock GAINERS

· DWDP +6%; after quarterly results as the chemicals giant raised its cost savings target and said global growth concerns aren’t hurting its businesses

· FIT +26%; blew out 3Q18 expectations and negative Street sentiment posting sales above the high-end of guidance, better op-ex and positive operating income and EPS

· FND +13%; after Q3 EPS and net sales topped the highest estimates and reiteration of guidance, after cutting in the past two quarters

· IIVI +15%; revenues grew 20% overall with gains in all areas, and operating income rose 23% Y/Y on an adjusted basis/order backlog hit a record

· NFX +9%; to be acquired by ECA in all-stocks transaction valued at about $5.5B; Encana will assume $2.2 billion of Newfield net debt. https://on.mktw.net/2Ojm06i

· NYT +7%; after earnings and as added 203,000 online subscribers in Q3, a 24% increase compared with the same quarter a year ago

· TEVA +9%; boosted its annual EPS forecast as cost cuts began taking hold/said will be as much as $2.95 as sales of the company’s top-selling branded drug Copaxone


· ALL -6%; as Q3 EPS missed the lowest estimate ($1.93 vs. est. $2.21)

· HBI -6%; a drag in retail as EPS mated estimates on lower sales view while guided the year profit below consensus hurt by bad reserve charge due to Sear’s bankruptcy

· PKI -7%; Q3 EPS 90c/$674.3M vs. est. 92c/$676.4M; reports core organic revenue growth of 7%; lowers FY18 adjusted EPS view to $3.60 from $3.65

· SPOT -6%; as Q3 results that narrowly beat revenue estimates with EU1.35B compared to the EU1.34B est./operating loss was above guidance with a reported €6M/MAUS were 191M vs. the 188M to 193M guidance/lowered its expectations on gross margin by 50 basis points

· TPX -1%; after the company falls short with its Q3 report and guidance update/gross margin was reported at 42.3% of sales vs. 43.9% consensus

· W -14%; posted a wider than expected Q3 EPS loss of ($1.28) vs. est. ($1.11) though revs and adjusted Ebitda came in better

· XPO -7%; after the company reported 3Q profit and sales below analysts’ expectations, and lowered full-year adjusted Ebitda outlook citing a customer bankruptcy



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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