Monday, November 5, 2018
U.S. equities start the week mixed as recently battered financial and energy stocks are helping the S&P 500 and Dow Industrial Average rebound, while the tech heavy Nasdaq Composite retreats amid more weakness in Apple and semi-chip companies on reports of tepid demand for its latest XR iPhone. E&P and energy names getting a boost from a rebound in energy prices with oil rebounding. Meanwhile macro factors also playing a part in today’s action as economic data better as the ISM services PMI declined from 61.6 to 60.3, but that was considerably better than the 59.1 expected by the market. In Europe, EU finance ministers have urged Italy to bow to calls from Brussels to revise draft budget plans that breach European spending rules, with a deadline looming. The Trump administration said it will exempt China from US sanctions on importing Iranian oil for six months, along with seven other countries. Overnight in China, President Xi Jinping showed no signs of making any concessions to the U.S. in a highly-anticipated speech at the Shanghai trade fair – while Xi strongly denounced trade practices in a thinly veiled attack on Trump’s America First policies, but failed to announce any new major policy initiatives. Don’t forget market concerns ahead of tomorrow’s mid-term elections!
Treasuries, Currencies and Commodities
· In currency markets, the dollar index (DXY) slides to session lows with markets exhibiting fear ahead of tomorrow’s md-term elections (polls showing likelihood that Democrats could reclaim the House, causing gridlock in Washington). The Pound rises on the day
· Precious metals little changed, holding above the $1,230 an ounce level on the morning after small gains last week; markets keeping close eye on currency fluctuation and tomorrow’s mid-term election outcome, which could move the needle
· Energy futures rise after falling the last month (more than 11%), as sanctions against Iran take effect this month though late last week announced it granted waivers to eight unnamed countries to allow them to temporarily continue importing Iranian crude. The recent oil price weakness has reflected growing confidence that increased output by Saudi Arabia and Russia would offset much of Iranian crude lost to the sanctions.
· Treasury markets with a little lift to start the week as U.S. stocks follow Asian markets lower, with concerns about trade, earnings, and elections all weighing on investor minds this week; the yield on the 10-year dips back under 3.19% from above 3.21% late Friday
· ISM Non-Manufacturing for October (services index) falls to 60.3 from 61.6 the prior month but was above the 59 estimate from economists; business activity fell to 62.5 vs 65.2 prior month while new orders fell to 61.5 vs 61.6 and employment fell to 59.7 vs 62.4; inventory change rose to 56.0 vs 54.5 and prices paid fell to 61.7 vs 64.2
· U.S. Markit services PMI rose 1.3 points to 54.8 in the final October print (54.7 preliminary), erasing the 1.3 point decline to 54.8 in September. It was 55.3 last October and was as high as 56.8 in May. Prices paid climbed to 57.6 versus 56.6 in September and is the highest since September 2013.
Sector Movers Today
· Bank movers; beaten up banking/financial stocks leading markets higher early as BRK/A rally after earnings helping the index; GSBD upgraded to outperform at Wells Fargo as see improving credit, as management drives more senior exposures, combining with GSBD’s best in class ‘everything else; MAIN was upgraded to Outperform at Raymond James as a recent pull back in the stock and continued growth to the net asset value have brought the shares to recent lows for P/NAV trading multiples; BKCC downgraded to neutral at JPMorgan based on stock price appreciation and relative opportunities in the BDC sector
· Semiconductors; chip suppliers, specifically AAPL related supply chain (SWKS, CRUS, NXPI, AVGO, QRVO) under pressure after Japan’s Nikkei business newspaper reported AAPL is asking assemblers in Asia to scrap some additional production plans amid tepid demand for its new iPhone XR
· Pharma movers; large cap pharma names (ABBV, JNJ, MRK, PFE, BMY) rebound after slipping late last week; LLY’s Trulicity significantly reduced the risk of new or recurring heart complications in people with type 2 diabetes; generics/specialty pharma names BHC and TEVA both upgraded to overweight at Morgan Stanley; AKAO announces that it has begun a review of strategic alternatives, including a possible sale or merger, aimed at boosting shareholder value; CWBR tumbles after it temporarily suspended the Phase 1 trial of CB4211 as a potential treatment for NASH and obesity, to address unexpectedly persistent injection site reactions
· E&P sector; PDCE, SRCI, XGO and driller HP among most exposed to a proposal to restrict drilling on Colorado’s Nov. 6 ballot/Stifel says most polls suggest Prop 112 will fail by narrow margin; though a recent poll conducted by the University of Colorado shows the measure passing 52% to 48%/says if Prop 112 passes, Stifel’s worst case NAV estimates suggest HPR, PDCE and SRCI would have another 12%, 15% and 30% downside
· CNA +11%; Q3 core earnings topped estimates by 7c
· COG +4%; energy stocks leading early amid a rebound in oil prices and forecasts for colder temps rolling in/group among top decliners over the last 2-weeks (EQT, APA rise)
· CZR +3%; NY Post reported MGM has hired investment bank MS and a law firm to begin exploring the idea of a merger with them, though no offer is on the table
· DWCH +34%; to be acquired by Altair for $13.10 per share in cash, in a deal valued at approximately $176M
· IBM +2%; after filings show CEO Rometty buys about $3M in shares after pullback
· UAA +3%; upgraded to overweight and $32 tgt at Piper on view the favorable industry dynamics, DTC mix benefit will enable Under Armour to be on a path towards M/HSD sales
· AAPL -4%; after a report from Japan’s Nikkei business newspaper that the tech giant is asking assemblers in Asia to scrap some additional production plans amid tepid demand for its new iPhone XR/adds to last week losses on a softer holiday sales forecast
· CLSD -57%; as its Phase III Sapphire study fails to meet primary endpoint and said plans to end clinical development of combination therapy to treat retinal vein occlusion
· CWBR -39%; after it temporarily suspended the Phase 1 trial of CB4211 as a potential treatment for NASH and obesity, to address unexpectedly persistent injection site reactions
· DFRG -10%; delaying its third quarter earnings report to November 13, accommodating for the additional time needed to finalize recent deal transaction
· NCMI -8%; after Q3 results and guidance and as CEO stepping down
· PLCE -11%; said that two of its executives, Pamela Wallack and Anurup Pruthi, have left the company after a streamlining effort to increase management efficiencies
· QRVO -5%; as Apple chip suppliers fall on reports the company has reportedly put the brakes on additional iPhone XR production amid tepid demand (SWKS, NXPI, CRUS)
· SYY -10%; on earnings and sales miss and said it expects continued expense challenges in warehouses and transportation
· WBT -16%; after Q3 EPS missed by 3c on weaker revs $412.9M and guided year EPS 73c-81c, below the 88c estimate
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.