Mid-Morning Look: November 9, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Friday, November 9, 2018

US stocks open lower as investors focus on sliding oil prices and the Federal Reserve’s expected rate rise in December. After a volatile October, Wall Street mounted a comeback early this week led by better earnings and mid-term elections going according to market expectations, but China fears, rising rate hike fears and collapsing oil prices have took a toll on sentiment the tail end of the week. Rising rate hike fears gripping markets today as a much “hotter” reading of monthly PPI (inflation data) showed prices rose 0.6% vs. est. 0.2%, combined with yesterday’s Fed policy meeting which left interest rates unchanged at 2%-2.25% and stayed on course to hike in December as strong economic growth, higher tariffs and rising wages look set to spur inflation, also weighing on markets.

Energy prices absolutely collapsing over the last 2-weeks, ahead of this weekend’s gathering of OPEC oil ministers in Abu Dhabi, as WTI falls more than 2% and breaks below $60 per barrel. WTI crude is on track for its 10th straight losing session, while Brent crude follows WTI into bear market territory (down over 20% from October highs and joining WTI) moving below $70 per barrel, the first time since April. Commodity prices drop in general, with further declines in copper as signs of cooling demand in China prompted a bearish outlook.

Several stories on China this morning with Bloomberg noting Hong Kong and Chinese stocks led declines in Asia, with financial shares tumbling after Beijing said it plans to set quotas for banks to pump credit into private companies. Internet-related China stocks fell after the National Security Agency said the country is violating a 2015 cybersecurity agreement and the U.S. could respond with sanctions. A general concern of slowing growth has plagued China markets this year, as GDP has slowed amid softer prices. Also overnight, China’s inflation rate held at 2.5% last month and factory-gate price growth slowed as domestic demand stayed sluggish. Producer-price inflation eased to 3.3% from 3.6%.

Treasuries, Currencies and Commodities

· In currency markets, the dollar index (DXY) little changed, as the dollar slips to lows vs. the Japanese yen around 113.75 as stocks falter out of the gate; meanwhile the dollar slipped against the euro and pound; economic data was conducive to rising interest rates (favorable for the US dollar) as producer prices came in well above expectations. Treasury market’s rally as yields fall following the pullback in US stocks.

· Commodity prices getting crushed in the early going, with gold dropping sharply on rising interest rate fears following a spike in inflation data (PPI) in the U.S., while oil prices extend losses to a 10th straight day, falling to 8-month lows and dropping below $60 per barrel

Economic Data

· Producer prices (PPI) for October rose 0.6%, much “hotter” than the 0.2% estimate, while core prices (ex: food & energy) jumped 0.5%, topping the 0.2% estimate, raises inflation concerns and likely keeps the Fed on its path of more rate hikes in 2019. Final PPI demand ex food, energy rose 0.5% m/m vs est. up 0.2% while final demand ex food, energy rose 2.6% y/y vs est. up 2.3%

· The Preliminary Nov. Michigan Sentiment fell to 98.3 from 98.6 in prior month and slightly above the est. of 98; current economic conditions index rose to 113.2 vs. 113.1 last month; the expectations index fell to 88.7 vs. 89.3 last month; the expected change in median prices during the next 5-10 years rose to 2.6% vs. 2.4% last month.

Sector Movers Today

· Retailers; luxury retailers active after Swiss luxury-goods maker Richemont signaled that Chinese sales growth has slowed and warned that trade disputes may dent demand for its jewelry; KORS was downgraded to neutral at Credit Suisse and cut tgt to $52 citing disappointing Q2 trends; PRTY upgraded to Overweight at Barclay’s given the potential for significantly improved results in 2019 combined with an attractive valuation; ICON cuts full-year revenue guidance

· Semiconductors; SWKS shares slide after a handful of analyst downgrades/tgt price cuts as the chip maker guided Q1 EPS $1.91 on revs $1.00-$1.02B, below the $2.08/$1.07B est. on weakness in the smartphone market; CREE was upgraded to buy at Goldman Sachs as sees Cree as one of the unique and more pure-play offerings for investors wanting leverage; SYNA was downgraded at KeyBanc citing the firm’s recent carrier survey that showed iPhone XR sell-through has been disappointing

· Media & Telecom movers; Dow component DIS trades to 52-week highs as Studios and Broadcast help beat headline estimates/Q4 results were better than consensus on the top line and EPS; TTD shares fell initially despite beat on top and bottom lines, with record profits topping even high estimates, and boosted guidance above consensus for the current quarter; CTL fell as missed 3Q18 revenue and EBITDA by 1% but operating EPS of 28c was in line; AMCsharply lower after mixed results for Q3; media generally higher following DIS results and FOXA, DISCA yesterday

        Stock GAINERS

· AKBA +15%; as Q3 sales come in above consensus views

· DBX +10%; solid quarter of financial performance on accelerating ARPU growth and solid new user adds, with the bulk of ARPU being driven by new user growth

· DIS +2%; trades to 52-week highs as Studios and Broadcast help beat headline estimates/Q4 results were better than consensus on the top line and EPS

· FNSR +22%; IIVI said it will buy FNSR for about $3.2B, paying $26 per share in cash and stock https://on.mktw.net/2yZiOrk

· HTZ +16%; extended gains on earnings and pointing to better volume and pricing in the U.S. market (CAR shares active in sympathy)/revenue per day growing 3% vs. flattish levels in 2Q

· REV +15%; after earnings and said it will reduce costs by as much as $150 million by the end of next year in a plan that will include job cuts

Stock LAGGARDS

· ADNT -25%; suspended its quarterly dividend in order to reduce debt, and flagged higher freight costs, operational waste and foreign exchange effects as factors that weighed on Q4

· ATVI –14%; following earnings, as results were slightly ahead of guidance and Street estimates while mgmt only reiterated 2018 annual guidance in spite of a very strong opening of CoD

· CTL -10%; reported a disappointing 3Q as Business revenue trends worsened

· GE –7%; tgt cut to $6 from $10 at JPMorgan saying the company’s recent earnings were worse than expected on almost all fronts/forecasts for free cash flow and EBITDA moved materially lower, while a material change in language from 10Q suggest a negative step down in leverage

· MGI -15%; cuts FY18 revenue view to decline ~10% vs. decline of 4%-6% prior after Q3 revs missed consensus expectations

· NTRA -26%; falls on Q3 revenue miss and lower guidance mid-point

· PBPB -16%; as Q3 comp sales fell (-0.2%) vs. consensus expectation for a 1.1% gain/said costs of goods sold fell 20 bps to 26.6% of sales during the quarter

· PCG -12%; as a wildfire in Northern California’s Sierra Nevada foothills quadrupled in size late Thursday as winds threaten to make it spread faster

· SGMO -17%; after backtracking on data presentation for hemophilia A gene therapy

· SWKS -9%; analyst downgrades/tgt price cuts as the chip maker guided Q1 EPS $1.91 on revs $1.00-$1.02B, below the $2.08/$1.07B est. on weakness in the smartphone market

· YELP -28%; downgraded by several analysts after the online review site axed its full-year outlook and posted disappointing revenues in Q3, when it added fewer new accounts

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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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