Thursday, November 15, 2018
Equity Market Recap
· U.S. stocks were once again all over the place, opening lower amid uncertainty in the UK pertaining to Brexit talks and the resignation of several cabinet members, only to rebound late afternoon on positive headlines regarding trade talks with China. Stocks bounced to session higher mid-afternoon after the Financial Times reported that the U.S. and China step up effort to strike G20 trade truce, saying negotiators explore options that could lead to pact but core issues still intractable. However, Commerce Secretary Ross downplayed trade talks with China later in the afternoon, saying he still expects an eventual deal, but doesn’t expect full China deal by January. Later, stocks pared gains after CNBC noted “Ambassador Lighthizer has made no representations to industry executives that future Section 301 tariffs are on hold” citing a statement from U.S. trade representative Robert Lighthizer’s office. Busy day of headlines, but was enough to snap the recent losing streak for major averages.
· Fed Chairman Powell also move markets saying “with labor market conditions close to maximum employment and inflation near our 2 percent objective, now is a good time to take stock of how we formulate, conduct, and communicate monetary policy,”. Overall, lots of moving parts for global stock markets between trade, Brexit, currency volatility, plunging oil prices (though have rebounded the last few sessions), rate hikes, impact of tariffs/trade and reactions to earnings!
· In sector news, negative market reaction to better earnings in the retail sector this week (HD, Macy’s and WMT today) not helping sentiment, while homebuilders plunge on lower guidance update from KBH overnight. Financials extend losses – note yesterday, Representative Maxine Waters (D-CA), who’s poised to become chair of the House Financial Services Committee in January, says easing banking regulations will stop when she heads the committee. Energy prices trying to rebound off 1-year lows, a day after oil snapped its 12-day losing streak. Tech, Materials and Industrials were among the top movers, with defensive sector (Utilities, REITS, and Staples) lower. Transports and autos also decline broadly as investors continue to pullback on stock purchases. Trade with China and the Fed and rate hikes also key factors.
· The British pound tumbled more than 2% to lows of $1.2724 (off yesterday highs of $1.305) as Theresa May’s Brexit deal, and her government, is on the brink of falling apart as multiple cabinet ministers quit. Both Brexit Secretary Dominic Raab and Work and Pensions Secretary Esther McVey resigned after May told lawmakers it’s this deal, no deal or no Brexit at all.
· New York Fed Empire Index comes in better, rising to 23.3 from 21.1 last month and above the 20.0 estimate; prices paid rose to 44.5 vs 42.0 prior month though new orders fell to 20.4 vs 22.5; employment index rose to 14.1 vs 9.0 and inventory rose to 10.9 vs 0.8; the six-month general business conditions rose to 33.6 vs 29.0 prior
· Weekly Jobless Claims rose 2K to 216K (while prior week unrevised at 214K) and was slightly above the 213K estimate; the 4-week moving avg. at 215.25K; continuing claims rose 46K to 1.676M in the week ending Nov. 3
· Retail Sales for October rose 0.8%, slightly above the 0.5% estimate while retail sales less autos rose 0.7% in Oct., topping the est. 0.5%; retail sales rose to $511.488B in Oct. vs $507.606B in Sept; retail sales ex-auto dealers, building materials and gasoline stations rose 0.3% in Oct.
· Import Prices for October rose 0.5% MoM, topping the 0.1% estimate and after rising 0.2% in Sept. (was the largest rise since May); Import prices ex-fuels rose 0.2% after no change in Sept. while export prices rose 0.4% after no change in Sept.
· Philadelphia Fed index for November falls to 12.9 from 22.2 the prior month and below the economist estimate of 20.0; prices paid rose to 39.3 vs 38.2 prior while new orders plunge to 9.1 vs 19.3 prior; employment fell to 16.3 vs 19.5 in Oct while shipments fell to 21.6 vs 24.5
· WTI crude rallies a second day, touching highs of $57.26 before paring gains and settling at $56.46 per barrel, up only 21c on the day after snapping its 12-day losing streak yesterday. Oil prices pared gains after weaker inventory data as API reported that U.S. crude supplies rose by 8.8 million barrels for the week ended Nov. 9, showed gasoline supplies edged up by 188,000 barrels. Meanwhile this morning, EIA report was even worse, with a weekly build of over 10.2M barrels. After surging more than 13% yesterday on forecasts for colder weather temperatures, natural gas prices fell as much as 18% today on the day.
· Gold prices finish higher, rising $4.90 or 0.4% to settle at $1,215 an ounce, while palladium prices jumped $27.20 or 2.5% to settle at $1,137.40 an ounce, settling at a record high. It was the second straight day of gains after a week of losses for gold, getting a safe-haven boost amid the uncertainty in Europe with the UK and Brexit terms.
Currencies & Treasuries
· The U.S. dollar index (DXY) was higher, spending most of the time above the 97 level, thanks in part to the precipitous drop in the British Pound amid ongoing Brexit uncertainty. The pound fell to lows of 1.2724 vs. the dollar (off yesterday highs 1.305) following media reports UK environment secretary Michael Gove would resign on Thursday after several cabinet members resigned overnight/this morning. The euro gained vs. the dollar while the yen was little changed. Treasury prices resumed their advance, as yields pullback further, with the 10-year falling as low as 3.08% and the 2-year down at 2.83% (off recent highs around 2.95%) before both yields bounce late day amid the rebound in stocks.
Sector News Breakdown
· Retailers; sector fails to rally despite better earnings this week form M, HD, WMT (group had outperformed in recent weeks heading into earnings); WMTposted Q3 EPS beat, while revs just miss estimates, though comp sales 3.4% tops the 2.9% est./guidance may be weighing after boosts year EPS view but now targets year Walmart U.S. comp. sales growth of “at least” 3%, had seen “about” 3%; JCP rebounds after initially falling to record low after Q3 results missed across the board and scrapped its 2018 guidance outlook; DDS weak after Q3 EPS missed by more than 25c, though quarterly sales and comps beat views (comps rose 3% topping the 1% est.); JWN to report earnings tonight after the close; 52-week low for KORS, HBI, PVH
· Consumer Staples and restaurants; NBEV Q3 revenue beat, topping estimates for first time in six quarters, citing higher demand for core health care drinks; COTY was upgraded at BMO Capital as sees a more attractive risk/reward after the stock’s 56% decline this year; SFS shares jump after Q3 earnings topped consensus; tobacco names active (PM, MO, BTI) as US regulators are following through on a threat to clamp down on menthol-flavored cigarettes
· Housing & Building Products; homebuilders back on the defensive after KBH updated guidance on its annual update call, reducing both the 4Q18 and FY19 guide as well as offering a 1Q19 guide that was well below prior ests while Q4 QTD orders are down 14% (below BTIG est. of flat order growth in the quarter) – shares of BZH, LEN, MTH, TOL among names active on guidance; ENR to buy SPB’s auto care business for $1.25 billion, amends deal to buy battery business
· Casino & Leisure movers; casino stocks active as overnight, Macau government is “cautiously optimistic” on the gaming sector’s outlook next year, says Macau Chief Executive Fernando Chui at a briefing in the territory; in research, CZR remain a top pick at Credit Suisse after mgmt meetings as like CZR’s mix of Vegas and Regional exposure, and the network effect from its leading loyalty program. Bernstein initiated WYNN and LVS with outperform ratings
· Energy stocks getting a little boost as oil prices rise for a second day after snapping the 12-day losing streak yesterday for WTI crude; the move came despite very bearish weekly inventory data as the EIA said weekly stockpiles rose 10.27M barrels vs. est. build of 3.2M barrels along with a build in Cushing at 1.167M barrels. Overnight, API same story as well with an 8.8M barrel build for the week. After surging more than 13% yesterday on forecasts for colder weather temperatures, natural gas prices fell as much as 18% today on the day – followed bearish weekly inventory data as posted larger weekly stockpiles than expected
· Utilities & Solar; PCG shares fell more than 20% to its lowest levels since 2003 following overhang of potential liability from wildfire that caused the deadliest blaze in California history and has caused more than 50 fatalities; ED shares slipped after 13.6M share Secondary priced at $77.00; EIX also lower with PCG concerns, while broader utility names were mixed.
· Bank movers; according to 13F filings, Warren Buffet’s Berkshire Hathaway bought several stakes in banking stocks, to the tune of over $13 billion dollars (JPM, WFC, PNC, TRV, GS, BAC, and USB)/ Buffett’s portfolio now has 41% of its money in financials with 28.6% in tech; lower oil prices are fueling concerns of rising credit losses among banks that are most exposed to energy, such as TCBI, LTXB, CFR, BOKF, EWBC among them of late; European banks under pressure (RBS DB, LYG) following fears of UK Brexit falling apart; SBCF upgraded to outperform at Raymond James following investor meetings hosted with CEO and CFO
· Consumer finance and lending; AXP launches American Express Go, a digital product for mid-sized and large companies to handle business expenses; Barclay’s initiates payments space, with PYPL its top pick as views “tech-enablement as fundamentally transforming the fabric of payments itself” and is a key factor as it should drive long-term growth acceleration
· Monthly Master Trust credit card data; COF reports October net charge-offs 4.25% vs. 4.13% last month while reports October 30-plus day performing delinquencies 3.99% vs. 3.80% last month; JPM Oct net charge-offs 2.19% vs. 2.22% MoM and October delinquencies 1.18%, vs. 1.14% in September; ADSOct net charge-offs 5.7% vs. 5.9% MoM and delinquencies of 5.8% vs. 5.8% prior; BAC October card write-offs 2.43% vs. 2.59% MoM and October 30-plus day delinquencies 1.66% vs. 1.61% last month; SYF Oct net charge-off rate 4.85% vs. 4.50% last month while 30-plus day delinquencies 2.95% vs. 2.88% last month
· Pharma & Biotech movers; NVS said it is completely committed to its $10B-per-year Sandoz generics division following a report that CEO Vas Narasimhan had plans to split the unit off, Reuters reports; ABBV and NBIX announce positive results from two Phase 3 clinical trials, ELARIS UF-1 and ELARIS UF-2, evaluating elagolix in women with uterine fibroids; in generics, MYL was upgraded to buy at Argus saying while the company has faced a range of issues over the past several quarters, it seems to be reaching an inflection point and has launched a record number of new generic and biosimilar products this year; ARNA said it will receive $800M upfront from the licensing pact with UTHR in exchange for exclusive worldwide rights to develop, manufacture and commercialize ralinepag/also eligible to receive low double-digit tiered royalties, plus up to $400M in milestone payments;
· Biotech movers; QURE shares spike as announced positive preliminary results from a Phase 2b clinical trial evaluating gene therapy candidate AMT-061 in patients with moderately severe and severe hemophilia B; VYGR upgraded at Raymond James a clinical stage biotech gene-therapy company with a lead drug candidate, VY-AADC, a gene therapy for the treatment of Parkinson’s disease; shares of JNCE and AMRN rebound after recent declines; BPMCunderperformed the broader market, after updated results for its stomach cancer medicine
Industrials & Materials
· Industrial & Materials; MMM provided midpoint of its 2019 EPS forecast beat consensus estimates while markets assessed the company’s five-year plan (announced day prior $10B share buyback plan); TSE was upgraded to buy at Citi on favorable risk/reward with ETR of ~30% following a ~20% decline on a “knee-jerk” reaction to an initial investigation for potential violation of antitrust rules by the European Commission
· Transports; autos and airlines were among the top decliners in an otherwise strong transport sector, paced by gains in rails KSU, NSC, CSX as well as truckers LSTR, EXPD; airlines had been holding up well prior with oil falling over the last 2-weeks to 18-month lows; ZTO shares rallied after posted 3Q results that showed parcel volumes grew 36.5% from a year-ago and guided for 4Q parcel volume to increase by as much as 32% from last year.
Technology, Media & Telecom
· Internet; FB remains in downtrend, with another negative article last night, this from the NY Times saying the social media giant, as FB denies knowing about Russian activity in Spring 2016 but slowly launching an investigation and employing others to attack Apple on behalf of the company; NTES rises after Q3 EPS beat and analysts grew more optimistic about revenue from its online gaming services; VIPS beat 3Q estimates while it guided lower for 4Q, compared to consensus/showed re-acceleration in active customer growth though FCF was negative for the third consecutive quarter
· Semiconductors; AMS AG (AMSSY) cut its forecast for Q4 rev outlook to $480M-$520M down from prior $570M-$610M, adding to a number of Apple Inc. suppliers cutting outlooks because of lower-than-expected sales; ON approved new share buyback of up to $1.5B through 2022; NVDA earnings expected after the close tonight; AAPL is reportedly recruiting engineers around the former’s headquarters in San Diego for work on processors and wireless components — areas QCOM specializes in, Apple insider reported
· Software, Hardware, Networking & Storage news; NTAP shares fall on mixed results as one analyst noted that in spite of its Q3 earnings beat, its product revenue excluding Enterprise License Agreements decelerated to a 9% growth rate; Dow component CSCO Q1 results topped expectations while provided a Q2 forecast in-line with consensus views/guided F2Q19 revenue +5%-7% y/y/pointed to a resilient spending environment with no change in demand (shares of networking ANET, NTNX active on results); ORCL shares were active after Berkshire Hathaway bought 41 million shares of the software company worth $2.1 billion according to 13F filing