Mid-Morning Look: November 15, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Thursday, November 15, 2018

Equities pressured again, as major averages erasing all of last week’s gains with several potential factors today for the pullback in U.S. stocks. Uncertainty being the biggest factor following the resignation of several UK cabinet members over dispute over Brexit terms, weighing on the Pound and causing collateral damage in Euro banks. Negative market reaction to better earnings in retail 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. 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. Hedge-fund billionaire Ray Dalio says the Federal Reserve has raised rates to a point where it’s hurting asset prices. “We’re in a situation right now that the Fed will have to look at asset prices before they look at economic activity. It’s a difficult position,” Dalio told CNBC in an interview.

The British pound tumbles around 1.5% to lows of $1.28 (off yesterday highs of $1.3408) 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. Rehman Chishti, Vice Chairman at Conservatives also stepped down. Stocks exposed to the UK economy tumbled as parliamentary resignations over Prime Minister Theresa May’s draft EU withdrawal agreement threw the Brexit process into chaos (banks RBS, LYG decline).

Treasuries, Currencies and Commodities

· In currency markets, the dollar index (DXY) higher, back above the 97 level, thanks in part to the 1.5% decline in the British Pound overnight amid the ongoing Brexit uncertainty; Treasury prices resume their advance, as yields pullback further, with the 10-year at 3.08% and the 2-year down at 2.83% (off recent highs around 2.95%). Markets possibly weighing chance of “easier” Fed next year and slowing of rate hikes with recent hiccups in stocks (though December hike expected).

· Commodity prices: gold prices rally for a second day after testing the $1,200 level yesterday, rising 0.5% to around $1,215 an ounce. Meanwhile, nat gas prices plunge over 11% after yesterday’s 13% surge to above $4.80 mln btu, while WTI crude rallies a second day to above $57 per barrel (off Tuesday low below $55) after snapping its 12-day losing streak yesterday. Overnight inventory data was bearish 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

Economic Data

· 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

Sector Movers Today

· 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

· 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 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

· 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

· 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

        Stock GAINERS

· ARNA +24%; 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

· CSCO +2%; Q1 results topped expectations while provided a Q2 forecast in-line with consensus views/guided F2Q19 revenue +5%-7% y/y

· NTES +5%; after Q3 EPS beat and analysts grew more optimistic about revenue from its online gaming service

· ORCL +1%; after Berkshire Hathaway bought 41 million shares of the software company worth $2.1 billion according to 13F filing

· QURE +26%; 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

· SFS +21%; shares jump after Q3 earnings topped consensus

· VIPS +4%; beat 3Q estimates while it guided lower for 4Q, compared to consensus/showed re-acceleration in active customer growth

Stock LAGGARDS

· AMSSY -7%; 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

· DDS -16%; weighed on retail after Q3 EPS missed by more than 25c, though quarterly sales and comps beat views (comps rose 3% topping the 1% est.)

· KBH -14%; 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

· NTAP -12%; 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

· PCG -22%; trades 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

· RBS -9%; Shares in UK-focused banks were hardest hit by a stock market sell-off on Thursday, as investors abandoned companies with significant exposure to the UK economy

· UAA -5%; fall out from weakness in retail sector with group lower (PVH, HBI, GPS), group fails to rally despite better earnings this week form M, HD, WMT

· WMT -2%; posted 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%

Syndicate

· AGNC Investment (AGNC) 40M share Spot Secondary priced at $17.27

· Bain Capital Specialty Finance (BCSF) 7.5M share IPO price $20.25

· Consolidated Edison (ED) 13.6M share Secondary priced at $77.00

· Helius Medical (HSDT) 2.121M share Spot Secondary priced at $8.25

· KKR Real Estate Finance (KREF) 4.5M share Spot Secondary priced at $20.15

· National General (NGHC) 5M share Secondary priced at $24.00

· VICI Properties (VICI) 30M share Secondary priced at $21.00

· Weidai (WEI) 4.5M share IPO priced at $10.00

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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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