Mid-Morning Look: November 19, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, November 19, 2018

U.S. equities open the holiday shortened trading week in the “red” with energy and tech falling the most out of all S&P sectors, while defensive sectors such as Utilities, Telecom, Staples lead (VZ, PFE, KO top gainers in the Dow). Tech the biggest drag on US markets early, with sharp declines in FB (new 19-month lows), AAPL on reports in the WSJ of further iPhone production cuts, which is also hitting AAPL suppliers (chips and sensor names), and as chip names extend losses on recent weak guidance (NVDA, QRVO). Homebuilders get a surprisingly weak economic data point as the NAHB Housing Market index plunged to a reading of 60 in November, well below the 67 estimate and prior month 68 level, posting its lowest level since Aug. 2016/decline in NAHB index largest since Feb. 2014. That data took a bite out of housing, building product related names. Auto industry shocked after Nissan Motor Co. will remove Carlos Ghosn as chairman after he was arrested in Tokyo for violations of financial law. The weakness in tech and energy adding to the losses overnight for US futures after tense dialogue between U.S. VP Pence and China premier Xi at the APEC summit this weekend (pouring cold water over any hopes of a near-term trade resolution ahead of the G20 meeting later this month). Overall not a good start for stocks, while Treasury prices resume last week’s gains, sending yields lower. Investors are also keying in on other political narratives, including Brexit and the Italian budget crisis, which could contribute to bouts of market volatility.

Treasuries, Currencies and Commodities

· In currency markets, the U.S. dollar holding lower vs. most rival currencies to start the day, with the dollar index (DXY) down around 96.20 (well off last week highs 97.69), as the euro, pound and yen all inch higher; bitcoin extends last week declines, falling over 6.5% to trade below $5,100

· Commodity prices lower, with WTI crude off over 1.6% (after falling for a 6th straight week last Friday), while gold prices steady around $1,223 an ounce; commodities not getting a boost from the early weakness in the dollar as economic woes taking bite out of demand

· Treasury markets erase early declines, getting a boost as investors rotate out of stocks and into bonds; the yield on the 10-yr falls back to around 3.06%, with the 2-year down under 2.79%

Sector Movers Today

· Internet; FB falls to 19-month lows as recent scrutiny over company continues to weigh on shares, several recent high executive departures comes; BKNGwas upgraded to outperform at Wells Fargo while raising our price target to $2,150 from $2,000 previously as continue to view BKNG’s 3Q performance and 4Q guide constructively, along with mgmt’s articulation of 2019/LT strategy; JD shares active after posted lower than expected revenue in the third quarter and recorded its first sequential fall in annual active customers since listing

· Semiconductors; AAPL suppliers weak again on this morning’s report of further iPhone production cuts from the WSJ, stating that Apple has slashed supplier orders and lowered production further for the iPhone XR (QRVO which cut guidance last week, LITE which warned of cuts last week, among others CRUS, SWKS all pressured); MU shares weak on reports NAND Flash bit output increased steadily in Q3, but demand has yet to catch up despite the busy season, according to Trendforce’s DRAMeXchange/flash revenue was up 4.4% Q/Q; NVDA adds to last week losses following its sharply lower guidance that sunk shares; shares now down roughly 20% since earnings results to lowest levels since early 2017

· Pharma movers; Merck KGaA/PFE phase III JAVELIN Ovarian 200 trial evaluating avelumab alone or in combination with PLD did not meet the primary endpoints of overall survival (OS) or progression-free survival (PFS) in patients with platinum-resistant or -refractory ovarian cancer; in specialty pharma, MNK upgraded to buy at Canaccord as came away from recent mgmt meetings positive on the company’s NT prospects; NVS was upgraded to buy at Goldman Sachs as see Novartis entering a period of sustained top-line growth

· Biotech movers; lot of movers on research as ICPT was upgraded to outperform at Oppenheimer saying the company is “increasingly likely to have a first-in-class and potentially best-in-class” Farnesoid X receptor (FXR) agonist for liver disease NASH; AMGN positive mention in Barron’s saying shares could rise to $220 on new products, including Aimovig, for migraines, and Repatha; VKTX upgraded to strong buy and $43 tgt at Raymond James based on data for VK2809 and MGL-3196 presented at AASLD and conversations with investors and physicians; AKER rises amid update to strategic alternatives, including potential foray into cannabis space

       Stock GAINERS

· HP +2%; upgraded by three analysts today (CSFB, Citi, SunTrust) following last week’s earnings and update

· REN +13%; XEC acquired REN in cash and stock deal valued at $35.00 per share, or a total purchase price of approximately $1.6B, including Resolute’s debt of $710 million. https://yhoo.it/2KfOSvJ

· VKTX +2%; upgraded to strong buy and $43 tgt at Raymond James based on data for VK2809 and MGL-3196 presented at AASLD and conversations with investors and physicians

· ZAYO +9%; has attracted takeover interest from a group of investors including funds managed by Blackstone Group LP and Stonepeak Partners LP, according to Bloomberg. https://bloom.bg/2DLijoR

Stock LAGGARDS

· CFX -10%; agrees to acquire orthopedic solutions provider DJO Global from Blackstone (BX) for $3.15B in cash https://reut.rs/2TrPi6y

· FB -2%; falls to 19-month lows as recent scrutiny over company continues to weigh on shares, several recent high executive departures comes

· JD -5%; posted lower than expected revenue in the third quarter and recorded its first sequential fall in annual active customers since listing

· MU -3%; Financial Times reported that Chinese authorities would deepen an antitrust probe into Micron and two other chipmakers, claiming ”massive evidence” of violations

· NVDA -6%; adds to last week losses following its sharply lower guidance that sunk shares; shares now down roughly 20% since earnings results to lowest levels since early 2017

· PCG -6%; amid latest disclosure that a second power-line failed on the morning that California’s deadliest fire began

· SPB -17%; falls after Q4 EPS missed by more than 20c on weaker than expected sales ($787M vs. est. $804M) and gross margins (56.8% vs. 38.6% est.)

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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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