Mid-Morning Look: November 27, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Tuesday, November 27, 2018

U.S. stock equities giving back some of Monday’s gains, as renewed tariff fears weigh on stocks initially along with lowered optimism about a trade deal being reached with China after President Trump at the upcoming G20 meeting this week. Late yesterday, President Trump said that if a deal isn’t reached soon he expects the U.S. will impose a 25% tariff on all Chinese imports, in addition to potentially taxing iPhones and other Apple (AAPL) products. Trump said in a WSJ interview that it is “highly unlikely” he will refrain from raising a 10% tariff on $200B of Chinese goods to 25% effective Jan. 1, and that he would move ahead with a 10%-25% tariff on an additional $267B of imported Chinese goods. Dow component UTX underperforms, dragging down the broader index after the conglomerate announced plans to separate into three companies (aerospace company, a company housing its Otis Elevators unit, and Carrier, a company devoted to its building systems). Metals and material stocks among the top decliners decline on the tariff news as well while steel stocks also lower after STLD said it will add more supply into the market. However, tech prices are bouncing off their lows, with the Nasdaq Comp spiking back into positive territory after falling as much as 67 points initially.

Busy day of Fed speakers as Fed Vice Chairman Richard Clarida said the central bank’s gradual approach to interest-rate hikes is appropriate as U.S. monetary policy gets closer to its optimal longer-run setting. “As the economy has moved to a neighborhood consistent with the Fed’s dual-mandate objectives, risks have become more symmetric and less skewed to the downside than when the current rate cycle began three years ago,’’ Clarida said at The Clearing House and Bank Policy Institute’s annual conference in New York on Tuesday. Gradual rate increases allow the Fed to “accumulate more information from the data about the ultimate destination for the policy rate and the unemployment rate at a time when inflation is close to our 2 percent objective,” he said in the text of his remarks.

Treasuries, Currencies and Commodities

· In currency markets, the dollar broadly higher vs. major currencies, picking up steam vs. the euro which fell below the 1.13 level (lowest in about 2-weeks) after German magazine reports of possible U.S. auto tariffs. The dollar extended gains against the Japanese yen as also moves to around 2-week highs, while the Pound falls as much as -0.7% to around 1.2740 ahead of Brexit votes in the coming weeks. Treasury markets are little changed with the 10-year at 3.06%.

· Commodity prices are mixed with oil prices slowly climbing off the recent 18-month lows, moving in conjunction with currency volatility and several oil minister headlines over the last few days; markets are monitoring this week’s G-20 gathering in Argentina, which will include Saudi Crown Prince Mohammed Bin Salman and Russian President Vladimir Putin, before OPEC meets next week in Vienna; also weekly inventory data tonight (API) and tomorrow (EIA)

Economic Data

· Consumer confidence for November falls to 135.7 from 137.9 prior month, but in-line with estimates; Present situation confidence rose to 172.7 vs 171.9 last month while consumer confidence expectations fell to 111.0 vs 115.1 last month

· S&P CoreLogic Case-Shiller 20-City Index up 5.15% Y/Y, in-line with estimates and after rising 5.69% in prior month; S&P/Case-Shiller 20-city NSA index at 213.76 after 213.8 in Aug.; the 20-city SA index rose 0.33% m/m in Sept. after rising 0.09% the prior month

· The FHFA said U.S. 3Q Home Price Index rises 1.3% as third-quarter home prices rose 6.3% y/y; home prices rose to 5.03% on an annualized basis vs. 5.05% a quarter earlier; new loans were 61.5% of total loans; cash-out refinances were 27.7% of total loans

Sector Movers Today

· Metals & Materials; GSM shares plunged toward a record low after the silicon metal supplier reported Q3 earnings and revenue that were well below expectations saying market conditions in their main products deteriorated through Q3; steel stocks pressured amid a trio of negative news items as: 1) China/US tensions high into G20 meeting after Trump comments on tariffs again last night, 2) STLD said it plans to spend as much as $1.8 billion to build a new facility that will have annual output capacity of about 3 million tons (increase production), 3) research as KeyBanc said they think that U.S. carbon sheet-based stocks will likely be weaker on this supply addition while Longbow notes several factors have emerged that may prevent US Steel (X) from generating $2.4B of total EBITDA next year. Specifically, we see the recent weakness around the oil & gas sector, slowing carbon sheet demand growth and limited HRC spot price upside

· Retailers; Baird removed positive Fresh Designation pick on UAA after recent outperformance; BKE shares fell after Q3 EPS and revenue missed consensus estimates; FRAN guides Q3 EPS loss (17c)-(19c) on revs $95M vs. est. loss (3c) and $106.4M saying boutique traffic declines persisted throughout the quarter; HIBB falls as Q3 EPS 14c/$216.9M miss est. 16c/$217.28M and lowers year EPS view to $1.55-$1.65 from prior outlook $1.57-$1.75

· Casino & Leisure movers; Thomas Cook Group PLC suspended its final dividend for fiscal 2018 as it warned that underlying earnings before interest and taxes (Ebit) will be below last year’s figure; in lodging, WYND was downgraded to neutral at Goldman Sachs after the recent rally as key tenets of our thesis have unfolded (execution on faster sales growth while balancing margins) yet valuation remains suppressed; Goldman upgraded MAR and added to conviction buy list; SABR 23.39M share Spot Secondary priced at $24.95

· E&P sector; PE was upgraded to buy at Goldman Sachs saying a sell-off in E&P stocks creates an attractive entry point; says PE and FANG are well positioned to deliver attractive medium-term volume growth within cash flow; downgraded AMR to neutral from buy; FANG was added to the S&P 500 index, replacing SRCL prior to the open of trading on Monday, December 3; KOS 15M share Spot Secondary priced at $5.43

       Stock GAINERS

· FANG +3%; was added to the S&P 500 index, replacing SRCL prior to the open of trading on Monday, December 3

· MXIM +4%; as it will replace AET in the S&P 500 index prior to the open of trading on Monday, December 3 (CVS deal to buy AET expected to close around then)

· PCG +5%; after a bill to help the company absorb billions of dollars in potential liabilities from this month’s deadly wildfires will be introduced in January with the goal of passage in the first quarter, according to assemblyman Chris Holden

· SAVE +19%; issued a positive update ahead of investor conferences, raising its 4Q18 RASM outlook to up +11% from its prior guide of +6%, helped by lower fuel

· VRTX +4%; as its cystic fibrosis drug combination shows strong results in pivotal clinical trials


· AAPL -0.5%; after yesterday afternoon President Trump in a media interview suggested that he might consider tariffs on imported iPhones and laptops, citing 10% as possible

· BKE -8%; after Q3 EPS and revenue missed consensus estimates

· BMY -5%; as announced that the Phase 3 CheckMate -451 study did not meet its primary endpoint of overall survival (OS) with Opdivo (nivolumab)

· GSM -57%; after the silicon metal supplier reported Q3 earnings and revenue that were well below expectations saying market conditions in their main products deteriorated through Q3

· HALO -18%; said the FDA agreed to its request to change the primary endpoint of the HALO-301 study to a single primary endpoint of overall survival/as a result, the previously planned interim analysis will not be conducted

· HIBB -5%; as Q3 EPS 14c/$216.9M miss est. 16c/$217.28M and lowers year EPS view to $1.55-$1.65 from prior outlook $1.57-$1.75

· TSLA -2%; after Reuters reports the electric car maker’s vehicle sales in China plunged 70 percent in Oct from a year ago, China Passenger Car Association told Reuters

· UTX -6%; announced its intention to split into three companies, following calls for a break-up from Daniel Loeb’s activist investment fund Third Point

· X -7%; amid weakness in steels as STLD announced plans to build a new electric-arc-furnace (EAF) carbon sheet steel mill (adding more supply)


· Amarin (AMRN) 11.111M share Spot Secondary priced at $18.00

· Canada Goose (GOOS) 10M share Spot Secondary priced at $65.15

· Kosmos (KOS) 15M share Spot Secondary priced at $5.43

· Sabre (SABR) 23.39M share Spot Secondary priced at $24.95


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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