Thursday, December 6, 2018
U.S. stock futures tumble overnight amid renewed concerns of increased China/U.S. tensions following the arrest of Huawei’s CFO in Canada at the U.S. request for allegedly breaking Iran sanctions. Also adding to market turmoil, a 4% pullback of WTI crude over uncertainty surrounding OPEC production cuts at its meeting in Vienna today as well as a pullback in Europe amid Brexit concerns. The pullback overnight follows Tuesday’s rout, as major U.S. stock benchmarks registered their worst daily losses in weeks, with all main indexes down more than 3%, as skepticism mounted over the significance of an agreement reached by the U.S. and China to postpone new tariffs and as the market reacted negatively to a flattening yield curve. U.S. equity and bond markets were closed as part of a national day of mourning in honor of President George H.W. Bush.
On Tuesday, the 10-year Treasury note yield was down 6.9 basis points to 2.921%, close to a three-month low and logging its largest one-day decline since Oct. 11. The benchmark bond slid below its 200-day moving average at 2.957%. Meanwhile, the 2-year note yield edged down by 2.2 basis points to 2.811%. The 30-year bond yield slumped 10.2 basis points to 3.174%, a more than two-month low, marking its largest daily fall since May 29. Financials were among the top decliners on Tuesday with the yield curve flattening, and as yields dropped across the board. Banks borrow at the short-end and lend at rates dictated by the long-end, so a flat curve would squeeze their profit. Despite the turbulence in global stocks markets around the world, currency markets are fairly stable thus far.
In Asian markets, The Nikkei Index dropped -417 points (1.9%) to 21,501, the Shanghai Index fell -44 points (1.68%) to 2,605 and the Hang Seng Index plunged -663 points (2.47%) to 26,156. In Europe, the German DAX is down around -250 points (2.3%), while Britain’s main stock market barometer, the FTSE 100 slumped over 2% to its lowest level since December 2016 amid a broad decline in European equities. UK Prime Minister Theresa May has refused to rule out the idea of scrapping next Tuesday’s House of Commons vote on her Brexit deal according to reports amid speculation that she could postpone the date to try to win over Tory rebels.
Some interesting statistics after Tuesday’s market meltdown: The number of 1% S&P moves in Q3 was zero, but so far in Q4 there has been 20 according to CNBC. On Monday, the Dow Jones Industrials traded within 20 points of 26K while Tuesday it traded within 20 points of 25K (972-point range). On Tuesday, the Dow Jones Transportation Average tumbled toward its biggest-ever point drop (at its intraday worst, the index was down as much as 565 points, or 5.2%). The Russell 2000 small caps declined -4.4% for their worst day since Nov 9, 2011.
Market Closing Prices Yesterday
· The S&P 500 Index plunged -90.31 points, or 3.24%, to 2,700.06
· The Dow Jones Industrial Average fell -799.36 points, or 3.10%, to 25,027.07
· The Nasdaq Composite slumped -283.09 points, or 3.80%, to 7,158.43
· The Russell 2000 Index plummeted -68.21 points, or 4.40% to 1,480.75
· 7:30 AM EST Challenger Job Cuts YoY for Nov
· 8:15 AM EST ADP Employment Change for Nov…est. 195K
· 8:30 AM EST Weekly Jobless Claims…est. 225K
· 8:30 AM EST Continuing Claims…est. 1.69M
· 8:30 AM EST Trade Balance for Oct…est. (-$55.0B)
· 8:30 AM EST Nonfarm Productivity for Q3-F…est. 2.3%
· 8:30 AM EST Unit Labor Costs for Q3-F…est. 1.0%
· 9:45 AM EST Bloomberg Consumer Comfort Index…prior 60.6
· 10:00 AM EST ISM Non-Manufacturing for Nov…est. 59.0
· 10:00 AM EST Factory Orders MoM for Oct…est. (-2.0%)
· 10:00 AM EST Durable Goods Orders, Oct-F…est. (-2.4%)
· 10:30 AM EST Weekly EIA Crude Inventory data
· 12:00 PM EST Household Change in Net Worth for Q3
· 12:15 PM EST Fed’s Bostic speaks on the US Economic Outlook
· Earnings Before the Open: CCO, DLTH, DVMT, GCO, HOV, KR, LQDT, MEI, MIK, SAIC, SIG, THO, TTC
· Earnings After the Close: AOBC, AVGO, BLBD, COO, SAIC, ULTA
Other Key Events:
· OPEC Meeting kicks off in Vienna
· Wells Fargo Technology Summit, 12/4-12/6
· Barclay’s Technology, Media and Telecom Conference, 12/5-12/6, in San Francisco
· German Industrial Production and Factory Orders for Oct
· China’s service sector expanded at a faster pace in November, as the Caixin China services purchasing managers’ index rose to 53.8 in November from a 13-month low of 50.8 in October, in contrast with official data that dropped to a 15-month low.
· China’s official nonmanufacturing PMI, which includes the construction sector, declined to 53.4 in November from 53.9 in October, the National Bureau of Statistics said last week.
· The Federal Reserve’s latest Beige Book showed most districts’ economies expanded, though at least four signaled growth cooled, the labor market tightened further and uncertainty about trade remained
· Canada kept interest rates on hold on Wednesday, as a recent spate of disappointing economic readings and the renewed sell-off in crude prompted policymakers to take a more cautious stance
Sector News Breakdown
· Five Below (FIVE) Q3 EPS 24c/$312.8M vs. est. 19c/$304.01M; Q3 comparable sales increased by 4.8%; raises FY18 EPS view to $2.60-$2.64 from prior view $2.51-$2.57 and vs. est. $2.58 and raises FY18 revenue view to $1.55B-$1.557B vs. est. $1.54B
· Hawaiian Airlines (HA) Nov. load factor 84.1% vs. 85.9% a year ago; cuts Q4 cost per ASM outlook to up 0.6%-3.3% from up 2.3%-5.8% citing lower-than-expected NA market pricing; cuts Q4 operating rev. per ASM outlook to down 3%-down 5% from down 2.5%-up 0.5%
· Ollie’s Bargain Outlet (OLLI) Q3 EPS 32c/$283.6M vs. est. 31c/$282.46M; sees FY18 EPS $1.74-$1.77 on revs $1.226B-$1.231B vs. est. $1.77/$1.23B; Q3 comparable store sales increase of 4.6% vs. est. 3.1% and sees FY18 comparable store sales growth of 3%-3.5%
· WTI crude oil plummets 3% after Saudi oil minister says need at least 6 months to cut production while Brent trades below $60. Any production cut from OPEC+ shouldn’t be “overly large” with a reduction of about 1m b/d adequate, Saudi Energy Minister Khalid Al-Falih said in Vienna
· The American Petroleum Institute (API) reported that U.S. crude supplies rose by 5.4M barrels for the week ended Nov. 30; showed stockpile increases of 3.6M barrels in gasoline and 4.3M barrels in distillates (data released Tuesday night)
· Nabors Industries (NBR) will replace Sonic (SONC) in the S&P SmallCap 600 effective prior to the open of trading on Monday, December 10
· U.S. Silica Holdings Inc. (SLCA) said its industrial and specialty products business focused on silica sand will raise prices 2% to 9%; the prices increase, effective Jan. 1, will be for most products
· AIG Inc. (AIG) CEO said that a series of natural disasters in Q4 would cost the insurer between $750M-$800M
· Citigroup (C) CFO warned that recent market turmoil could put the bank “slightly short” of 2018’s efficiency goals as fixed income and investment banking revenues for the fourth quarter
· BancorpSouth (BXS) authorizes repurchase of up to 3M shares
· E-Trade (ETFC) reports November preliminary DARTs 275,000, down 9% from October; derivatives represented 32% of total preliminary DARTs in November. Preliminary customer margin balances ended the month at $10.8B, down MoM to end balance of $11.2B
· Hartford Financial Services Group Inc. (HIG) said it expects a Q4 current accident year net catastrophe impact of $350 million to $365 million, due primarily to the Camp Fire in California.
· LPL Financial Holdings Inc. (LPLA) provided the following updates in 8-K filing; core G&A outlook for 2019 is $845M-$870M, or approximately 3.5% to 6.5% above the mid-point of its 2018 outlook range; lowered its target credit agreement net leverage ratio to a range of 2.00x to 2.75x, from a previous range of 3.25x to 3.5x; authorized $1B stock buyback
· HealthEquity (HQY) Q3 EPS 28c/$70.5M vs. est. 25c/$69.65M; raises FY19 EPS view to $1.06-$1.13 from $1.05-$1.11 (est. $1.11) and raises FY19 revenue view to $281M-$285M from $279M-$281M vs. est. $283.99M
· Medtronic (MDT) is notifying customers worldwide of a voluntary field corrective action for its Puritan Bennett (TM) 980 (PB980) ventilator series. Medtronic initiated this field action on September 19, 2018.
· Sol-Gel Technologies (SLGL) has entered into a sixth collaborative agreement with Perrigo Israel, an affiliate of Perrigo Company plc (PRGO), for the development, manufacturing and commercialization of a generic product candidate
· Anika (ANIK) has resumed global distribution of its solid HA-based treatments, including HYALOFAST, after a voluntary, non-safety related recall in the second quarter of 2018.
Industrials & Materials
· Northrop Grumman (NOC) announces new $3B share repurchase authorization
· Greif (GEF) Q4 EPS $1.08/$987.7M vs. est. $1.19/$1.02B; sees FY19 EPS $3.55 – $3.95 vs. est. $3.92; sees FY19 adjusted free cash flow $175M-$205M; sees FY19 capital expenditures $130M-$150M
· Vulcan Materials (VMC) upgraded to Buy from Neutral at Nomura Instinet
Technology, Media & Telecom
· Canada’s justice department said Huawei Technologies CFO Meng Wanzhou was arrested in Vancouver on Dec. 1 at the request of the U.S. government for alleged violations of Iranian sanctions and is sought for extradition by the U.S. A bail hearing has been tentatively scheduled for Friday
· Cloudera (CLDR) Q3 EPS loss (3c)/$118.2M vs. est. loss (11c)/$113.88M; sees FY19 EPS (40c)-(38c) on revs $450M-$453M vs. est. loss (50c)/$447.35M
· Okta (OKTA) Q3 EPS loss (4c)/$105.6M vs. est. loss (11c)/$96.93M; said had a record third quarter with 58% year-over-year growth for both revenue and billings, which was driven by increased momentum in the enterprise; saw 55% growth in customers with over $100,000 annual recurring revenue, representing a record 100 net new adds in a quarter; sees FY19 EPS loss (37c)-(36c) on revs $391M-$392M vs. est. loss (57c)/$375.06M
· Synopsys (SNPS) Q4 EPS 78c/$795.1M vs. est. 78c/$791.5M; sees FY19 EPS $4.20-$4.27 on revs $3.29B-$3.34B vs. est. $4.25/$3.32B
· HP Enterprise (HPE) Q4 EPS 45c/$7.95B vs. est. 43c/$7.84B; sees FY19 EPS $1.51-$1.61 vs. est. $1.59; 4Q adjusted operating margin +10.1% vs. +10% q/q
· Elastic (ESTC) Q2 EPS loss (38c) on revs $63.6M vs. est. loss (47c)/$56.6M; sees Q3 EPS loss (32c)-(30c) and sees FY19 EPS ($1.35)-($1.30) on revs $254M-$258M, vs. consensus $237.02M; Elastic reports Q2 billings $88.5M, up 73% from last year
· Guidewire (GWRE) Q1 adjusted EPS 36c/$179.7M vs. est. 20c/$163.08M; raises FY19 adj. EPS view to $1.24-$1.34 from $1.15-$1.26 (est. $1.22) but cuts FY19 revenue view to $722M-$732M from $740.5M-$752.5M vs. est. $751.14M; sees Q2 adjusted EPS 17c-21c on revs $157M-$161M, below consensus 25c/$170.13M
· Lam Research Corp. (LRCX) CEO resigned Wednesday amid allegations of misconduct, the fourth chief executive of a major chip company to leave amid such an inquiry this yea
· Marvell (MRVL) Q3 EPS 33c/$851M vs. est. 32c/$844.82M; Q3 adjusted gross margin 64.6%; sees Q4 adjusted EPS 30c-34c on revs $790M-$830M vs. est. 33c/$856.29M; sees Q4 adjusted gross margin approximately 65%; sees renewed revenue growth from the Cavium business in Q4
· MongoDB (MDB) Q3 EPS loss (30c)/$65M vs. est. loss (40c)/$60.25M; sees FY19 EPS loss ($1.53)-($1.52) on revs $243.7M-$244.7M vs. est. loss ($1.63)/$230.58M
· Mogu (MOGU) 4.75M share IPO priced at $14.0
· Zscaler (ZS) Q1 pro-forma EPS 1c/$63.3M vs. est. loss (5c)/$58.65M; raises FY19 pro-forma EPS view to 1c-3c from (13c)-(12c) and raises FY19 revenue view to $268M-$272M from $250M-$260M (est. $258.79M)
· Universal Display (OLED) will replace Nabors Industries in the S&P MidCap 400 effective prior to the open of trading on Monday, December 10
· U.K. telecommunications company BT will remove Huawei equipment from its core 4G network within two years, reports the Financial Times, citing a company spokesman.
· The Trade Desk (TTD) announced that Chief Operating Officer Rob Perdue plans to step down after a transition period in the first half of 2019. Perdue has served in the COO role since joining The Trade Desk in 2013, leading the company through its IPO in 2016