Mid-Morning Look: December 10, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Monday, December 10, 2018

U.S. equities are picking up where they left off on Friday, moving sharply to the downside amid lingering trade tensions, weakening import/export data on the Chinese economy and uncertainty regarding the UK Brexit as the dollar rallies vs. the pound (1% move). UK Prime Minister said deferring the vote on her Brexit deal that had been scheduled for tomorrow, because it’ clear “the deal would be rejected by a significant margin.” The Dow Industrial Average falls over -300 points while the S&P 500 index nears is October lows around 2,600 (after trading highs of 2,800 just last Monday). Dow Transports slide, falling to lows around 9,800 (down 2%) as component FDX drops sharply on an analyst downgrade. Dow component AAPL a big drag on the index, S&P and Nasdaq after QCOM won a ruling in China against the company that bans the sale of some iPhone models in that country. Energy and financials among the biggest drags on the S&P early on falling oil prices and lower yields. Bank shares are extending declines into a fourth day in early Monday trading, with the KBW index sliding to its lowest level since September 2017. Regarding China trade news, U.S. Ambassador to China Terry Branstad was summoned to the country’s Foreign Ministry as tensions between the nations rise following the arrest of Huawei Technologies Co. Chief Financial Officer Meng Wanzhou in Canada. Commodity prices tumble, led by a bounce in the US dollar while Treasury yields remain depressed. SO far, its “risk-off” with major US averages falling to session lows late morning on lots of uncertainty.

Treasuries, Currencies and Commodities

· In currency markets, the US dollar moves back above the 113 level vs. the Japanese yen; the British Pound smacked today vs. the dollar amid the heightened political uncertainties surrounding Brexit vote this week; emerging market currencies slip vs. the dollar. Commodity prices tumble with oil and gold as the dollar bounces. Treasury prices extend last week gains as yields fall further with 10-year below 2.84%, 2-yr at 2.70% and 30-yr 3.11%

Sector Movers Today

· Semiconductors; QCOM said it won a ruling in China against AAPL that bans the sale of some iPhone models in that country; KeyBanc said quarterly Asia supply chain findings and demand checks left them incrementally more cautious on the semiconductor space as they downgrade QRVO and SWKS to sector weight while lowering estimates on AMD, CY, MCHP, MXIM, MU (lower PT to $61), NXPI, ON, QRVO, SWKS, TXN and WDC; incrementally more cautious on CRUS, MPWR, NVDA, and SYNA; IDCC guides Q4 revs $70M-$76M vs. est. $72.1M and buys back stock; some Apple suppliers are dropping following the news that Qualcomm won a preliminary ban on certain iPhones in China (LITE, SWKS, QRVO, CRUS) – as many have recently cut their guidance on weak smartphone demand or lowered orders from a large customer

· Oil E&P sector; lots of analyst rating changes today in the group following re-rating after oil pullback: 1) Seaport Global upgraded APA, CXO, CPE, PXD, SMwhile downgrades: CRZO, HK, NFX saying: (1) US production is the real deal, but OPEC isn’t going to fight us on it; (2) the fundamentals of the US E&P industry are actually quite strong at $55 oil; (3) the investment approach applied by Wall St. toward valuing US E&P companies truly has shifted; 2) Evercore/ISI downgraded seven E&Ps (BRY, CLR, DVN, JAG, MRO, NBL, PE to in-line from outperform) as the firm is narrowing its focus on less higher conviction outperform-rated stocks; 3) Wolfe Research said they think the sector is set to recover in 2019 as crude oil bounces back to $60/bbl, but from there, they think the large-cap E&Ps will emerge as the subgroup to own driven by their broader leverage to Brent, stronger balance sheets, and ability to generate FCF at lower prices – firm downgrades DVN, CDEV and PDCE while upgrade COP and MUR

· Casino & Leisure movers WYNN, LVS, MLCO, MGM move higher initially after channel checks by Bernstein and JPMorgan show strength as Macau gross gaming revenue (GGR) for the Dec. 1-9 period is estimated to reach about 7.9B patacas (up 6%), or an average daily rate of 877B patacas, with month-to-date VIP volume and Mass GGR estimated to rise low- to mid-single digits, Bernstein said/VIP hold rate for the month-to-date period is projected to reach ~3.1%, “slightly higher than normal range”

· REITs; data center REITs DLR and EQIX both upgraded to buy from hold at Jefferies as group has sold off partly on tech fears and the group now trades at a 2x AFFO multiple discount vs. a slight premium over the past few years/downgraded COR to hold from buy; SLG was upgraded to buy at Deutsche Bank and raise tgt to $118 as management delivered a detailed update of the leasing environment and investment markets at their investor day, while highlighting future investment projects

· Defense sector; U.S. defense stocks rises early (LMT, NOC, GD, RTN) after a U.S. official said President Donald Trump backed plans to request $750B from Congress for defense spending next year. The $750B budget is higher than $733B request the Pentagon had been expected to make for fiscal year 2020 and well above a $700 bln figure Trump cited in October – Reuters

       Stock GAINERS

· EQT +6%; Two of the brothers who sold Rice Energy Inc. to EQT last year say the $4.7 billion oil-and-gas company is mismanaging its assets, and they want to take over running the company. https://on.wsj.com/2QFuoCl

· LMT +3%; after a U.S. official said President Donald Trump backed plans to request $750B from Congress for defense spending next year

· MITK +10%; after Hedge fund Elliott Management Corp’s ASG Technologies Group Inc. raised its offer to buy the company to $11.50 per share from $10 https://reut.rs/2zQfWh4

· NTRI +27%; as TVTY is buying the diet plan company for $1.3B in cash and stock deal valuing shares at $47 as TVTY expects double digit accretion to adjusted EPS in 2020 and beyond https://yhoo.it/2L7UJDI

· RARX +7%; as reports primary and key secondary endpoints were met in Phase 2 trial of Zilucoplan in patients with generalized myasthenia gravis

· QCOM +3%; Bloomberg reported QCOM said it won a ruling in China against AAPL that bans the sale of some iPhone models in that country

· TVPT +1%; to be acquired by affiliates of Siris Capital Group and Evergreen Coast Capital in deal valued at about $4.4 billion with Travelport holders to get $15.75 per share in cash; Travelport reaffirms 2018 financial guidance ranges https://yhoo.it/2EbkP7j

· VERI +13%; after Apis Capital Management announced today that its private equity fund, Apis Ventures, has submitted an all-cash offer to acquire all of the outstanding shares of Veritone for $10.26 per share. https://yhoo.it/2C323O5


· AAPL -2%; as QCOM announces victory in its sprawling legal battle with Apple , after a Chinese court slapped a ban on sales of certain iPhone models

· AXON -22%; after its 34-subject Phase 2 pilot study evaluating nelotanserin for the treatment of REM sleep behavior disorder failed to achieve the primary endpoint

· FDX -5%; downgraded to neutral at Bank America and cut tgt to $220 from $304 saying the company made a surprising change to its Express CEO, which they believe could signal a reduction or delay in its profit improvement target

· MGNX -25%; after the FDA placed a partial hold on two studies involving MGD009 (was downgraded at Raymond James following the news)

· QDEL -7%; extends last week losses after company said Beckman has prevailed in a lawsuit related to the sale of test called B-type natriuretic peptide (BNP).


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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