Mid-Morning Look: December 11, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Tuesday, December 11, 2018


U.S. equities spike following strength in European markets overnight (those markets near highs) getting a boost on renewed optimism over U.S.-China trade talks, as equities begin the week with a strong rebound from sharp losses. Markets jumped overnight after reports China said that Vice Premier Liu spoke with U.S. Treasury Sec. Steven Mnuchin and U.S. Trade Representative Robert Lighthizer via phone, helping alleviate some concern that trade talks would fall apart after the arrest of Huawei Technologies Co. CFO Meng Wanzhou last week. Also boosting sentiment today, automakers and suppliers gain following news that China is moving toward cutting its trade-war tariffs on imported U.S.-made cars. The news coupled with a dovish Fed and a rebound in energy and financial shares are lifting stocks early. The Dow Industrials trade up as much as 368-points before paring gains (a day after closing 2.1% above its session low for its biggest intraday, upside reversal since April 4), while Dow Transports look to snap its 4-day losing streak, bouncing as high as 10,026.08 this morning after lows of 9,966.14 yesterday. Tech outperforms early with the Nasdaq Comp up over 1.4%


Treasuries, Currencies and Commodities

· In currency markets, the dollar rebounds after overnight weakness, resuming its upward momentum from yesterday, with broad gains over the past week – primarily vs. the British Pound after UK Prime Minister May delayed the vote in Parliament (scheduled for today) on Brexit on expectations it would not pass; the Pound down at 1.2565, the euro down at 1.334 and the yen little changed around 113.30; Bitcoin prices down over 1% on the day around $3,350

· Commodity prices; precious metals little changed, with gold back near best levels since July, up around the $1,250 an ounce level. Meanwhile, oil prices rebounding after their 3% decline yesterday ahead of weekly inventory tonight (API) and tomorrow (EIA) on optimism about the prospects for success in American-Chinese trade talks. Also helping prices, Libya’s national oil company has declared force majeure on exports from its El Sharara field after a weekend militia attack on the facility, the Wall Street Journal reported.

· Treasury markets are little changed, with yields hovering around multi-month lows after prices jumped last week on a dovish Fed outlook on rates and global macro concerns (UK Brexit, China trade) which sent investors scurrying to safety of bonds; the 10-year yield down at 2.86%, 2-yr yield at 2.75% and 30-yr at 3.12%


Economic Data

· Producer Price Index (PPI) for November rose 0.1% vs. est. 0% while core prices (PPI ex food & energy) rose 0.3%, more than the 0.1% estimate; final demand rose 2.5% y/y, matching estimates. Most of the Nov. advance in prices for final demand services from margins for fuels and lubricants retailing, which rose 25.9% the most since May 2010

· The National Federation of Independent Business (NFIB) small-business optimism index fell 2.6 points in November to a seasonally adjusted level of 104.8, the lowest in seven months. Most of the decline coming from expectations about future sales and business conditions


Sector Movers Today

· Media & Telecom movers; Dow component VZ said it expects to record a severance charge in the range of $1.8B-$2.1B or $1.3B-$1.6B after-tax in Q4 as a result of a buyout program and other headcount reduction initiatives; AT&T (T) was upgraded to buy at Citigroup saying that recent weakness in the stock had created a better risk reward scenario

· Metals & Materials; sector outperforms early on hopes of renewed trade talks with China and the U.S. after reports last night; steel stocks (X, NUE, STLD) as well other metals (AA, FCX) jumped early; in chemicals, VSM was downgraded to sell at Goldman Sachs as believe the market is under-estimating – partially due to what we view as bullish full-year company guidance – the extent to which weaker semiconductor capex could negatively impact the DS&S segment

· Insurance; RBC Capital with several ratings changes in the sector: RGA was upgraded to outperform (and raised tgt to $165) saying valuation has fallen to very attractive levels while downgraded PFG to sector perform (and cuts tgt to Street low $49) saying lower guidance shows a more challenging market prompting a downgrade to sector perform from outperform; RBC also downgraded Dow component TRV to sector perform from outperform (PT $133 from $143) as they no longer expect significant multiple expansion and prefer other ideas

· Consumer finance and lending; Goldman Sachs upgrades FISV and FIS to Buy given less macro sensitivity and an ability to preserve earnings growth while downgrade WEX and FLT to Neutral to reflect headwinds from lower oil prices and a weaker backdrop for industrial end markets

· Retailers; Shoe retailers active after DSW reported Q3 EPS and comparable-store sales that topped estimates while it also boosted its year-end forecasts (SCVL, GCO, CAL active); URBN indicated QTD comps are +MSD%, consistent with consensus/guidance and maintaining the 2-year stack trend from 3Q; CASY reported a F2Q beat last night with in-line in-store comps, robust fuel margins and strong opex control; ASNA Q1 EPS topped views on mixed Q2 guidance

       Stock GAINERS

· APC +3%; rebound in oil stocks after leading markets lower yesterday

· BWA +3%; automakers and suppliers gained following news that China is moving toward cutting its trade-war tariffs on imported U.S.-made cars (GM, F, TSLA gained); also rising were auto suppliers such as DLPH, ALV, LEA

· CASY +4%; reported a F2Q beat last night with in-line in-store comps, robust fuel margins and strong opex control

· DSW +7%; reported Q3 EPS and comparable-store sales that topped estimates while it also boosted its year-end forecasts

· MGM +3%; strength in casino stocks after better Macau data analyst commentary from Bernstein and JPMorgan – reported yesterday

· SWKS +2%; rebound in chip stocks on hopes of renewed China/US trade talks

· TWTR +5%; stand out strength in overall positive Internet sector

Stock LAGGARDS

· ACOR -12%; after being downgraded to sell at Goldman Sachs citing limited market opportunities for Parkinson’s med Inbrija

· ARMK -8% after guides FY19 EPS $2.27-$2.37, below views of $2.50 as disclosed FY19 guidance in slides accompanying its investor day/sees FY19 revenue organic growth 2%-4%

· CAMP -14%; issued lower than expected Q3 guidance (lowers Q3 EPS view to 23c-25c from 29c-35c (est. 32c) and lowers Q3 revenue view to $88M-$89M from $94M-$99M)

· FLT -1%; downgraded alongside WEX at Goldman Sachs in the payment services sector

· KO as CEO says on CNBC that 2019 growth may be slower than in 2018

· NX -14%; declines after Q4 earnings miss and weaker year Ebitda guidance

· PFE -1%; downgraded to neutral at JPMorgan following strong returns in 2018 as see this improved core story as better reflected in valuation

· SFIX -25%; reported stronger than expected F1Q19 and mixed F2Q19 guidance while company’s Active Clients of 2.93M were below expected 2.95M (downgraded at KeyBanc)

_______________________________________________________

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.

Live Trading

Open an Account

Paper Trading

Register