Mid-Morning Look: December 12, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Wednesday, December 12, 2018

Equities rise as an improved outlook for U.S.-China trade took a positive turn this morning after the WSJ reported China is working to replace its made in China 2025 plan and preparing to increase access for foreign companies. China plans to replace an industrial policy savaged by the Trump administration as protectionist with a new program promising greater access for foreign companies, according to people briefed on the matter, in a move to resolve trade tensions with the U.S. The news helped propel stock higher after positive developments overnight as well as President Trump said he would intervene in the arrest of Huawei’s CFO Meng Wanzhou if it would help ensure a trade deal with China, in an interview with Reuters. Meanwhile, the CFO was granted bail by a Canadian judge on Tuesday after more than a week in detention, but with conditions. Market also closely watching the developments in the UK as UK Prime Minister Theresa May will face a vote of confidence in her leadership of the Conservative Party. The moves comes two days after she delayed the vote on Brexit. Economic data in-line on the day (CPI inflation report MoM and YoY in-line with expectations) while markets in “risk-on” mode as stocks take out yesterday’s highs in a broad based rally.

Treasuries, Currencies and Commodities

· In currency markets, the dollar index (DXY) takes a little breather after rallying the last few days; Sterling climbed to its highs of the day after a majority of Theresa May’s MPs expressed their public support for the prime minister ahead of a vote of confidence in her; the euro advanced against the dollar while the dollar slipped vs. the Japanese yen.

· Commodity prices getting a boost as gold recovers from yesterday’s small dip while oil prices climb after mixed weekly inventory data (a pullback in the dollar also helping commodity prices). API reported that U.S. crude supplies fell by -10.2M barrels for the week ended Dec. 7/showed that gasoline stockpiles fell by -2.5M barrels (bullish), but the EIA showed weekly stockpiles of crude fell -1.2M, smaller than the est. -3.5M barrels

· Treasury market’s fall, with the 10-year yield back above the 2.90% level, rallying off last week lows around 2.82% s investors rotate back into riskier assets such as stocks

Economic Data

· Consumer Price Index (CPI) for November was unchanged MoM, in-line with economist forecasts and was the lowest reading since March while CPI ex: food & energy (core) rose 0.2% MoM, also in-line with consensus views. Gasoline prices fell 4.2% last month, suppressing any increase in overall consumer costs. CPI YoY rose 2.2%, in-line with consensus views as well

Sector Movers Today

· Banking stocks rebound, but generally lagging despite broader rally, while analysts getting more cautious as KBW Inc. downgraded regional banks CMA and KEY downgraded to Market Perform (says CMA revenue and earnings growth are largely dependent upon future Fed funds hikes while see risk to revenue growth assumptions next year for KEY) and cut large cap banks BAC and MS as well saying each stock lacks tangible catalysts that can push shares higher near term; shares of WFC and STI both trade to new 52-week lows today

· Casino & Leisure movers; Lodging and REITs mentioned at Citigroup as the firm downgraded H, HST, MAR and FRT to Neutral from Buy, while upgrading O to Neutral from Sell and adding INVH to Citi’s Best Ideas Focus List, replacing DRE which was top pick for 2018/says downgrades are driven from taking a more cautious view on lodging primarily driven by heightened macroeconomic concerns, tepid RevPAR expectations & a challenging env’t for operating margin

· Utilities & Solar; in solar, FSLR hosted its 2019 guidance call and issued a healthy guide vs. Street expectations/Revenue guidance exceeded expectations, but EPS missed largely due to impacts of higher-than-expected ramp costs/indicated the Series 6 margin profile (key driver of earnings growth moving forward) is meeting/exceeding initial expectations; 52-week highs for several utilities again today: NRG, WEC, FE, CNP, ETR, CMS, DUK, XEL, ES, AEP, PNW

· Media & Telecom movers; VZ downgraded at Morgan Stanley noting the stock has appreciated 11% YTD (15% including the dividend), outperforming the S&P by 12.6% and AT&T (T) by 35%/expect Verizon to report just 1% EPS growth, reflecting in part a 3% ASC 606 headwind, on broadly flat revenues; AMTwas downgraded at Morgan Stanley in tower space (remain OW on CCI/SBAC) after company has seen strong relative performance in 2018, outperforming peers by over 10pp ytd; UNIT was downgraded to underweight at Morgan Stanley as see cost of capital, elevated leverage, and Windstream uncertainty potentially driving a cut in the dividend

       Stock GAINERS

· AEO +1%; on mixed Q3 results as EPS beat/sales misses while guided Q4 EPS 40c-42c, below the 45c estimate/Q3 comp sales rose 8% slightly missing the 8.4% estimate

· CORT +7%; raised to overweight at Cantor with Street-high $29 from $17, sayings that a new patent issued yesterday creates an additional hurdle for attempts to genericize Korlym

· FRAC +6%; guides Q4 revenue at the high end of its earlier forecast and adjusted EBITDA above the previously forecast range/now foresees Q4 revenue of $490M vs. $483M estimate

· PVTL +6%; reported F3Q results with revenue, billings and OCF ahead of Street expectations while current subscription billings grew +57% y/y and a rebound to 30%+ current billings

· SPA +39%; to be acquired by an affiliate of Cerberus Capital for $18.50 per share in cash, which represents a 41% premium to yesterday’s closing price. https://on.mktw.net/2EiW9Kq

· URI +8%; after the company forecast strong 2019 revenue and Ebitda, and dismissed the fears of an impending slowdown

Stock LAGGARDS

· NBIX -21%; as its drug for children and adolescents with moderate to severe Tourette syndrome failed to reach its primary target in a mid-stage study/the 127-patient trial, dubbed “T-Force Gold”, showed Ingrezza did not benefit patients as expected when compared to a placebo

· PLAY -12%; after Q3 results as Q3 revs of $282M topped views, but comp sales fell (-1.3%), more than the (-0.7%) estimate/raised low end of year revs

· ROKU -1%; after Needham cut its tgt to Street low $45 from $85 and also cut its earnings, revenue and user addition expectations for 2019; says lower FY19 user adds is based on rising political tensions with China that may negatively impact Chinese-made TV sales in the US

· UAA -9%; as see sees negative low single-digit CAGR for 2017-2019 growing to positive low-single CAGR 2020-2022 and low-single digit revenue growth in 2023 (investor presentation today)

· UNIT –8%; downgraded to underweight at Morgan Stanley as see cost of capital, elevated leverage, and Windstream uncertainty potentially driving a cut in the dividend

· VRA -10%; after the company’s Q3 EPS missed lowest estimates/operating margin was 5.5% of sales vs. 11.4% a year ago and 7.2% est./comp sales fell (-16.5%) vs. est. (-13%)

Syndicate

· Angi HomeServices (ANGI) 1.5M share Spot Secondary priced at $16.40

· Fluidigm (FLDM) 8.15M share secondary priced at $6.75

· Gladstone Land (LAND) 1.45M share Spot Secondary priced at $12.55

· Global Medical REIT (GMRE) 3.5M share Spot Secondary priced at $9.00

· NeoGenomics (NEO) 10.835M share Spot Secondary priced at $12.75

· RA Pharmaceuticals (RARX) 8.4M share Secondary priced at $15.50

· Tencent Music (TME) 82M share IPO priced at $13.00

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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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