Mid-Morning Look: December 13, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Thursday, December 13, 2018

U.S. equities rise in early trading as markets weigh the latest trade developments between the U.S. and China following news that Chinese importers resumed buying American soybeans. The Dow and S&P were up for the third time in four days but note, U.S. stocks (in a somber trend) have given back early gains the last four trading sessions, ending each day well off its highs (we’ll see if gains hold today). As has been the case of late, financials are lagging early as well as retail while defensive sectors (Utilities) are among the top gainers. Weekly jobless claims fell to more than 2-month lows while import prices dropped more than expected given the recent slide in oil prices. GE the top gainer in the S&P 500 as shares jumped more than 12% after long-term bear JPMorgan upgraded shares to neutral. Brexit tensions remain in the UK: Despite U.K. Prime Minister Theresa May winning the vote of no-confidence the Conservative Party, leaving her untouchable by her party for another such vote for the next 12 months, the options for Brexit remain the same as before: going with May’s deal or a slightly amended version if the EU allows for it, hold a second referendum, walk back on the decision to exit, or allow for a hard Brexit. France’s Emmanuel Macron warned that EU talks with Theresa May today in Brussels cannot go beyond a “political discussion”, as he stressed that Britain’s Brexit deal cannot be reopened. The ECB kept rates steady this morning as they confirmed they are ending their bond-buying program.

Treasuries, Currencies and Commodities

· In currency markets, the euro turned lower vs. the dollar after ECB President Mario Draghi said during his press conference the balance of risks is moving to the downside, with comments coming after the ECB confirmed it’s ending its bond-buying program at the end of the month. The euro fell as low as $1.1339, or down 0.3% while the dollar rises vs. the yen, little changed vs the Pound. Treasury markets are little changed, with the 10-year at 2.90%

· Commodity prices are mixed early as oil prices rebound off earlier lows while gold prices slip from 5-month highs reached earlier this week; a combination of a volatile dollar, China trade fears, and central bank commentary this morning (ECB) effecting commodity prices

Economic Data

· Weekly jobless claims fell 27K to 206K to 2 ½ month lows, well below the 226K estimate while prior week claims revised up to 233K from 231K; the 4-week moving avg. declines 3,750 to 224,750; continuing claims rose 25k to 1.661m in the week ending Dec. 1

· Import Prices for November fell (-1.6%), after rising 0.5% in October and was greater than the expected (-1%) decline; it was the biggest decline in the import price index in more than three years as oil prices sank 12%. Even if fuel is excluded, however, import prices slipped (-0.3%). The increase in import prices over the past 12 months fell to 0.7% from 3.3%; U.S. export prices, meanwhile, declined by 0.9% in November.

Sector Movers Today

· Software movers; ADBE to report earnings tonight after the close; JPM with various rating changes in software sector as upgraded AVLR, NEWR, QTWO, while downgraded ADSK, FIVN, INTU, MDSO saying the 2019 outlook is incorporating a move toward companies that are demonstrating less cyclicality and capitalizing more on secular technology adoption, or have demonstrated noncyclical behavior or other company specific catalysts that we believe can drive shareholder performance; LLNW falls as cuts FY18 EPS view to 10c-11c from 14c-17c (est. 15c) and cuts FY18 revenue view to $195M-$196M from $200M-$203M

· Industrial & Machinery; GE was upgraded by biggest bear on the Street JPM to neutral from underweight but maintained its $6 tgt as they now see a more event-driven, balanced risk reward at current levels; separately, GE said its digital unit would sell a majority stake in ServiceMax, a cloud-based provider of software used in inventory and workforce management, to technology-focused private equity firm Silver Lake; DY was upgraded to buy at Craig Hallum saying the 15% pullback makes current levels attractive again; CAT November rolling 3-month retail machine sales rose 16% vs Oct. 18% rise, Sept. up 21% while North America machine sales up 20% after rising 21% in Oct.

· Oil services and equipment; FTI shares slip as guided Subsea margins significantly worse than expected as sees 11%, vs. 16% long run average and 13.5% in Bernstein forecast/Seaport noted Implied EBITDA at the midpoint of $1.445B is modestly below current consensus of $1.485B. Raymond James downgraded 8-stocks in the service sector (CCLP, NBR, NCSM, RES, SPN, TTI, UNT, and WFT) as detailed why we think oil prices are likely to remain at today’s lower levels through early 2019. Unfortunately, since these lower oil price assumptions coincide with E&P budget season, they will likely have a greater than normal negative impact upon 2019 activity

· Internet security active after Morgan Stanley upgraded FSCT to overweight with a view that current levels are oversold in light of its attractive secular positioning around IoT security and room for upside to estimates, while downgraded FEYE to equal-weight from overweight with $21 tgt as sees limited upside at current levels based on a sum-of-the-parts analysis. Morgan said they continue to like names in our universe where expects are very low (PANW, PFPT, FSCT) and/or estimates have room to move higher (CYBR) and await further pullback for the most secularly well positioned names in our universe – ZS, TENB & SAIL

       Stock GAINERS

· AFL +4%; as Reuters reported Japan Post Holdings Co is planning to invest about $2.6B in the insurer, aiming to become the largest shareholder https://reut.rs/2EjusB5

· CIEN +10%; after reported Q4 results that easily beat consensus on better margins/revenue of $899.4M increased 21% y/y and 10% q/q

· GE +9%; upgraded by biggest bear on the Street JPM to neutral from underweight but maintained its $6 tgt as they now see a more event-driven, balanced risk reward at current levels

· MGLN +4%; as activist fund Starboard Value has taken a stake and plans to push the health care provider to improve its performance or explore a potential sale https://yhoo.it/2QvRHiq

· NBEV +7%; after the House of Representatives passed a $867B measure reauthorizing farm programs and sent it to President Donald Trump (the farm bill also legalizes hemp production)

· PG +2%; upgraded to buy at Goldman Sachs and raised tgt to Street-high $108 from $95 citing increased confidence that early momentum in FQ119 can be sustained

· VNCE +23%; after earnings results topped estimates

Stock LAGGARDS

· AAL -3%; airlines falter as oil prices spike, weighing on transports

· AGTC -43%; after its gene therapy showed no clinical activity in an eye disease and BIIB ended a three-year relationship for developing gene therapies

· FTI -1%; guided Subsea margins significantly worse than expected as sees 11%, vs. 16% long run average and 13.5% in Bernstein forecast/Seaport noted Implied EBITDA at the midpoint of $1.445B is modestly below current consensus of $1.485B

· LLNW -25%; as cuts FY18 EPS view to 10c-11c from 14c-17c (est. 15c) and cuts FY18 revenue view to $195M-$196M from $200M-$203M

· MNST -4%; rated new sell and $48 tgt at UBS this morning in beverage initiations

· OXM -7%; after Q3 earnings miss by 3c on lower than expected revs of $233.7M while guided Q4 below views as well (4Q adjusted EPS 96c-$1.11 below estimate $1.33

· TLRD -26%; falling on missed Q3 sales and cuts FY18 adjusted EPS view to $2.30-$2.35 from $2.35-$2.50

Syndicate

· Biohaven Pharmaceutical (BHVN) 3.3M share Secondary priced at $37.25 per share

· Hannon Armstrong (HASI) 5M share Spot Secondary priced at $22.30

· Marinus Pharmaceuticals (MRNS) 12M share Secondary priced at $3.75 per share

· Tocagen (TOCA) 3M share Secondary priced at $10.00 per share

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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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