Tuesday, December 18, 2018
U.S. stocks are partially recovering following yesterday’s broad market rout, opening higher as major averages look to bounce back from a multisession selloff that pushed the NASDAQ and S&P 500 to their lowest levels since the fall of 2017 and the Dow to its worst levels this year. The FOMC began its final meeting of the year on Tuesday, where it is expected to raise rates by 25bps tomorrow (marking the 4th rate hike of 2018), though many have been calling for the Fed to hold off (Trump, Druckenmiller, Gundlach others), expressing hopes they will wait on a rate hike given the recent economic data/environment. With investors still expecting a dovish hike, attention will focus on the forward guidance given by the updated forecasts. In corporate news, tech with a big bounce back led by strength in semiconductors, while most S&P sectors rise with the exception of energy, as oil prices trade to new 52-week lows as WTI crude falls below $50 per barrel and Brent crude dropping below $60 per barrel amid persistent concerns over supplies and a broader fall this week in risk assets. The dollar slipped and the euro stayed higher even as German business sentiment deteriorated.
Treasuries, Currencies and Commodities
· In currency markets, the dollar index (DXY) bounces off morning lows of 96.69, but still down slightly on the day as the greenback extended its pullback from 18-month highs late last week ahead of the FOMC meeting results; major rival currencies posting gains early
· Commodity prices are lower despite weakness in the dollar, with WTI crude dropping below $49 per barrel (and Brent below $60), while gold prices are little changed, losing early gains ahead of the FOMC tomorrow (and down from recent 5-month highs)
· Treasury markets are higher as yields slip, but off their worst levels of the morning ahead of the 2-day FOMC policy meeting, where expectations are still for a 25 bps hike; the 10-year yield fell to lows around 2.80% this morning before paring losses back to 2.84% (down from above 2.85% Monday and 2.89% on Friday) while the 2-year slides to 2.677% (down around 30 bps from its October decade highs)
· Housing Starts for November rose 3.2% to 1,256M annualized, topping the 1,228M estimate and above the 1.217M last month (after falling 1.6% the prior month); single family starts fell to 824k, lowest since May 2017 while multifamily starts rose to 432k in November
· Building permits for November rose to 1,328M vs. 1,265M in Oct. and above the 1,260M estimate (the November level the highest since April); overall, permits rose 5.0% in Nov. after falling 0.4% the prior month; completions rose to 1,099M in Nov. from 1,095M the prior month
Sector Movers Today
· Industrial & Machinery; WBC downgraded o Equal Weight from Overweight at Morgan Stanley and lowered price target to $117 from $124, losing conviction that Wabco can return to its normal margin and outgrowth framework in FY19; NAV rises as reported better-than-expected quarterly profit and revenue as strong freight demand helped drive sales of high margin items; Morgan Stanley assumes AME and FTV at Overweight, and downgrading ITW and FLS to Underweight and HUBB to Equal-weight as they expect a more healthy idiosyncratic stock environment based on cyclical differentiation in 2019 for sector
· Transports; FDX (as shares have plunged over 20% last week) is expected to report earnings tonight after the close; in rails, NSC was upgraded to overweight from neutral at JPMorgan and up tgt to $203 from $198 as estimates $600M of potential productivity gains based on his analysis and points out that he has long favored Eastern rails as a region (firm downgraded KSU rating in conjunction with call); Seaport Global raised Q4 EPS estimates for CP and CNI, while lowering estimates for UNP, CSX, NSC and KSU
· Casino & Leisure movers; power sports price targets were cut by Wells Fargo saying 14 of his 19 Powersports Economic Indicators are decelerating, potentially confirming what we believe could be peak powersports earnings in 2019 (cuts tgts on BRP, HIG, PII, BC, MBUU and MCFT) as well as RV space with tgt cuts to CWH, PATK; Lodging REITs active after Barclays upgraded HST to overweight as believes the company is in a strong position to pursue accretive transactions given its $1.7B cash balance sheet while the firm also downgraded shares of SHO and DRH to EW
· Consumer finance and lending; RBC Capital upgraded NCR to its top pick while downgrades WP to outperform from top pick as the firm notes payments, processing, IT services stocks are up for the year, despite S&P 500’s decline, as EPS growth outweighed multiple contraction and says that trend may continue into next year amid more muted macro expectations
· BA +3%; announced a dividend increase of 20% ($1.71 to $2.055 per share) as well as a replacement share buyback program with a $20B authorization
· DRI +4%; reported a slight beats in comparable sales and EPS and boosted its full-year forecasts/while posted same-restaurant traffic declines at two of its largest brands, Olive Garden (-0.8%) and LongHorn Steakhouse (-0.1%) was offset with higher pricing (+1.9%, +1.7%)
· FGEN +3%; as the company and partner AZN said that its drug Roxadustat has been approved in China as a treatment for patients who have chronic kidney disease and are on dialysis.
· NAV +13%; better-than-expected quarterly profit and revenue as strong freight demand helped drive sales of high margin items
· ORCL +4%; posted modestly better than expected quarterly results on both the top and bottom line/guidance for Q3 was below consensus on revenue due to a higher than expected FX headwind while EPS was better
· PBYI +7%; announced top line results from the Phase III NALA trial of the company’s lead drug candidate neratinib in patients with HER2-positive metastatic breast cancer who have failed two or more prior lines of HER2-directed treatments
· TLRY +7%; signed a global partnership with a division of Swiss drug giant NVS to develop and distribute its medical marijuana in legal jurisdictions around the world.
· BIIB -3%; after analysts from Oppenheimer and Bernstein lowered their price targets ahead of potential risks in the beginning of 2019 and beyond
· ITCI -2%; after company decides to discontinue study 201 on the treatment of agitation in patients with probable Alzheimer’s disease following conclusion that it is not likely to meet primary endpoint
· PM -3%; downgraded to underperform at Credit Suisse and cut tgt to street-low $74 from $92 amid EPS risk and his expectation for IQOS to continue losing market share
· RCII -15%; as its merger with Vintage Capital has been terminated as the deadline has passed to extend the agreement
· STLD guides Q4 EPS $1.25-$1.29, below estimate $1.38/sees Q4 profitability from steel operations lower than Q3 results
· WOR -8%; reported Q2 net sales of $958M, missing the $982.7M estimate
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.