Morning Preview: December 18, 2018

Scott GreenDaily Market Report

Early Look

Tuesday, December 18, 2018

U.S. stock futures are pointing to a higher open, looking to rebound after yesterday’s market rout, while US Treasury yields fall to their lowest levels in months (10-year around 2.80%) and oil prices plunge further, with WTI crude falling below $50 per barrel (to fresh 1-year lows) and Brent crude dropping below $60 per barrel amid persistent concerns over supplies and a broader fall this week in risk assets. Better earnings out of software giant Oracle and large share repurchase plans from Dow components Boeing and J&J are lifting averages. Investors remain nervous ahead of Tuesday’s start of the two-day Federal Open Market Committee meeting, amid fears the central bank may be too hasty with an expected interest-rate hike. Stocks tumbled again on Monday as the Dow Jones Industrial Average fell by more than 500 points marking its lowest close of 2018, the S&P 500 index declined by 2.1% at 2,545 touching its lowest levels since October 2017, while the Nasdaq Composite Index ended 157 points, or 2.3%, lower at 6,754. The declines coming fresh off an ugly Friday session that saw the Dow enter correction territory (a drop of at least 10% from a recent peak). Meanwhile, the 10-year Treasury yield dipped over 3 bps to 2.86%, pulling back from its Friday highs as investors fled to the safety of government bonds. Health-care stocks were among the biggest decliners after a Federal judge ruled that Obamacare unconstitutional. Next up, the Fed concludes its rate-setting meeting on Wednesday at 2:00 PM EST. In Asian markets, The Nikkei Index followed US markets lower, dropping -391 points (1.8%) to settle at 21,115, the Shanghai Index dropped -21 points to 2,576 and the Hang Seng Index fell -273 points to 25,814. In Europe markets are mixed as the German DAX is higher by 40 points above 10,800, while the FTSE 100 slips around -20 points at 6,750. Markets are also fearful ahead of this week’s potential government shutdown by President Trump amid in-house opposition about building of the wall. Also yesterday, China cut its holdings of US Treasuries in October for a fifth consecutive month amid a broader, declining foreign demand for US government debt.

Market Closing Prices Yesterday

· The S&P 500 Index plunged -54.01 points, or 2.08%, to 2,545.94

· The Dow Jones Industrial Average fell -507.53 points, or 2.11%, to 23,592.98

· The Nasdaq Composite dropped -156.93 points, or 2.27%, to 6,753.73

· The Russell 2000 Index declined -32.67 points, or 2.32% to 1,378.14

Events Calendar for Today

· 7:45 AM EST ICSC Weekly Retail Sales

· 8:30 AM EST Housing Starts MoM for November…est. 1.226M

· 8:30 AM EST Building Permits MoM for November…est. 1.26M

· 8:55 AM EST Johnson/Redbook Weekly Sales

· 4:30 PM EST API Weekly Inventory Data

Earnings Calendar:

· Earnings Before the Open: DRI, FDS, LOVE, NAV, WOR

· Earnings After the Close: ABM, AIR, FDX, JBL, MU, SCS

World News

· U.S. Net Long-Term Portfolio Securities Inflow (TIC) $31.3B in October, U.S. total cross-border investment inflows at $42B in Oct.; China holds $1.14T of U.S. Treasuries, a decrease of $12.5B from last month, Japan holds $1.02T, a decrease of $9.5B from last month. Foreign net buying of Treasuries at $1.7B and foreign net selling of equities at $22.2B

· China President Xi said no one can tell China what to do and the country will stick to its policy agenda, even as pressure mounts to allow more competition and reduce the state’s role. Xi offered no new ideas to boost the economy or assuage U.S. concerns but reiterated the need for the Communist Party to control all aspects of the country’s development.

· German business sentiment deteriorated further to its lowest level in more than two years as trade tensions and the rising risk of a no-deal Brexit weigh on sentiment as the Ifo Institute’s gauge of corporate confidence fell to 101.0 in December from 102.0 in November (the fourth straight decline)

Sector News Breakdown

Energy, Industrials and Materials

· The Boeing Company (BA) raised its quarterly dividend by 20% to $2.055 per share and also replaced the existing share repurchase program with a new $20 billion authorization, up from the $18 billion approved last December

· Royal Dutch Shell PLC (RDSA) is in talks to buy Endeavor Energy Resources LP for around $8 billion, Bloomberg reports, citing unnamed sources. https://on.mktw.net/2UUoBbe

· Heico (HEI) Q4 EPS 49c/$476.88M vs. est. 48c/$462.99M; sees FY net sales +8% to +10% and sees FY net income growth +10%

· Navistar (NAV) Q4 EPS $1.89/$3.32B vs. est. $1.71/$3.22B; sees FY19 revenue $10.75B-$11.25B vs. est. $10.57B; sees FY19 adjusted EBITDA $850M-$900M

· Japan plans to spend around $10 billion to become the largest customer outside the U.S. for Lockheed Martin Corp.’s (LMT) F-35 jet fighters. The cabinet of Prime Minister Shinzo Abe approved an increase of Japan’s existing order for 42 F-35s to 147 of the aircraft as part of new defense plans that include the development of Tokyo’s first post-World War II aircraft carrier

· K+S AG (SDF.XE) raised its production outlook after saying that weather-related production stoppages at a German plant would be shorter than previously thought. Production at its Werra potash plant will now only be stopped from December 24 to 26

· Anglo American PLC’s (AAL.LN) said that its majority owned De Beers Group sold $540 million in rough diamonds in its tenth and final sales cycle of the year, which ended Dec. 17.

Healthcare

· Johnson & Johnson (JNJ) announces $5B share repurchase program; backs FY18 adj. EPS view $8.13-$8.18 on revs $81B-$81.4B vs. est. $8.16/$81.34B

· AstraZeneca PLC (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. The company said its partner FibroGen China, a subsidiary of FibroGen Inc. (FGEN), has received marketing authorization from the Chinese National Medical Products Administration for orally administered Roxadustat.

· Puma Biotechnology (PBYI) 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

· Achillion Pharmaceuticals (ACHN) said interim data from Phase 2 trials demonstrated preliminary proof-of-concept for its first generation, oral factor D inhibitor, ACH-4471

· Ligand Pharmaceuticals (LGND) will pay $10M to Palvella Therapeutics and receive a tiered royalty on net sales in the mid-to-upper single digits, as well as regulatory and financing milestones

· EyePoint Pharmaceuticals (EYPT) announced that it has been selected for addition to the NASDAQ Biotechnology Index. EyePoint’s addition to the NBI will become effective prior to market open on Monday, December 24, 2018

Technology, Media & Telecom

· Oracle (ORCL) Q2 adjusted EPS 80c/$9.57B vs. est. 78c/$9.52B; 2Q cloud revs $6.64B, 2Q service revs $817M, 2Q hardware revenue $891M and 2Q adjusted operating margin +43%

· Red Hat (RHT) Q3 EPS 96c/$846.8M vs. est. 87c/$852.9M; 3Q subscription revs $740.7M and 3Q adjusted gross margin +86.6%; 3Q adjusted operating income $202.9M; Q3 operating cash flow $136.7M

· Qualcomm Inc. (QCOM) said it believes Apple Inc. (AAPL) remains in violation of a Chinese court’s orders to stop selling iPhones despite a software update that Apple pushed out on Monday, Reuters reported

· CBS will not pay Les Moonves any of the $120m in severance that he was due after stepping down as chief executive following sexual misconduct allegations

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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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