Thursday, December 20, 2018
U.S. equities under pressure again (though off their worst levels of the morning), continuing the post FOMC meeting/Chairman Powell decline after comments yesterday (raising rates by 25 bps and lowering projection from three rate hikes in 2019 to two hikes) as the S&P 500 index fell to the 2,500 level, the Nasdaq Comp new 52-week lows below 6,600 and the Dow trying to hold above the 23,000 level. The S&P 500 Index extended its drop since September to almost 15% now, barreling through its February intraday low and leaving the equity benchmark about 160 points from its first bear market in a decade. Two other central banks in action today as both the Bank of England (keeps benchmark interest rate at 0.75%) and Bank of Japan (also maintains rates) with no major surprises, while oil prices fall again. So much uncertainty heading into next week’s holiday, with trade, oil plummeting, and European market issues. Regarding the potential gov’t shutdown, the Senate passed a temporary spending bill last night which aims to keep the government funded until February in an attempt to put off a confrontation with President Donald Trump over funding for a proposed border wall. The House is set to vote early today on the measure, which is expected to pass. Negative news with China today as Federal prosecutors in NY accused two Chinese nationals of conducting an “extensive” hacking campaign over more than a decade in association with Chinese state security officials. Stocks down, while bonds steady as the dollar slips.
Treasuries, Currencies and Commodities
· In currency markets, the dollar extends its 3-day slide (falling from 18-month highs earlier in the week), as rival currencies rebound after recent declines (one month highs for the euro while the dollar slides to lowest level in nearly 2-months vs. the yen); bitcoin prices extend this week’s rally, up around 10% as tops $4,000
· Commodity prices mixed as gold prices jump to multi-month highs, topping the $1,260 an ounce level as the dollar slide extends to a 3rd day, while investors also add to safe-haven asset positions; oil prices another matter, falling again and wiping out the previous session’s gains and edging back to levels seen earlier in the week as concerns over global growth rattled markets
· Treasury market’s holding strong after the recent rally over the last week – The 10-year Treasury note yield fell 4.3 bps to 2.782% yesterday, it’s lowest since May 29, while the 2-year note yield was mostly unchanged at 2.646%, near its lowest levels since Sep. 6. The 30-year bond yield slipped 6.1 basis points to 3.01%, its lowest since late August
· Weekly Jobless Claims rose 8K to 214K, mostly in-line with the 215K estimate; while the 4-week moving avg. stood at 222Kk in the week ending Dec. 15; prior week claims unrevised from 206K; continuing claims rose 27k to 1.688m in the week ending Dec. 8
· The Philadelphia Fed manufacturing index in December fell to a reading of 9.4, from 12.9 in November to reach the lowest level since August 2016 and missing the 15.0 estimate. New orders and employments declined, though they still remained in positive territory. The prices paid index fell slightly to a still-high 38 reading, while prices received rose to 26.2 from 21.9. The Philly Fed index peaked in May with a 34.4 reading
· Leading Economic Index (LEI) rose 0.2% in November topping the 0% estimate; leading economic index rose to 111.8 in Nov. vs 111.6 prior month
· The 30-year fixed mortgage rate for week ended today fell to 4.62% from 4.63%, Freddie Mac said while the 15-year rate avg 4.07%, unchanged from a week earlier.
Sector Movers Today
· Pharma movers; nearly 30 drugmakers that have taken steps to raise the U.S. prices of their medicines in January, ending a self-declared halt to increases made by a pharma industry under pressure from the Trump administration, according to documents seen by Reuters. Some of the drugmakers lifting prices include NVS, AGN, GSK, AMGN, BIIB and AZN ; AZN and MRK said Lynparza meets primary endpoint in phase 3 SOLO-3 trial for the treatment of relapsed BRCA-mutated advanced ovarian cancer; SPPI shares fell after saying the FDA did not grant Breakthrough Therapy Designation to poziotinib for the treatment of patients with metastatic non-small cell lung cancer; AGEN rises after collaboration deal with GILD; SUPN ADHD drug meets main goal in study on adolescents
· Software movers; ZUO upgraded to strong buy at Needham calling it the top pick in 2019 and an attractive entry point given combo of end-mkt growth, strong competitive positioning, conservative ests, and valuation; BILI active after announced a collaboration with Alibaba Group’s Taobao Marketplace e-commerce website; PVTL was upgraded to outperform at RBC following the ~$100 million Air Force contract that was announced last night; TEUM was initiated outperform and Street high $7.50 tgt at Northland citing its best-in-class Rule of 40 metric
· Healthcare services and providers; HUM upgraded to overweight at JPMorgan while lower tgt to $333 from $354 citing the significant recent stock pullback, accelerating market share gains, attractive Medicare Advantage (MA) exposure and a conservative balance sheet; WBA Q1 adjusted EPS beats consensus, FY2019 outlook reaffirmed, and new cost management program targeting annual cost savings of over $1B by the end of the third year announced
· Midstream refiners, MLPS; Jefferies with various rating changes as they positive on sector, upgrade to buy for TRGP, PAGP, PAA, PXSP, PSX, ENLK, ENLC, DCP, KMI, MMP while downgrade EQGP to hold as it’s being purchased by ETRN – notes group is approaching YE at multi-year lows with EV/EBITDA valuation multiples 15-30% below 3Y averages, despite EPS/cash flow beats through ’18, corporate simplifications, governance enhancements and efforts to rein in leverage
· Lithium stocks slide (ALB, LTHM, SQM) after Bloomberg noted Orocobre reported lower pricing in the December quarter/Orocobre said soft China market conditions were hurting contracts, with lithium carbonate pricing in Dec. quarter ~$10,800/ton vs avg 1H price of $12,470/ton
· Casino & Leisure movers; in lodging; Morgan Stanley downgraded HST and XHR to underweight from equal weight as the risk of a corporate earnings recession in 2019 may hurt room demand (also cuts tgt in the sector SHO, DRH); in gaming, Morgan Stanley bullish on regional gaming as they upgraded BYD to overweight; in cruise lines, CCL reported in-line Q4 EPS/revenue but shares fell after guided Q1 EPS 40c-44c vs. est. 44c (RCL, NCLH shares also active)
· AIMT +13%; on expectations its AR101 treatment for peanut allergies should gain greater share among allergists after DBVT withdrew a filing with U.S. regulators for its Viaskin peanut patch.
· BB +4%; Q3 adjusted EPS of 5c, topped estimates and posts record high adjusted total software and services revenue of $219M, up 10% Y/Y/reaffirms FY2019 outlook
· ERJ +1%; after Republic Airways firms up a contract for 100 E175 jets valued at $4.7B based on current list prices/order will be included in Embraer’s Q4 2018 backlog
· NEM +5%; outperformance in gold miners with ABX, AEM also higher with gold prices pushing higher amid dollar weakness
· TLRY +9%; as Budweiser brewer Anheuser-Busch InBev NV announced a research partnership with Canadian pot firm TLRY where each company will invest up to $50 million in the partnership, which is limited to Canada
· ATU -6%; on mixed results as Q1 EPS beat but revenues fell short of consensus while Q2 revs view $268M-$278M missed the $286.5M estimate
· CAG -10%; Q2 EPS beat by 11c but sales of $2.38B missed estimates while reaffirmed its year sales and margin outlook
· CCL -7%; reported in-line Q4 EPS/revenue but shares fell after guided Q1 EPS 40c-44c vs. est. 44c (RCL, NCLH shares also active)
· CMG -3%; after Wedbush cut 2019 and 2020 EPS estimates amid increased G&A/labor expense/cuts 2019 to $11.68 from $12.05, 2020 to $14.29 from $15.01 saying also faces a “best-case scenario” comp. sales gain in mid-single digits in both 2019 and 2020
· DBVT -67%; after the surprise withdrawal of a biologics license application for Viaskin Peanut at the FDA late Wednesday/CEO did not suggest a new timeline for resubmission and cited the need for sufficient time to better understand the FDA’s feedback
· GEF -14%; after agrees to acquire Caraustar Industries from an affiliate of H.I.G. Capital, in deal valued at $1.8B
· GTHX -29%; Phase 2 data from a trial of its trilaciclib combo, as drug helped preserve blood cells during chemo despite not showing a benefit in response rate and progression-free survival.
· SPPI -27% after saying the FDA did not grant Breakthrough Therapy Designation to poziotinib for the treatment of patients with metastatic non-small cell lung cancer
· TWTR -9%; negative mention by Citron Research, issuing a $20 target price saying will be forced to clean up the site and will have a fast impact on MAU
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.