Morning Preview: January 4, 2019

Scott GreenDaily Market Report

Early Look

Friday, January 4, 2019

Stock futures are higher, looking to rebound after yesterday’s dreadful performance as a sales forecast cut by Dow component and tech bellwether Apple Inc intensified fears of a slowing Chinese economy, while a survey of American manufacturers showed the sector growing at its slowest pace in two years, raising fears about the slowing growth in the U.S. Transports escaped the big headlines, but the index fell over 3%, led by airlines (falling to 2-year lows) after Delta lowered a key guidance metric. Helping futures overnight, a private survey released Friday showing that China’s services sector expanded in December, while markets also await December jobs data later this morning. Investors also were encouraged by news that the U.S. and China will hold trade talks in Beijing on Jan. 7 and 8th. Also, on their first day in the majority, House Democrats on Thursday night passed a plan to re-open the government (currently on day 14 of the partial gov’t shutdown) without funding President Donald Trump’s promised border wall.

In Asian markets, The Nikkei Index reopened after being closed several days for holiday, falling -452 points or 2.26% to settle at 19,561, the Shanghai Index gained 50 points (2%) to close at 2,514 and the Hang Seng Index jumped 561 points (2.24%) to 25,626. In Europe, the German DAX is up about 170 points at 10,580, while the FTSE 100 is up around 80 points at 6,775. Highlights today are expected to be: The December jobs report is set for release at 8:30 AM EST, while Fed Chairman Powell is set to take part in a panel discussion at 10:15 AM EST alongside predecessors Janet Yellen and Ben Bernanke at the annual meeting of the American Economic Association in Atlanta.

While the stock market decline grabbed all the headlines on Thursday, it was the spike in treasury markets that had heads turning as the 10-year Treasury note yield plunged 10.2 bps to 2.557%, its lowest since Jan. 16, 2018, and marked its biggest one-day decline since May. The two-year note yield fell 11.1 bps to 2.391%, its lowest since May 29, marking its biggest daily fall also since May. The 30-year bond yield fell 7.9 bps to 2.903%, its lowest since Jan. 25, 2018. The weaker ISM report and stock market plunge sent investors scurrying into bonds.

Market Closing Prices Yesterday

· The S&P 500 Index plunged -62.14 points, or 2.48%, to 2,447.89

· The Dow Jones Industrial Average fell -660.02 points, or 2.83%, to 22,686.22

· The Nasdaq Composite sunk -202.43 points, or 3.04%, to 6,463.50

· The Russell 2000 Index declined -25.07 points, or 1.85% to 1,330.83

Events Calendar for Today

· 8:30 AM EST Change in Nonfarm payrolls for December…est. 181K

· 8:30 AM EST Change in Private Payrolls for December…est. 185K

· 8:30 AM EST Change in Manufacturing Payrolls for December…est. 20K

· 8:30 AM EST Unemployment Rate for December…est. 3.7%

· 8:30 AM EST Average Hourly Earnings for December…est. 0.3%

· 9:45 AM EST Markit US Composite PMI, Dec-F…prior 53.6

· 9:45 AM EST Markit US Services PMI, Dec-F…est. 53.4

· 1:00 PM EST Baker Hughes Weekly Rig Count

World News

· Activity in China’s service sector expanded at a slightly faster pace in December, a private gauge showed Friday, in line with official data for last month. The Caixin China services purchasing managers’ index edged up to 53.9 in December from 53.8 in November

· China’s central bank on Friday cut the ratio of cash that banks must hold as reserves by 100 basis points, or 1%, Reuters and other news outlets reported. The move by the People’s Bank of China is seen as a means to help reduce the risk of a sharper slowdown. The reserve requirement ratios are currently 14.5% for large banks and 12.5% for smaller banks.

· Euro-zone inflation hit an eight-month low of 1.6% in December. The decline is largely driven by oil and won’t surprise ECB policy makers, who predicted weaker readings for the coming months when they announced the end of asset purchases.

Sector News Breakdown

Consumer

· Resources Connection (RECN) Q2 EPS 33c/$$188.8M vs. est. $185M; 2Q adjusted Ebitda $20.0M

· Cal-Maine (CALM) Q2 EPS 45c/$356M vs. est. 53c/$363.0M; said 2Q dozen eggs sold 262.3 million; says well positioned to capitalize on California Proposition 12 cage-free egg mandate to expand operations or consider potential acquisitions

· Auto supplier Visteon (VC) downgraded to Neutral from Outperform at Baird while the firm also cut Autoliv (ALV), Veoneer (VNE) and Adient (ADNT) to Underperform from Neutral

· Building products Masco (MAS), Armstrong World (AWI) upgraded to Buy from Neutral at Bank America while the firm also upgraded Fortune Brands (FBHS) to Neutral from Underperform

Energy, Industrials & Materials

· The American Petroleum Institute (API) reported that U.S. crude supplies fell by -4.5M barrels for the week ended Dec. 28, two days later than usual because of Tuesday’s New Year’s Day holiday. They also reportedly showed that gasoline stockpiles climbed by 8M barrels, while distillate inventories rose by 4M barrels

· Landec (LNDC) Q2 EPS loss (2c)/$124.9M vs. est. loss (1c)/$126.04M; sees Q3 EPS 3c-4c on revs $156M-$159M vs. est. 10c/$169.59M; sees fiscal 2019 cash flow from ops $26Mm-$30M

· RPM International (RPM) Q2 EPS 52c/$1.36B vs. est. 67c/$1.38B

· Commodities stocks rose after trade talks between the U.S. and China were set to resume and Caixin China December PMI readings were better than expected. China’s surprise reserve ratio cut added to the positive sentiment

Financials

· Square, Inc. (SQ) announced that Amrita Ahuja will join the company as Chief Financial Officer. Amrita will start in January and will report to CEO Jack Dorsey. Amrita is currently the CFO of Blizzard Entertainment

Healthcare

· Flexion Therapeutics (FLXN) generated $9.5M in revenue in Q4, up 36% yoy; full-year revenue was ~$22.5M; expects ZILRETTA (triamcinolone acetonide) sales this year of $65M-$80M

· Novavax (NVAX) said a Phase 2 clinical trial of NanoFlu showed well-tolerated and elicited vigorous immune responses to the four strains included in the vaccine

· Selecta Biosciences (SELB) announced a plan that includes updates on its platform priorities and a cut in its current workforce by 36% as of January 3, 2019.

· Jazz Pharmaceuticals plc (JAZZ) and Codiak BioSciences, Inc. announced that the companies have entered into a strategic collaboration agreement focused on the research, development and commercialization of exosome therapeutics to treat cancer.

· CAS Medical (CASM) said it sees Q4 revenue $5.8M versus $5.1M in the year-ago quarter

· scPharmaceuticals (SCPH) files $100M mixed securities shelf

Technology, Media & Telecom

· Semiconductors Texas Instruments (TXN), Analog Devices (ADI) andMaxim Integrated (MXIM) downgraded to Neutral from Buy at Bank America, while the firm upgraded Intel (INTC) to buy from neutral

· Netflix Inc. (NFLX) was added to the conviction list at Goldman Sachs,

· Activision Blizzard (ATVI) lost its second senior financial executive this week. Amrita Ahuja is leaving her job as CFO of Blizzard Entertainment to take the same post at Square (SQ)

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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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