Mid-Morning Look: January 17, 2019

Scott GreenDaily Market Report

Mid-Morning Look

Thursday, January 17, 19

Index

Up/Down

%

Last

 

DJ Industrials

-48.47

0.20%

24,158

S&P 500

-1.53

0.06%

2,614

Nasdaq

-0.31

0.01%

7,034

Russell 2000

3.74

0.26%

1,458

 

 

U.S. equities are down slightly too little changed as financials (yesterday’s sector winner) among the biggest drag on markets early following a weak round of earnings (from MS). Futures slipped overnight as trade tensions between the U.S. and China resurfaced amid a federal investigation into Huawei Technologies for allegedly stealing trade secrets, but has bounced off lows. The benchmark S&P 500 index fails to breach the 50-day MA resistance of 2,626, a level it hasn’t topped since early December, while the NASDAQ holds above its 50-day MA technical level (currently 6,982). After a strong start to the year for US stocks, with the NASDAQ up 6% YTD, S&P over 4% and the SmallCap Russell up over 8%, stocks showing some signs of fatigue in the early going today. Caution flags still remain given Brexit uncertainty, the gov’t shutdown and trade tensions still between the US and China. Earnings tonight from Netflix make shake the technology sector up tomorrow.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar index (DXY) steady for a second day as all quiet on the macro front (no Fed comments, trade talk with China and limited economic data amid govt shutdown into day 27); dollar little changed vs. euro and yen, down slightly vs. Pound. Gold prices slip back below $1,290 an ounce while natural gas prices jump ahead of colder weather forecasts this weekend. Oil prices among biggest decline in commodity space as WTI crude falls 1.75% to around $51.50 per barrel. Treasury prices slip as yields inch higher with the 10-year at 2.73% and 2-yr 2.56%.

 

Economic Data

·     Weekly Jobless claims fell 3K to 213K, below the 220K est. while prior week claims unrevised at 216K; the 4-week moving avg. stood at 220.75Kk in latest week; continuing claims rose 18K to 1.737M in the week ending Jan. 5; unadjusted initial claims filed by federal employees rose 5,694 to 10,454 in the week

·     Philly Fed Index for January rises to 17.0, topping the 9.5 estimate and prior month reading of 9.1; Jan. prices paid fell to 32.7 vs 38.9, New orders rose to 21.3 vs 13.3 and employment fell to 9.6 vs 19.1; also, shipments fell to 11.4 vs 12.4 and inventories fell to -7.6 vs 2.6

·     The 30-year fixed mortgage rate for week ended today was unchanged at 4.45%, Freddie Mac said; 15-year rate avg 3.88%, down from 3.89% a week earlier.

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.92

51.39

Brent

-0.78

60.54

Gold

-4.40

1,289.40

EUR/USD

-0.0005

1.1387

JPY/USD

-0.14

108.95

10-Year Note

0.012

2.734%

 

 

Sector Movers Today

·     Chemical sector; EMN was upgraded to outperform at Morgan Stanley saying the company’s valuation has gone more than a step further in terms of implied negative EPS revisions; earnings weak today however as PPG reported better than expected Q4 earnings, but warns 1H’19 results will be affected by cost inflation carried over from 2018, unfavorable foreign currency translation and modestly lower sales volumes/downward guidance; overnight, FUL shares fell after quarterly earnings and revenue came in short of consensus views on weaker margins; FOE lowers year EPS view to $1.45-$150 on Ebitda $257M-$262M, below prior view $1.55-$1.60 and $270M-$275M

·     Oil equipment and services; Cowen upgraded HAL and PUMP to outperform, turning more positive on pressure pumpers adding that investors fear downside to 1H 2019 estimates, though they see completion activity to grow in 2Q19 and beyond (also upgraded APY to outperform on valuation and downgrades CVIA, NBR, SPN to market perform given more levered balance sheets/top picks BHGE, APY). JPMorgan said they see scope for recent valuation compression relative to NAM beta stocks to normalize, favoring pair trades (long DRQ, FI) against land driller shorts like HP and PTEN (both rated Underweight) and also like FI as a long hedge against UW offshore drillers (ESV, NE, RIG).

·     Hard disk drive stocks weak; Nidec cut FY guidance by with revenue now expected at ¥1.450T from prior ¥1.600T, net income to ¥112.00B from prior ¥147.00B and operating profit to ¥145B from prior ¥195.00, EPS to ¥379.91 from prior ¥498.63; WDC falls as Deutsche expect WDC to deliver F2Q results that are at the low end of company’s guidance for revenues and EPS and Wells Fargo said “we’re expecting a negative guide; while we think shares of WDC could trade back to the low-$30 range NT, we remain positive on the LT risk/reward” (STX fell as well)

·     Bank movers; another buys morning of earnings as Societe Generale SA France (GLE.FR) said Q4 was affected by a challenging environment in global capital markets, and this will cause a decline in revenue in its Global Markets/expects revenue in this business to fall by around 20% in Q4; MS shares fell as Q4 EPS of 73c missed the 89c estimate as results in fixed income sales and trading weighed on shares/Q4 revenue of $8.55B fell from $9.50B in the year-ago quarter; MS sales and Trading revenue fell to $2.5B from $2.7B Y/Y, with FICC revenue falling 30% to $564M YoY

·     Regional banks; BBT Q4 EPS of $1.05 beat consensus estimate by 1c while total revs of $2.94B, missed the $2.97B est/Q4 net interest margin 3.49%, up 2 basis points from Q3; KEY Q4 EPS of 48c beat by a penny while mgmt notes that credit quality remains strong and net charge-offs to average loans of 0.27% are below target range/non-performing loans declined $100M from Q3

 

Stock GAINERS

·     AA +4%; after 4Q results beat EPS expectations by 8c on better revs but lacked 2019 Ebitda guidance as the co is now disclosing more detail on the use of cash flows

·     ADMP +4%; in reaction to commercialization partner NVS Sandoz’s U.S. launch of Symjepi (epinephrine) for emergency treatments of allergic reactions

·     CARS +7%; Bloomberg said Cars.com board authorized the review on Sept. 28, has considered “broad range” of alternatives including a possible sale

·     KNX +5%; boosted its forecast for Q4 EPS to 91cc-93c from prior view 71c-75c and Q1 EPS 52c-55c vs prior view 50c-54c based on rev/loaded mile increases ex-fuel surcharge, improved safety results, among other items

·     LPCN +41%; after encouraging data from an open-label single-arm study evaluating NASH candidate LPCN 1144 in 36 hypogonadal males with at least 10% baseline liver fat

·     PCG +3%; has plunged over the last week on bankruptcy plans – today, shareholder BlueMountain Capital is challenging the company’s plan to file for bankruptcy protection

·     TA +12%; as agreed to acquire twenty travel center properties from HPT for $308.2M and amend some leases

 

Stock LAGGARDS

·     EA -2%; downgraded at Jefferies as believe growth for EA’s key profit engine Ultimate Team is plateauing, and now forecast Adj. Operating Income margin compression of 300bps Y/Y in F’19

·     ESTE -16%; preannounced Q4 production -18%/-19% vs. estimates and unveiled FY19 production guidance that was -15% vs. Seaport ests on a significantly higher capex budget

·     MS -5%; as Q4 EPS of 73c missed the 89c estimate as results in fixed income sales and trading weighed on shares/Q4 revenue of $8.55B fell from $9.50B in the year-ago quarter

·     QTNA -12%; after being downgraded to underweight at Barclays

·     SIG -20%; after saying it sees 4Q comparable sales down 1.6% to down 2.5%, compared with the average analyst estimate of up 0.8%/sees FY19 comparable sales about flat

·     TSM ; as the iPhone supplier gave a revenue outlook that was sharply below expectations, guiding to $7.3B-$7.4B, below the $8.1B estimate and predicted a gross margin at least 2.5 percentage points below projections

·     WDC -5%; as Deutsche expect WDC to deliver F2Q results that are at the low end of company’s guidance for revenues and EPS and Wells Fargo said “we’re expecting a negative guide; while we think shares of WDC could trade back to the low-$30 range NT, we remain positive on the LT risk/reward”

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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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