Mid-Morning Look: January 28, 2019

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Mid-Morning Look

Monday, January 28, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-296.49

1.20%

24,440

S&P 500

-26.91

1.01%

2,637

Nasdaq

-90.75

1.27%

7,074

Russell 2000

-12.33

0.83%

1,470

 

 

Stocks slide to start the week with several market moving factors pushing sentiment lower ahead of the busiest earnings week of the quarter (there are 114 companies in the S&P 500 index reporting earnings this week alone with 37 of them reporting on Thursday, and 13-Dow components). Industrials and machinery stocks weak after CAT quarterly earnings was well short of consensus along with a weaker profit outlook for the year (hurt by China slowdown). Semiconductor stocks drop after NVDA cut its Q4 revenue outlook, saying that it’s gaming and data center divisions were weaker than the company had expected. In addition to earnings, markets will be closely watching the FOMC meeting mid-week (two day meeting) and trade as Chinese trade officials arrive in the U.S. today as evidence of the economic impact of the dispute mounts. Two vice ministers will help pave the way for talks between Xi’s top aide Liu He, Robert Lighthizer and Steven Mnuchin Jan. 30-31. If trade talks fail, Trump has promised to raise the tariff rate on $200 billion in Chinese imports to 25% from 10%. Defensive assets rising early as Treasuries and gold inch higher given the early decline in global stocks. The CBO today said the eventual government shutdown cost to U.S. to be 0.02% of 2019 GDP as estimates real GDP in the 4Q of 2018 was “reduced by $3 billion in relation to what it would have been otherwise.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar is mixed as the Canadian dollar slipped vs. the US dollar as WTI crude oil prices dropped while the British Pound pulls back below the 1.32 level from last night. Meanwhile the dollar slides vs. both the euro (two-week highs) and yen; Bitcoin prices drop to 6-week lows, down around 4% at $3,400. Treasury prices rise as yields fall with stocks as the 10-year yield dips below 2.74% and the 30-year below 3.05%.

·     Commodity prices are mixed as oil prices slide with Saudi Arabia saying it will pump oil for six months at levels “well below” the voluntary production limit it accepted under OPEC’s oil-cuts accord, according to Energy Minister Khalid Al-Falih said. Saudi targeted January production of 10.2 million barrels a day and is aiming to pump 10.1 million in February, Al-Falih said. Meanwhile gold prices are holding steady above the $1,300 an ounce level.

 

 

Macro

Up/Down

Last

 

WTI Crude

-1.60

52.08

Brent

-1.43

60.21

Gold

1.00

1,305.20

EUR/USD

0.0021

1.1427

JPY/USD

-0.32

109.23

10-Year Note

-0.021

2.74%

 

 

Sector Movers Today

·     Industrial & Machinery; sector under pressure after Dow component CAT Q4 EPS of $2.55 missed estimates by over 40c while its 2019 EPS outlook of $11.75-$12.75, missed the $12.73 analyst estimate, indicating a slide in global demand/said Q4 backlog was $16.5 billion, about $800 million lower than Q3 (CNHI, AGCO, LNN among movers in sympathy); some earnings tonight from CR, WWD was upgraded at JPMorgan today citing its divestment plan

·     Metals & Materials; VALE shares plunge as the miner suspended dividends as it assessed the fallout of the dam tragedy in Brazil, which left more than 50 dead and hundreds missing; in the steel sector, Morgan Stanley upgraded US Steel (X) to equal weight from underweight while cut tgt to $21 from $30 saying the near-term price outlook for steel was improving and that it sees limited downside (firm downgraded AKS ahead of earnings tonight) – see price back at $700/t in 2Q vs. spot at $650/t and we stay OW STLD; USAP was upgraded to overweight at KeyBanc on strong sales visibility, solid margin expansion opportunities, and valuation

·     Semiconductors; NVDA lowers its Q4 outlook as sees Q4 revs about $2.2B, below its prior view of $2.7B saying Gaming and Datacenter revenue below company’s expectations (the guidance weighs heavily on shares of AMD, as group falls further after INTC lower numbers last week); MXIM, SLAB, QCOM, MLNX, CRUS, and CY among semiconductor earnings this week

·     Pharma movers; ABBV reports the FDA has approved the use of Imbruvica in combination with obinutuzumab for adult patients with previously untreated chronic lymphocytic leukemia/small lymphocytic lymphoma; AMGN was downgraded to in-line from outperform at Evercore/ISI; CRSP shares fall after being downgraded to neutral at Goldman Sachs (tgt to $40 from $78, saying there are no catalysts for the stock until at least the end of this year

 

Stock GAINERS

·     AAL +2%; as airline stocks outperform across the board given the pullback in oil prices, with ALK, JBLU, LUV all moving higher

·     MLM +1%; strength in building product stocks early with VMC, MAS among top S&P leaders

·     VSM +13%; as ENTG acquired VSM in a merger of equals, where Versum holders will receive 1.12 shares of ENTG for each share of VSM in a combined company with pro forma enterprise value of ~$9B, with ~$3B in sales and ~$1B in adj. EBITDA for calendar 2018 https://on.wsj.com/2MDJ6Fc

·     ZAYO +2%; after Bloomberg reported late Friday that GOOGL, CTL and the infrastructure arm of private equity firm EQT Partners are among the potential suitors weighing takeover bids https://on.mktw.net/2Wn2s6f

 

Stock LAGGARDS

·     AKS -8%; after Morgan Stanley downgraded and falls ahead of earnings tonight

·     AMGN -3%; downgraded to in-line from outperform at Evercore/ISI

·     CAT -8%; Q4 EPS of $2.55 missed estimates by over 40c while its 2019 EPS outlook of $11.75-$12.75, missed the $12.73 analyst estimate

·     CRSP -8%; downgraded to neutral at Goldman Sachs (tgt to $40 from $78, saying there are no catalysts for the stock until at least the end of this year

·     DLNG -32%; after cutting its quarterly distribution to $0.0625/share from $0.25 and leaving open the possibility of future reductions to ensure the sustainability of the partnership

·     GES -11%; announced that Victor Herrero, Chief Executive Officer and a Director, is leaving the company effective February 2, 2019

·     NVDA -14%; lowers its Q4 outlook as sees Q4 revs about $2.2B, below its prior view of $2.7B saying Gaming and Datacenter revenue below company’s expectations

·     VALE -17%; suspended dividend payments and share buybacks as the miner faces losses over its dam that burst leaving hundreds of people missing and over 50-dead in southeast Brazil

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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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