Mid-Morning Look: February 27, 2019

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Mid-Morning Look

Wednesday, February 27, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-127.27

0.49%

25,930

S&P 500

-12.05

0.43%

2,781

Nasdaq

-46.39

0.61%

7,502

Russell 2000

-6.10

0.39%

1,571

 

 

A busy day of macro news (coupled with a busy day of corporate earnings as well – LOW, BBY, TJX, WTW among movers) as investors focus on day two of testimony from Fed Chairman Powell to the Senate on the economy and monetary policy, USTR Lighthizer testifying on China/US trade talks, escalating military confrontation between India and Pakistan and the second U.S.-North Korean nuclear summit kicked off between Trump and Kim. Stocks were lower early on a handful of earnings disappointment and weaker economic data, (larger trade balance ahead of GDP data tomorrow) but extended those declines after US Trade Representative Lighthizer said more China purchases alone not enough for a deal. Lighthizer’s comments contrast with Trump’s more optimistic remarks this week when he raised hopes for an imminent deal. “This administration is pressing for significant structural changes that would allow for a more level playing field — especially when it comes to issues of intellectual property rights and technology transfers,” Lighthizer said. In the UK, the Pound rises to 5-month highs vs. the dollar on receding fears of a no-Brexit, or a push out further.

 

Treasuries, Currencies and Commodities

·     The U.S. dollar is mixed, moving higher vs. most rival currencies early following another busy day of economic data and as Fed Chairman Powell testifies in day two of testimony on Capitol Hill. However, the British Pound rises by 0.5% to above 1.332, its best levels since September following a report Wednesday that the European Union will insist on deferring the U.K.’s departure date by up to two years if London and Brussels fail to agree a deal. Commodity prices are mixed as precious metal prices slide, while oil and gasoline price jump following the bullish weekly inventory data as the EIA reported a weekly drawdown of 8-.6M barrels of oil vs. the estimate build of 3.0M barrels. Treasury market’s slide as Treasury yields extend gains with the 10-yr yield up over 3 bps to 2.677% and the 2-year above 2.50%.

 

Economic Data

·     Advance Goods trade deficit for December showed a 12.8% increase in the nation’s trade deficit to -$79.5B from -$70.5B prior and vs. estimate of -$73.6B (another data point likely to weigh on upcoming GDP estimates). An advanced look at wholesale inventories, meanwhile, showed a 1.1% increase in December and retail inventories reflected a 0.9% gain in the final month of 2018. Imports rose 2.4% in Dec. to $215.211B while exports fell -2.8% in Dec. to $135.718B

·     Pending Home Sales for January rise 4.6% MoM, topping the 1% estimate while the Northeast was up 1.6%; Midwest up 2.8%; South up 8.9% and the West up 0.3%

·     Factory Goods Orders for December rise 0.1%, missing the 0.6% estimate while factory orders for Nov. revised up to -0.5%; new orders ex-trans fell 0.6% in Dec. after falling 1.3% the prior month and new orders ex-defense for Dec. rise 0.4% after falling 1.0% in November

·     Durables orders for Dec. rise 1.2% after rising 0.9% in Nov., consumer goods shipments for Dec. fall 1% after falling 2.4% in Nov. consumer goods new orders for Dec. fall 1% after falling 2.4% in Nov., nondurables shipments for Dec. fall 1% after falling 2% in Nov.

 

 

Macro

Up/Down

Last

 

WTI Crude

0.88

56.38

Brent

0.47

65.68

Gold

-3.60

1,324.90

EUR/USD

-0.0005

1.1384

JPY/USD

0.28

110.87

10-Year Note

0.038

2.68%

 

 

Sector Movers Today

·     Retailers; BBY shares jump as Q4 EPS and sales ($2.72/$14.8B vs. est. $2.56/$14.69B) topped views and issued better Q1 and year guidance while comp sales of 3% topped views (GPRO and FIT shares active after Best Buy Co. Inc. called out the wearables segment as a top performer in the fourth quarter); GPS announces $1B stock buyback plan; TJX achieves above plan comp sales growth of 6% for q4 and FY19, topping Q4 expectat5ions and announces 18% dividend increase and stock buyback of $1.75B-$2.25B; SHOO reports same-store retail sales rose 4% in Q4 and wholesale net sales climbed 14.1% to $317.4M

·     Housing & Building Products; LOW helps lead the housing related sector after the home improvement retailer posted Q4 EPS beat on slight sales miss and comps of 1.7% just below the 1.9% est. but analysts note the comp sales was the narrowest gap vs. HD in about two-years; in housing, TOL Q1 EPS and sales topped consensus but home orders dropped 24% more than the 15% decline in Q4

·     E&P sector; several E&Ps reported (CPE, HPR, MTDR, OAS, REI, EOG, and WLL); EOG ’19 capex guidance in-line with consensus but oil guidance missed consensus by 4%; LONE reported 4Q 2018 production of 13,152 BOE per day, exceeding the high end of guidance for the fourth consecutive quarter and beating our estimate of 12,764 BOE per day and topping the consensus estimate of 12,917 BOE per day; REI is acquiring privately owned Wishbone Energy Partners and plans to finance the deal with a $270 million borrowing on an increased bank revolver and issuing $30 million of common stock to Wishbone; DNR Q4 earnings and revenues edged analyst expectations as it produced 59,867 boe/day during Q4, up 1% Q/Q, and 60,341 boe/day for FY 2018, up slightly from 2017 and cap-ex is $240M-$260M, 20%-25% lower YoY; CHK said it is targeting oil output of about 119,000 barrels a day in 2019, which would exceed the Oklahoma City-based driller’s 2015 record of 115,000

·     Pharma movers; JAZZ reported strong 4Q results, with revenue of $477M topping the $460M est. and EPS beating by about 60c driven by another solid performance for Xyrem and some upside in HemOnc while provided robust 2019 guidance on both the top and bottom lines; GWPH Q4 Epidiolex revs of $4.7M beat consensus of $2.5M; in generics, MYL Q4 missed consensus EPS estimate by 4% on higher-than-expected SG&A and guides year EPS $3.80-$4.80, below consensus of $5.04; ADMP falls on receiving “refusal to file” letter from the U.S. FDA related to its erectile dysfunction drug’s marketing application

 

Stock GAINERS

·     BBY +13%; Q4 EPS and sales ($2.72/$14.8B vs. est. $2.56/$14.69B) topped views and issued better Q1 and year guidance while comp sales of 3% topped views

·     CPB +8%; reported a Q2 profit and sales that beat expectations and affirmed its full-year outlook, a positive piece of news in the recently beaten food sector

·     JAZZ +9%; strong 4Q results, with revenue of $477M topping the $460M est. and EPS beating by about 60c driven by another solid performance for Xyrem and better guidance

·     LOW +1%; posted Q4 EPS beat on slight sales miss and comps of 1.7% just below the 1.9% est. but analysts note the comp sales was the narrowest gap vs. HD in about two-years

·     MELI +18%; as Q4 results delivered strong 4Q payments growth; off-platform TPV impressively accelerated to 172% growth vs. 3Q’s already enviable 163% growth/total mobile wallet transactions increased over 450%

·     PANW +7%; Q2 results were strong across the board, driven by a healthy beat in billings and the top line and consistent with prior Qs, most of the upside was driven by products/Q3 revenue guidance above views prompting several analysts to raise their tgt

·     TNDM +23%; reported Q4, which handily beat estimates and the outlook came in well ahead of the Street/on Q4, the company added 16K pumpers with ~50% coming from competitive wins

·     VSM + 16%; Germany’s Merck KGaA offered to acquire VSM in an all-cash deal with an enterprise value of $5.9 billion, offering $48 per share (a 51.7% premium over Versum’s closing share price before the VSM merger announcement) https://on.mktw.net/2GOfk0I

 

Stock LAGGARDS

·     AAXN -12%; as Q4 non-GAAP EPS 8c/$115M vs. est. 11c/$104.3M; 4Q adjusted Ebitda $10.9M vs. est. $11.99M and also posted weaker margins

·     DF -15%; after a larger Q4 EPS loss (50c vs. est. 26c) the suspension of its dividend, the suspension of guidance, and a strategic review

·     DY -30%; after the company’s forecast for Q1 missed the lowest estimate as gross margin and EBITDA margin guidance are also well below Street estimates

·     ELF -22%; Q4 sales missed expectations with a decline of -3.7% while stub quarter guidance came in well below expectations & the CFO is stepping down.

·     EVH -7%; as revenue weakness is disappointing, guiding Q1 revs $188M-$197M (est. $205M0 and year $805M-$880M vs. est. $849M and mixed Q4 results

·     KPTI -7%; as the ODAC panel voted 8-5 against accelerated approval of lead drug selinexor in triple-class refractory multiple myeloma (MM), opting instead to wait for randomized data from the ongoing phase III BOSTON study to better assess benefit/risk

·     MYL -11%; Q4 missed consensus EPS estimate by 4% on higher-than-expected SG&A and guides year EPS $3.80-$4.80, below consensus of $5.04

·     WTW -36%; as Q4 sales missed while guidance for year well below consensus as guides 2019 EPS $1.25-$1.50 well below est. $3.36 and said it lost 300,000 subscribers within three months

 

Syndicate

·     New York Mortgage (NYMT) 15M share Spot Secondary priced at $6.00

·     QTS Realty Trust (QTS) 6.75M share Secondary priced at $41.50

·     Ultragenyx (RARE) 5.1M share Secondary priced at $60.00

·     Viper Energy (VNOM) 9.5M share Spot Secondary priced at $32.00

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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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