Mid-Morning Look: March 06, 2019

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Mid-Morning Look

Thursday, March 07, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-268.87

1.05%

25,404

S&P 500

-23.02

0.83%

2,748

Nasdaq

-72.84

0.97%

7,433

Russell 2000

-8.96

0.58%

1,527

 

 

U.S. stocks on track to extend their recent losing streak, falling after the European Central bank slashed its growth forecasts and pledged continued monetary support for its economy, prompting a rotation into Treasury prices and sending yields and stocks broadly lower. Major averages testing/breaching key technical levels today as the S&P 500 index dropped below its 200-day MA support of 2,750, while the Dow Industrials fell as much as -300 points, with the major benchmarks on track for a 4th straight day of losses. The Dow Transport Index tracking for a 10th straight day of declines, with rails, airlines taking the brunt of the selling pressure, while semiconductors another standout sector to the downside, along with Financials given the plunge in Treasury yields. Given the news out of the ECB, the euro dropped to fresh 4-month lows while the dollar gains broadly vs. rival currencies. Stocks failing over the last four days with markets absent a near-term catalyst outside of positive trade developments with China.

 

European market news grabbing all the headlines today, starting with the surprise monetary easing move by the ECB this morning, as they launched of a new round of long-term loans to EuroZone banks (sending European yields plunging) and extended its pledge to hold off on any rate increases until at least the end of 2019. The ECB announced the launch of a new program of cheap loans — known as targeted long-term refinancing operations, or TLTROs — to EuroZone banks in return for pledges to maintain lending which will launch in Sept 2019 and end March 2021.

 

On a negative note, the European Central Bank staff slashed their forecast for 2019 gross domestic product growth in the EuroZone to 1.1% from a previous estimate of 1.7%. The ECB now sees 2020 growth of 1.6% versus a previous forecast of 1.7%, while the outlook for 2021 was unchanged at 1.5%. The ECB also cut its inflation forecast for 2019 to 1.2% from 1.6%. The German 10-year yield dropped to 0.077%, its lowest since October 2016 according to reports.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar index (DXY) touched two-month highs following the pullback in the euro after the moves made by the ECB today; the euro dropped to fresh 4-month lows while the dollar gains broadly vs. rival currencies; the British Pound slipped below the 1.31 level vs. the dollar; the Argentine peso fell to all-time low vs. the greenback. Meanwhile commodity prices are little changed with oil steady and gold steady after snapping its 7-day losing streak yesterday. Treasury market’s rally as yields fall sharply on the ECB monetary easing measures.

 

Economic Data

·     Weekly Jobless Claims fell 3K to 223K, just below the 225K estimate, while the 4-week moving avg. dropped 3K to 226.25K in the latest week; prior week claims revised up to 226K from 225K; continuing claims fell 50K to 1.755M in the week ending Feb. 23

·     U.S. productivity advanced at an annual pace of 1.9% in Q4, up slightly from a revised 1.8% in Q3 and topped the economist estimate of 1.5%. Unit-labor costs rose at a 2% clip in Q4 (vs. est. 1.7%), but just 1% in the past 12 months (and up from 1.6% last quarter)

·     Challenger Gray and Christmas reports that February’s job cut announcements skyrocketed by 117% y/y to nearly 77,000, led by industrial goods — which included heavy and industrial manufacturing — with nearly 30,000 cuts

 

 

Macro

Up/Down

Last

 

WTI Crude

0.14

56.36

Brent

-0.12

65.87

Gold

-1.50

1,286.10

EUR/USD

-0.0071

1.1236

JPY/USD

-0.17

111.60

10-Year Note

-0.029

2.657%

 

 

Sector Movers Today

·     Housing & Building Products; Homebuilders MTH, TOL were downgraded to underweight from neutral at JPMorgan while TMHC was upgraded to overweight from neutral saying with the group up 11% so far in 2019, roughly in-line with the market, they remain cautious on the sector, based on outlook for fundamentals to remain less robust than last year on both an industry level and across the builders, while we also continue to see some downside risk to valuation multiples

·     Retailers; AEO mixed Q4 results as EPS beat on a sales miss and weaker Q1 profit outlook; BKS Q3 Ebitda and sales fell well short of consensus expectations while it cut its Ebitda forecast for the full year to $140M-$155M, below prior view of $175M-$200M and estimates which includes lower than exp. post-holiday sales; BURL 4Q sales missed estimates and 1Q guidance disappointed (sees FY19 adjusted EPS $6.93-$7.06 vs. est. $7.06), weighing on discount retailers early (TJX, ROST, SMRT); CATO posted a February comp sales figure of down (-10%)

·     Financials among top decliners (GS, JPM, C, MS) as Treasury yields fall across the board – 10-year yield down at 2.65%, 2-yr under 2.49% in response to the additional monetary easing measures announced by the ECB today to help boost its economy; shares of banks, insurance, brokerage and others moving lower

 

Stock GAINERS

·     CTL +4%; among top gainers in the S&P – rebounds after recent pullback in shares

·     EAF +11%; as shareholder withdrew proposed secondary offering

·     GWRE +12%; Q2 EPS and revs beat as produced $10M of license upside ($87M vs. est. $77M) helping the EPS beat while highlighted closing an InsuranceSuite Cloud deal and raised the number of FY19 deals to 5-8

·     HIIQ +12%; as reported stronger than expected results and guidance, though analyst noted a little confusion given the shift from ASC605 to ASC606

·     HRB +5%; advanced despite mixed earnings results

·     ZAYO +1%; after Starboard Value LP sends letter to company saying it currently owns about a 4% stake in Zayo Group Holdings and urges the company to keep its mind open to a sale

 

Stock LAGGARDS

·     BKS -10%; as Q3 Ebitda and sales fell well short of consensus expectations while it cut its Ebitda forecast for the full year to $140M-$155M, below prior view of $175M-$200M and estimates which includes lower than exp. post-holiday sales

·     BPI -31%; guides Q4 revs $93M-4(4M vs. est. $102M on a larger Q4 EPS loss saying new enrollment is down by low single-digit percent/plans to restate results as well

·     CRCM -12%; falls on lower guidance as sees Q1 EPS loss (8c), well below the expected profit of 17c and sees revs also below consensus views

·     IGT -12%; fell as Q4 EPS of 24c missed estimates by 11c on in-line revs, but weaker Ebitda;

·     KR -13%; as Q4 EPS missed by 4c on slightly lower sales of $28.1B while gross margin was down 93 bps to 22.0% of sales, due mostly to changes in mix and investments in supply chain/guides year EPS $2.15-$2.25 vs. est. $2.25

·     REZI -23%; as 2019 Ebitda view misses estimates and sees rev growth up 2%-5% vs. prior view of up 4% (follows Q4 sales beat)

·     TECD -9%; falls on mixed Q4 results as EPS beat by wide margin, but sales of $10.5B missed the $10.67B estimate – also guidance for Q1 fell below views on sales and EPS

 

Syndicate

·     Epizyme (EPZM) 10M share secondary priced at $11.50 per share

·     Horizon Pharma (HZNP) 12.245M share Secondary priced at $24.50

·     Pluralsight (PS) 13.56M share Secondary priced at $29.25

·     ShockWave Medical (SWAV) 5.7M share IPO priced at $17.00

_________________________________________________________________

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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