Mid-Morning Look: March 12, 2019

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Mid-Morning Look

Tuesday, March 12, 2019

Index

Up/Down

%

Last

 

DJ Industrials

1.40

0.01%

25,652

S&P 500

12.28

0.44%

2,795

Nasdaq

28.14

0.37%

7,586

Russell 2000

-2.05

0.13%

1,546

 

 

U.S. equities are mixed, as the Dow Industrial Average slips on Boeing (BA) weakness for a second day after the second fatal crash in 6-months for its 787 Max 8 planes raises the number of countries that have grounded the jets (Dow reversed losses of over 200 points yesterday to close higher by 0.9% despite BA weakness), while tech shares are moving higher after its outperformance yesterday. Note Monday ranks as the third best single-day gain for U.S. stocks during this post-Christmas surge higher, surging across the board after 5-straight days of market losses. Today, attention turns to Europe however and Brexit as Attorney General Geoffrey Cox and a key group of pro-Brexit hardliners dealt a blows to UK PM Theresa May’s revised Brexit deal. Cox said the legal risk to the U.K. of the revised Brexit deal is unchanged. But he says the deal does “reduce the risk” of the U.K. being locked in the Irish backstop, which avoids a hard border in Ireland (the pound very volatile given ongoing situation, off highs of 1.3289 and lows 1.3005, trading in the middle of that range now. Back to the big news story the last 2-days, Boeing says the Federal Aviation Administration is not mandating any further action at this time, and “based on the information currently available, we do not have any basis to issue new guidance to operators,” according to a statement. Inflation data also in focus today as a slightly weaker inflation reading gives the Federal Reserve room to stay patient. The dollar fell and 10-year Treasury yields turned negative after core inflation cooled.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar slides as the dollar index (DXY) falls -0.2% to under the 97 level following the slightly tamer CPI inflation reading earlier; the British Pound volatile, but now little changed after developments in the UK/EU on Brexit talks ahead of vote today. The greenback is lower vs. most currencies early (GBP, EUR, JPY, CAD, AUD). Gold prices moving back up to the $1,300 an ounce level as the dollar pares recent gains while oil prices are firmly higher ahead of inventory data tonight and tomorrow. Treasury market’s rally, as yields fall back to yesterday lows

 

Economic Data

·     Consumer price index (CPI) climbed 0.2% in February following three straight months of no change, and was in-line with economist estimates while core prices CPI ex food and energy) rose 0.1%, slightly below the 0.2% estimate. The increase in the cost of living over the past 12 months, however, fell to 1.5% from 1.6%

 

 

Macro

Up/Down

Last

 

WTI Crude

0.56

57.35

Brent

0.51

67.09

Gold

6.70

1,297.80

EUR/USD

0.003

1.1275

JPY/USD

-0.01

111.20

10-Year Note

-0.014

2.625%

 

 

Sector Movers Today

·     Industrial & Machinery; RBC said North America farm equipment retail sales reported today by the AEM for February showed mixed results with combines up y/y but higher-HP tractors lower (CAT, AGCO, DE); CIR and SNHY were downgraded to sector weight at KeyBanc while upgraded ETN to overweight as believe early-year multiple expansion presents an opportunity to become more selective with our recommendations amid a less-certain industrial growth backdrop; MG shares fell as reported 4Q18 adjusted EPS of 6c, well below the 22c estimate and adjusted EBITDA of $16.1M was also below the $20.5M estimate

·     Transports; airlines weak; JBLU February load factor fell to 81.5% from 82.6% a year ago, as growth in seat supply outpaced demand/capacity rose 7.5% to 4.80 billion available seat miles, while traffic increased 6.0%. The International Air Transport Association (IATA) cut its annual forecast for traffic growth in the air cargo market to 2% citing trade frictions, Brexit and anti-globalization rhetoric from prior est. 3.7%; airlines also weak as investors digested the impact of a second deadly crash of a 7Boeing 37 Max 8 aircraft

·     Asset managers; AB said that preliminary assets under management increased to $547 billion during February 2019 from $538 billion at the end of January. The 1.7% increase was due to market appreciation, as well as total firm wide net inflows; IVZ prelim AUM $945.7B as of February 28, up 1.6%; APAM Feb AUM totaled $108.2B. Separate accounts accounted for $56.1B of total firm AUM, while Artisan Funds and Artisan Global Funds accounted for $52.1B; LM preliminary assets under management of $762.8B at Feb. 28, 2019 rise 2.2% from $746.7B at the end of January; BEN reports preliminary AUM $714.2B as of February 28 which compared to $678.3B at January 31; TROW preliminary AUM $1.07T at February 28; JHG was upgraded to overweight at JPMorgan as see some improvements in performance as being particularly impactful to Janus earnings due to a bigger-than-peer performance fee revenue

·     Consumer Staples; UNFI were both downgraded to Underweight from Equal Weight at Barclays as sees intensifying competition in the grocery distribution space, which could pressure margins/revenue; KO was downgraded to hold at HSBC on valuation; MNST was downgraded to market perform at BMO Capital as current valuation, both absolute (29x NTM P/E) and relative to peers (815 bps premium vs. beverage peers), may be as good as it gets given cloudier growth outlook and dwindling likelihood of the long-hoped-for buyout by KO

 

Stock GAINERS

·     AKBA +23%; reported positive topline results from two Phase 3 clinical trials evaluating vadadustat in Japanese patients with anemia due to chronic kidney disease (CKD).

·     CDMO +12%; after reported a smaller than expected Q3 EPS loss on slightly better revs

·     LPCN +27%; rallied in response to positive 16-week results from an open-label liver fat imaging study of NASH candidate LPCN 1144

·     OSIR +1%; agreed to be acquired by SNN for $19 per share in cash, in deal valued at $660M as expands in high growth regenerative medicine market (shares of NUVA declined following the announcement) https://yhoo.it/2T0o9pQ

·     SFIX +26%; after posting earnings results that beat estimates and issued a better-than-expected sales forecast for the current quarter/said that active clients rose to 3 million during the quarter, an increase of 18% compared with the same period

 

Stock LAGGARDS

·     ADT -10%; delivered a solid 4Q beat and the 2019 revenue guidance was above the street but the EBITDA and FCF guidance fell below consensus expectations

·     BA -4%; more follow through from its second fatal 747 Max 8 plane crash over the weekend as the UK Civil Aviation Authority has grounded 737 MAX planes

·     DKS -5%; reports Q4 comp sales fell (-3.7%), missing the consensus estimate for a (-3.3%) drop, though adjusting for a calendar shift, comp sales were down (-2.2%)/gross margins of 27.9% fell short of last year’s 29.1%

·     ESTC -7%; RBC noted AWS announced on its corporate blog that it plans to launch a new open distribution of Elasticsearch called “Open Distro for Elasticsearch”, available through an Apache 2.0 license

·     FFIV -7%; downgraded at JPMorgan after its post-close announcement that it’s acquiring Nginx for an enterprise value of $670M

·     HPE -4%; was downgraded to sell at UBS and cut tgt to $13 from $17 as see on-premises hardware sales being pressured by the growth in public cloud, and the stock is expecting better

·     MG -15%; reported 4Q18 adjusted EPS of 6c, well below the 22c estimate and adjusted EBITDA of $16.1M was also below the $20.5M estimate

·     ZFGN -31%; announced the suspension of the planned ZGN-1258 investigational new drug application filing for Prader Willi syndrome after observing preclinical muscle toxicity in rats at four and six months

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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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