Mid-Morning Look: April 22, 2019

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Mid-Morning Look

Monday, April 22, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-56.56

0.21%

26,502

S&P 500

-2.01

0.07%

2,903

Nasdaq

-4.94

0.06%

7,993

Russell 2000

-7.69

0.49%

1,558

 

 

U.S. equities start the trading week lower, falling overnight as oil prices jumped sharply (fresh 6-month highs) after President Trump said his administration won’t renew waivers that let countries buy Iranian oil without facing U.S. sanctions, upsetting major importers such as China and India, while investors prepare for a very heavy dose of corporate earnings (CNBC earlier said 30% of the S&P 500 reports this week). Outside of earnings this week – it looks fairly quiet on the macro front outside of a couple of key economic data reports with GDP late week) – with no FOMC speakers expected ahead of next week’s FOMC rate decision. Existing home sales fell for March, missing economist estimates in the lone piece of major economic data this morning. The dollar is little changed, while Treasury prices slip (yields edge higher) and gold is little changed as the earnings onslaught begins tomorrow.

 

Back to oil, which jumped around 3% on the Iran news, came as the Trump Administration said “this decision is intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue,” White House Press Secretary Sarah Sanders said. “The U.S., Saudi Arabia and the United Arab Emirates, three of the world’s great energy producers, along with our friends and allies, are committed to ensuring that global oil markets remain adequately supplied,” according to the statement.

 

In sector movers, homebuilders among the top decliners (DHI downgraded at KBW noting rising valuation in the industry), along with weakness in metals and materials, and transports (airlines) amid the rising oil prices. Health-care stocks bounced back, recovering from their worst weekly slump since December (managed care, Pharma, Biotech). Tech opened weak before the Nasdaq Comp rebounded to highs around the 8,000 level before fading.

 

Economic Data

·     Existing-Home Sales for March fell (-4.9%) to 5.21M rate (after rising 11.2% the prior month), below the economist estimate of 5.3M while February was revised to 5.48M from 5.51M; there were 3.9 months’ supply in March vs. 3.6 in February as inventory rose 3.1% to 1.68M homes; Median home price rose 3.8% from last year to $259,400

 

 

Treasuries, Currencies and Commodities

·     In currency markets, emerging markets that tend to benefit from rising oil prices (CAD) advance as WTI crude tops the $65 per barrel levels on reports the U.S. is going to eliminate Iran oil waivers, while big name currencies (euro, Pound, yen) little changed vs. the greenback as markets await the FOMC meeting next week (no Fed speakers this week)

·     Commodity prices are higher led by gains in oil after news of the Trump administration not renewing waivers that let countries buy Iranian oil without facing U.S. sanctions, At the same time, gold prices remain near 2019 lows, down around $1,275 an ounce (flat on the day)

·     Treasury market’s slip early as yields edge higher (10-year at 2.58%)

 

 

 

Macro

Up/Down

Last

 

WTI Crude

1.59

65.59

Brent

2.02

73.99

Spot Gold

-0.25

1,275.10

EUR/USD

0.001

1.1256

JPY/USD

-0.02

111.91

10-Year Note

0.021

2.581%

 

 

Sector Movers Today

·     Autos’; TSLA was downgraded to underperform from in-line and tgt cut to $240 from $330 at Evercore/ISI – also said it was investigating a video that appears to show one of its electric vehicles exploding in a parking lot in Shanghai (note TSLA will be hosting its Autonomy Day at its Palo Alto HQ in which the company is expected to detail its latest autonomous technology); KeyBanc comments on auto suppliers ahead of earnings, as it downgraded its view on ALV, a move that also comes in anticipation of the company’s upcoming results; ADNT was downgraded to underperform at Buckingham saying the recent positive news about a potential notes offering is “more than reflected” in the current share price

·     Pharma movers; LLY top-line results from tanezumab’s Phase III OA pain and long-term safety studies were mixed-to-unfavorable as not all efficacy endpoints were met and safety findings concerning; AKRX rises after it announced that the FDA approved its generic versions of GSK’s allergy med Flonase and BHC’s unit Bausch + Lomb’s Lotemax; TNXP said the FDA has withdrawn its Breakthrough Therapy Designation Rescind letter issued on December 20, 2018

·     Industrial & Machinery; Baird noted that North American truck production (medium+heavy) increased 15% YoY in Q1, better than our +11% estimate with both Class 5-7 and Class 8 segments delivering upside (CMI, PCAR, NAV leveraged to data); DOV was downgraded to Baird citing a great run in shares, rising +72% since their June 2016 upgrade (vs. SPX +38%), driven by portfolio action and new CEO rightsizing initiatives; EAF falls as Citigroup downgraded to sell from buy based on the view that graphite electrode (GE) prices will come under pressure from higher Chinese exports in 2H19

·     Semiconductors; IPGP upgraded to buy at Bank America saying markets should focus on emerging green shoots that support a recovery in 2H19 to 2020 despite expectations for a very weak first quarter; Wells Fargo said after outperformance in the sector (group has seen a mid-teen rally with 10-11% outperformance since their Feb ’19 upgraded) that it expects sector should take a breather; ON to acquire a 300mm fab located in East Fishkill, New York from Globalfoundries for a total consideration for the acquisition of $430M; LRCX was upgraded to buy and tgt up to $235 at B Riley as expects an in-line quarter while sees favorable big-picture trends going forward; MX rises on reports SK Hynix is considering buying a stake in MagnaChip, Reuters; XLNX tgt raised to $137 at Morgan Stanley and stays Overweight citing its 5G potential

·     Comm equipment and Networking; JPMorgan with an earnings preview and ratings changes as the firm upgraded COMM to Overweight, and VIAV to neutral while downgraded ST to neutral as believe the broad majority of coverage is set to meet/ beat consensus expectation but given the backdrop of a +27% rise in share prices on a YTD basis – needs to be selective

 

Stock GAINERS

·     AKRX +9%; after it announced that the FDA approved its generic versions of GSK’s allergy med Flonase and BHC’s unit Bausch + Lomb’s Lotemax

·     FANG +3%; as oil prices outperform, leading energy stocks higher

·     KEYW +41% after being acquired by JEC for $11.25 per share in $815M deal https://on.mktw.net/2GwkNGz

·     KMB +6%; organic sales rose 3% in Q1 vs. +1.1% consensus to help the company top estimates on both the top and bottom line while pricing was up 4% during the quarter to help offset a 2% drop in volume

·     MX +12%; on reports SK Hynix is considering buying a stake, Reuters https://reut.rs/2XzuKtT

·     RCII +8%; upgraded at Raymond James to Strong Buy from Outperform ahead of Q1 results in May as the company has improved significantly from the depths of the past few years/also co announced it will receive a $92.5 million payment to settle all litigation with Vintage

 

Stock LAGGARDS

·     ADNT -2%; downgraded to underperform at Buckingham saying the recent positive news about a potential notes offering is “more than reflected” in the current share price.

·     BA -1% on reports its factory in North Charleston, S.C., has faced problems with production and oversight that create a safety threat, NY Times reported, citing emails, corporate documents and federal records, as well as interviews with more than a dozen current and former employees

·     DDS -5%; downgraded to underperform at Wedbush and see downside north of 12% to our $65 price target as data models tracking increased promotional activity and revs tracking below consensus

·     EAF -10%; as Citigroup downgraded to sell from buy based on the view that graphite electrode (GE) prices will come under pressure from higher Chinese exports in 2H19

·     ISRG -4%; posted a healthy beat on procedures and system units placed but reported a slight miss on sales (increased leases) and opex came in near the top end of guidance, causing EPS to miss

·     JWN -3%; as retailers underperform broader markets early

·     MAT -5%; after Bronte Capital issues a new short report on the stock

·     TSLA -2%; was downgraded to underperform from in-line and tgt cut to $240 from $330 at Evercore ISI; also, said it was investigating a video that appears to show one of its electric vehicles exploding in a parking lot in Shanghai

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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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