Mid-Morning Look: May 09, 2019

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Mid-Morning Look

Thursday, May 09, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-382.51

1.47%

25,584

S&P 500

-37.45

1.30%

2,841

Nasdaq

-130.07

1.64%

7,813

Russell 2000

-24.10

1.53%

1,550

 

 

U.S. equities under pressure again, with the S&P 500 and Nasdaq Composite falling for a 4th straight session as markets begin to price in that the U.S. will act on its threat to increase tariffs at midnight tonight on China and investors fear how China might respond. The S&P 500 dropped below its 50-day moving average (2,860) as trade sentiment turns south ahead of key trade meetings later today between China and the U.S. delegates. Emerging market equities also extend declines as the MSCI index dipped below its March low to trade at the lowest on a closing basis since January. Commodity prices extend recent declines, led by drops in industrial metals such as copper on China fears as well. Stocks took a sharp turn after Bloomberg noted editor-in-chief of China’s government-run Global Times said in twitter post that someone from the China side told him it’s unlikely that a deal would be reached “before Friday.” Note Chinese vice Premier Liu He is due to arrive Washington Thursday afternoon for immediate discussions with Robert Lighthizer. Also not helping, GOP Senator Marco Rubio tweeted that “China is not ready for a real deal yet.” Rubio adds that China has backtracked on most of the reforms it promised to make in the past. The sentiment has turned sour on trade this week, and quickly, pulling major averages from their all-time record highs just last week. Sectors most impacted by increased tariffs such as tech, auto -parts makers, miners, agriculture and industrial companies are weighing on markets. The yen climbed with Treasuries as investors sought havens, while the yuan fell to its weakest since January. Just to add to the mix, reports indicated that North Korea has fired two projectiles, South Korean defense officials said on Thursday. Rough week thus far for global stocks…which may get worse if a deal is not reached tonight and China does in fact respond.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar falls to lowest levels since early February against the safe-haven Japanese yen, while the greenback jumps further against the Chinese yuan. Meanwhile, the euro spikes against the dollar while the Pound is little changed. Economic data was in-line to slightly better this morning.

·     Commodity prices continue to get smacked on concerns of lower demand if the U.S. increases tariffs to China. Industrials metals such as copper slides as well as weakness in cotton futures to 17-month lows while oil prices also come under pressure. Defensive gold prices rise

·     Treasury market’s rally (erasing yesterday’s late day roll following the much weaker 10-year Treasury auction midday yesterday), as yields falling across the board as the 10-year yield falls below 2.43%, 2-year 2.25% and 30-yr yield down at 2.85%

 

Economic Data

·     Producer Prices index (PPI) for April rose 0.2%, slightly below the 0.3% estimate while final demand producer prices rose 0.6% in March. Final demand ex food, energy (core prices) rose 0.1% m/m vs est. up 0.2%. For the year, final demand rose 2.2% y/y vs est. up 2.3% and final demand ex food, energy (core) rose 2.4% y/y vs est. up 2.5%

·     Weekly Jobless Claims fell 2K to 228K (prior week revised to 230K), slightly above the 220K estimate while the 4-week moving rose by 7,750 to 220,250; continuing claims rose 13k to 1.684m in the week ending April 27

·     U.S. Trade Deficit widened to (-$50B) in March, from (-$49.3B) last month but was in-line with estimates; imports rose 1.1% in March to $261.97B from $259.19B in February, exports rose 1% in March to $211.97B from $209.91B in February

·     30-Yr Fixed Mortgage Rate fell to 4.10% from 4.14%, Freddie Mac said while the 15-year rate avg 3.57%, down from 3.60% a week earlier; 5/1-year ARM rate avg 3.63%, down from 3.68%

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.79

61.33

Brent

-0.60

69.77

Spot Gold

5.00

1,286.00

EUR/USD

0.0052

1.1243

JPY/USD

-0.57

109.53

10-Year Note

-0.059

2.426%

 

 

Sector Movers Today

·     Semiconductors; the Philly semi index (SOX) dropped below its 50-day MA support of 1,451 and off recent all-time highs of 1,604 on 4/24 as group seen heavily impacted if no tariffs enacted on Chinese good; INTC a drag on tech and semis, falling for the 12th time in last 13 days following its analyst day where the company focused heavily on detailing transformation from a PC CPU provider to a data-centric leader; MCHP falls again after lower guidance the day prior

·     Retailers; TPR shares spike after Q1 results topped views and authorized a $1B buyback program, while global comparable sales were up 1% for the Coach business and the Kate Spade -3% comp which was a sequential improvement (on improving margins); COST reported better April comp sales of 5.4% vs. est. 3.3%; ETSY falls overnight despite better Q1 net income, GMS and Ebitda as sales just miss while raises year rev growth and GMS outlook; FOSL shares rallied after a narrower Q1 EPS loss on better revs and a smaller Q1 comp loss of (-9.5%) while margins increased 280 bps; Retailers AEO, ANF, ZUMZ, and JWN all downgraded at Wedbush; AEO was also downgraded at RBC Capital while the firm upgraded RL to outperform citing the company’s sales recovery exceeding expectations

·     Media & Telecom movers; DIS Q2 earnings and revenue topped consensus amid gains in parks, Fox, direct-to-consumer while studio was down 15%; CTL revenues declined and missed in its Q1 report, in which it took a $6.5B goodwill impairment while said is exploring strategic alternatives for its Consumer business; AMC shares slide as Q1 losses are worse than expected as attendance drops -10.1% vs. tough comp YoY; FOXA Q3 profit and sales beat estimates as TV business came in stronger than expected the night before the company’s investor meeting

·     Casino & Leisure movers; CWH reported top and bottom line miss, weighing on the towable sector; GOLF was upgraded to buy at Roth Capital saying results missed on lower revenue and gross margin due to fewer than expected club introductions but still reported its strongest ball growth in several years following its latest ProV1(x) launch; in gaming, PENN upgraded by two analysts (BoFa and MSCO) as core consumer remains stable while believes has upcoming catalysts (relaunch of MyChoice and sports betting)

·     Auto’s; UBER IPO comes tonight after the close; LYFT market capitalization fell below its last private valuation Thursday in premarket trading when shares dipped to $52.48; CVNA mixed quarter as EPS wider on better revs and in-line guidance for the year; RACE was upgraded to overweight at Morgan Stanley and raise PT to $160 driven by increased earnings forecasts after 1Q beat & increased conviction in mgmt’s strategy for growth & capital discipline; ADNT downgraded at Longbow on weaker earnings and valuation; auto parts maker TEN slides after reporting Q1 EPS well below estimates/guidance below expectations saying China volume declines as drags on earnings.

 

Stock GAINERS

·     CDNA +11%; beat the top and bottom line, raised guidance above the beat and introduced KidneyCare

·     CTRL +39%; to be acquired by SnapAV in an all-cash transaction for $23.91 per share in cash, representing an aggregate value of approximately $680M https://bit.ly/2H8U977

·     CVX +3%; said it would not boost its offer to buy APC, receives a $1B cash termination fee, as OXY finishes with winning bid; CVX said it is increasing its shares buyback rate by 25% to $5B

·     FLXN +14%; on earnings, helped by Zilretta sales of $10.6M, up 381% from a year ago (prelim sales for April were ~$5.1M).

·     FOSL +11%; after a narrower Q1 EPS loss on better revs and a smaller Q1 comp loss of (-9.5%) while margins increased 280 bps

·     PENN +6%; after two analyst upgraded (BoFa and MSCO) as core consumer remains stable while believes has upcoming catalysts (relaunch of MyChoice and sports betting)

·     ROKU +22%; new all-time highs as 1Q results showed strength in nearly every metric with robust usage increases, and revenue growth and profitability coming in ahead of guidance and consensus estimates

·     TPR +10%; after Q1 results topped views and authorized a $1B buyback program, while global comp sales rose 1% for Coach business and the Kate Spade -3% comp was sequentially better

 

Stock LAGGARDS

·     AAOI -8%; on a weaker outlook as guided 2Q EPS loss (35c-43c) on revs $40M-$45M worse than the est. loss (23c)/$52.4M (other optic names: CIEN, ACIA, FN, LITE active)

·     AMC -9%; as Q1 losses are worse than expected as attendance drops -10.1% vs. tough comp YoY

·     FDC 4%; as the WSJ reported BAC scrapping pay partnership, instead developing its own business to move money between consumers and merchants

·     CNDT -32%; dropped after Q1 top and bottom line misses estimates and said its CEO intends to step down

·     GDOT -28%; as released Q1 report in which it slashed its FY19 earnings and adjusted EBITDA guidance citing the reductions in large part to $60M in new marketing investments while offering 2Q19 revenue guidance well below the consensus estimate

·     INTC -5%; shares slide for the 12th time in last 13 days following its analyst day where company focused heavily on detailing transformation from a PC CPU provider to a data-centric leader

·     OXY -6%; as becomes winning bidder for APC as CVX drops out of bidding

·     SAIL -28%; slides after guiding Q2 below views and cutting FY19 EPS view to 14c-16c from 25c-29c and cuts FY19 revenue view to $277M-$281.5M from $293M-$299M

·     STMP -54%; after Q1 results topped views buy sharply lowered its year outlook for profit to $3.35-$4.85 from $5.15-$6.15 (below est. $5.43) – was downgraded by at least three analysts

·     TEN -35%; after reporting Q1 EPS well below estimates/guidance below expectations saying China volume declines as drags on earnings

 

Syndicate

·     Apollo Commercial (ARI) 15M share Spot Secondary priced at $18.46

·     Axcella (AXLA) 3.57M share IPO priced at $20.00

·     Cortexyme (CRTX) 4.41M share IPO priced at $17.00

·     HeadHunter (HHR) 16.304M share IPO priced at $13.50

·     Mayville Engineering (MEC) 6.25M share IPO priced at $17.00

·     Medalist Diversified REIT (MDRR) 1.67M share Secondary priced at $4.80

·     Milestone Pharmaceuticals (MIST) 5.5M share IPO priced at $15.00

·     New York Mortgage (NYMT) 18M share Spot Secondary priced at $6.08

·     NextCure (NXTC) 5M share IPO priced at $15.00

·     South Plains Financial (SPFI) 3.38M share IPO priced at $17.50

·     Twist Bioscience (TWST) 3.75M share Secondary priced at $21.00

·     Upland Software (UPLD) 3.3M share Secondary priced at $42.00

·     Yeti (YETI) 9.5M share Secondary priced at $28.50

_________________________________________________________________

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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