Mid-Morning Look: May 14, 2019

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Mid-Morning Look

Tuesday, May 14, 2019

Index

Up/Down

%

Last

 

DJ Industrials

215.12

0.85%

25,540

S&P 500

25.81

0.92%

2,837

Nasdaq

76.34

0.98%

7,722

Russell 2000

11.43

0.75%

1,534

 

 

U.S. equities are rebounding after yesterday’s broad market decline, with ten of eleven sectors dropping on Monday (defensive utilities the lone gainer) after China retaliated with its own round of tariffs against the U.S. The trade issues between Washington and Beijing is keeping markets on edge, as investors fear a bigger breakdown could damage global growth. Stocks posted their biggest one-day decline since early January on Monday, following the weakest weekly return for U.S. stocks since December after the U.S. raised tariffs on $200 billion worth of annual Chinese imports to 25% from 10% on Friday. But between commentary from U.S. officials (Mnuchin) appearing committed to continuing trade talks and Trump saying he would meet Chinese President Xi Jinping next month at a Group of 20 summit, U.S. stocks are seeing a little recovery this morning (especially in beaten sectors such as tech, energy and industrials). The benchmark ten-year Treasury yields traded in a tight range around 2.40%, while commodity prices rebound. On Monday, all three major benchmarks ended more than 2% lower — only the second time this year that’s happened. Retailers remain on lower on the fear of tariff impact and weaker North American sales for RL today hurting shares. Energy rebounds on oil bounce.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar index bouncing (along with stocks) after yesterday’s pullback, rising against the Japanese yen, British Pound (near lows down -0.3%) and euro despite weaker than expected import and export data for April. Gold prices pullback below the $1,300 an ounce level amid the dollar/stock market rebound. Oil prices rise after Saudi Arabia reported drone attacks on pumping stations, the latest escalation in Middle East tensions. Treasury market’s holding steady after jumping yesterday (pushing yields lower) despite the stock market bounce today as investors still remain uncertain about trade situation with China, at the same time likely raising expectations/hopes the Fed will remain accommodative on rates for longer now.

 

Economic Data

·     Import prices for April rose 0.2% MoM after rising 0.6% in March and well below the 0.7% economic estimate (while import prices fell -0.2% YoY in April). Import prices ex-petroleum fell -0.6% MoM after falling 0.2% in March (est. +0.2%). Capital goods prices fell -0.4% MoM after falling -0.1% in March; largest monthly decline since March 2009

·     Home Prices rose 3.9% YoY in Q1 according to the National Association of Realtors. Single-family home prices increased in 86% of measured markets last quarter, with 153 of 178 metropolitan statistical areas showing sales price gains compared to the first quarter of a year ago. Median single-family homes prices rose to $254.8k from $245.3k a year earlier

 

 

Macro

Up/Down

Last

 

WTI Crude

0.81

61.85

Brent

0.90

71.13

Spot Gold

-3.20

1,296.70

EUR/USD

-0.0012

1.1209

JPY/USD

0.29

109.59

10-Year Note

0.012

2.407%

 

 

Sector Movers Today

·     Retailers; sector among top decliners on fears of tariff impact between China/U.S.; RL a top and bottom line quarterly beat as comp sales jumped in Europe (+5% vs. +2.7% consensus) to make up in part for a -4% comp in North America while gross margin came in at 60.1% of sales vs. 59.8% YoY/North America revenue was down 7% to $708M; DECK was upgraded to positive at Susquehanna saying recent checks show its HOKA brand momentum is accelerating faster than expected and its UGG unit is well positioned into 2020; GIII and SHOO were both downgraded to neutral at Piper as tariff rhetoric accelerates across their group weighing on names that have large U.S. businesses & a disproportionate share of production in China

·     Internet; FB’s WhatsApp says its 1.5 billion users should update to the latest version to protect against malicious spyware; Democratic presidential contender Joe Biden tells AP he would be open to breaking up FB and that dismantling big technology companies is “something we should take a really hard look at.” SHOP gets its 2nd analyst downgrade in as many days as Morgan Stanley cut its rating saying the stock is not deserving of the same multiple as high-growth U.S. Software-as-a-Service companies

·     Media & Telecom; DIS and CMCSA said that Disney will assume full operational control of Hulu, effective immediately, in return for Disney and Comcast entering into a “put/call” agreement regarding NBCUniversal’s 33% ownership interest in Hulu; Intelsat (I) shares up for a 5th straight day – recall yesterday Bloomberg noted two U.S. senators urged the FCC to “act quickly” to make airwaves used by the company and SES SA available for advanced 5G communications; TME shares fell as announced that Mr. Guomin Xie has tendered his resignation as the company’s co-president and director due to personal reasons (mixed Q1 as EPS beat/revs missed)

·     Industrial & Machinery; HON holding its annual investor conference today, as they reaffirmed 2Q EPS guidance of $2.05-$2.10, FY guidance of $7.90-$8.15 and reiterates path to about 23% long-term segment margin target; in ag sector, JPMorgan upgraded AGCO to overweight given its limited exposure to the US row crop sector, the recent sell-off is overdone, and downgraded DE to underweight a result of the rapidly deteriorating fundamentals in US agriculture

 

Stock GAINERS

·     CYBR +5%; Q1 results topped consensus with higher guidance for Q2 and raises FY19 adjusted EPS view $2.10-$2.16 from $1.94-$2.00 and ups revenue guidance as well

·     DIS +2%; and Comcast have agreed that Disney will assume full operational control of Hulu, effective immediately, in return for Disney and Comcast entering into a “put/call” agreement regarding NBCUniversal’s 33% stake in Hulu

·     IMMR +9%; on several positive headlines including licensing deals with Samsung and Sony Interactive Entertainment which prompted an upgrade at Dougherty

·     STE +5%; rises on earnings as KeyBanc said exited FY19 with accelerated momentum (big sales and EPS beats) and is flashing double-digit growth across several of its businesses

·     STNE +3%; posted a better Q1 revenue that estimates and announced a stock buyback increase

·     TSN +2%; upgraded by two analysts with Credit Suisse saying feels estimates don’t fully account for the upside to chicken, beef, and pork prices from the outbreak of African swine fever

 

Stock LAGGARDS

·     BAYRY -2%; ordered to pay more than $2 billion in damages to a California couple that claimed they got cancer as a result of using its Roundup weed killer for about three decades

·     LMNR -3%; as cuts FY19 EPS view to 55c-65c from 65c-75c (est. 78c) and also lowers FY19 Adjusted EBITDA view to $23.5M-$27.5M from $28.0M-$32.0M

·     MYOV -27%; announced results from a Phase 3 clinical trial assessing relugolix in women with uterine fibroids with heavy menstrual bleeding as safety and efficacy data were positive, but markets fretted over performance compared to ABBV’s ORILISSA

·     NSANY -4%; said it sees annual operating profit below even the lowest Street estimate and cut its dividend/issued an outlook for profit of 230 billion yen ($2.1 billion) for the fiscal year ending March 2020, roughly half of the average projection for 453 billion yen

·     RL -6%; posted both a top and bottom line quarterly beat as comp sales jumped in Europe (+5% vs. +2.7% consensus) to make up in part for a -4% comp in North America/also North America revenue was down 7% to $708 million

·     SLDB -32%; as prelim data from its Phase 1/2 clinical trial, IGNITE DMD, evaluating lead gene therapy candidate SGT-001 in patients with Duchenne muscular dystrophy (DMD) showed some worrisome adverse events, prompting a few analyst downgrades (Goldman cut to sell)

·     TME -9%; announced that Mr. Guomin Xie has tendered his resignation as the company’s co-president and director due to personal reasons (mixed Q1 as EPS beat/revs missed)

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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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