Mid-Morning Look: May 23, 2019

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Mid-Morning Look

Thursday, May 23, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-325.28

1.26%

25,451

S&P 500

-32.25

1.13%

2,824

Nasdaq

-101.98

1.32%

7,648

Russell 2000

-26.25

1.71%

1,505

 

 

A global stock market bloodbath in place early on as U.S. stocks drop sharply, tracking broad weakness in Europe and Asia overnight, and leading to a flight to safety assets. The 10-year Treasury yield drops below 2.33%, taking out its 2.338% low level for 2019 (lowest since Dec 2017) as major U.S. averages fall over 1% following more trade uncertainty as well as weaker economic data (globally). Tech is heavily represented in the selloff, with the Nasdaq 100 down 1.5% and the semi index (SOX) plunging more than 2.75% to below its 200-DMA. The Dow Industrials Average dropped below the 200-day MA support of 25,433 (falling as much as 400 points). Overnight a top Chinese government researcher said that a trade war may last until 2035, predicting a cycle of “fighting and talking”, while Bloomberg also noted that Goldman Sachs Group Inc., Nomura Holdings Inc. and JPMorgan Chase and Co. are among those pricing-in a greater chance of a protracted trade war. Oil prices also plunging alongside stocks, with WTI crude falling to 2-month lows (below $59 per barrel). So far, yesterday’s modest selloff has become an all-out rout, dragging world stocks lower. Europe weaker after soft data as business confidence (IFO) in Germany weakened to its lowest level in more than four years along with weak PMI data. At the same time, US data disappoints as flash manufacturing drops to lowest levels in a decade and new home sales also miss estimates. Tech the big decliner this morning along with energy on weaker oil prices and financials slipping as Treasury yields roll…but overall not many places to hide from the weaker macro outlook (UK Brexit, trade problems with China/US).

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar remains strong overall as the ICE US dollar index touched its highest level since May 2017 given weakness in the EuroZone (weak data), political uncertainty in the UK (Brexit), weakness in emerging market currencies as oil plunges (CAD) and U.S. economy seen strong given outlook from FOMC minutes yesterday. The defensive Japanese yen advanced vs. most currencies as stocks sold off globally (fell to lows just below 110). Note the British Pound has fallen 13-staright days vs. the euro and is down roughly 4% vs. the US dollar over the last 3-weeks amid the political mess/uncertainty in the UK related to Brexit. The Canadian dollar slumps after oil prices plunge for a second day, with WTI crude dropping below $60 per barrel

·     Commodity prices mixed with defensive gold rising while oil adds to yesterday losses, falling to 2-month lows, with WTI crude dropping below $60 per barrel for the first time since March. Prices fell 2.7% on Wednesday after weekly inventory data was bearish (big inventory build) – as U.S. crude production rose by 100K bbl/day to 12.2M bbl/day, just short of an all-time record and extend declines today on “risk-off” market mentality today

·     Treasury market’s rally in a big way as investors rotate out of stocks and into the safety of Treasuries, with the benchmark 10-year yield falling below its 2.338% March 28th 2019 low, now at worst levels since December 2017

 

Economic Data

·     Weekly Jobless Claims fell 1K to 211K, just below the 215K estimate while prior week claims were unrevised at 212K; the 4-week moving average stood at 220.25k in the week ending May 18; continuing claims rose 12k to 1.676m in the week ending May 11

·     U.S. flash Markit manufacturing index fell to 50.6 in May versus 52.6 in April (vs. 56.4 a year ago) and marked the worst since September 2009. New orders dropped into contraction at 49.7 versus 53.5 while services slid to 50.9 from 53.0, and was at 56.8 last May (weakest since February 2016)

·     New Home Sales for April fell (-6.9%) to 673K and just below the 675K annual rate est.; new home sales fell 50k in April from prior month; median new home price rose 8.8% y/y to $342,200 while the average selling price at $393,700; said 20% of new homes sold in April cost more than $500,000, up from 16% prior month; months’ supply at 5.9 in April compared to 5.6 prior month

·     The 30-year fixed mortgage rate for week ended today fell to 4.06% from 4.07%, while the 15-year rate avg 3.51%, down from 3.53% a week earlier

 

 

Macro

Up/Down

Last

 

WTI Crude

-3.23

58.19

Brent

-3.16

67.83

Spot Gold

11.75

1,285.00

EUR/USD

-0.0005

1.1145

JPY/USD

-0.66

109.69

10-Year Note

-0.064

2.322%

 

 

Sector Movers Today

·     Internet; in online travel Citigroup upgraded BKNG to Buy citing stabilizing room night growth trends, improving European/Latam travel data, EV/FCF valuation support and downgraded EXPE to Neutral citing slowing Vrbo growth trends, heightened competition, softening U.S. travel data; CTRP reported strong operating income margin at 17% vs consensus of 13% as domestic competition continues easing, while revenue guidance was modestly below consensus; WB shares fall after Q1 results beat on EPS but miss on revenue and the Q2 outlook has downside revenue of $427-437M versus the $483.93M estimate/MAUs were 465M at the quarter’s end, a net add of 54M users Y/Y. Mobile made up about 94% of the total; SINA shares fall as reported 1Q net revenue of $475.1M and non-GAAP revenue of $472.5M vs average estimate of $474.7M, as ad revenue growth was partially offset by a decrease of portal advertising revenue

·     Metals & Materials; Steel sector cautious at Credit Suisse as AKS downgraded to underperform from outperform and PT reduced to Street low of $1.00 from $3.50 as sees much greater balance sheet risk due to the outlook for negative free cash flow/STLD downgraded to neutral due to lower price deck and “sharply” lower FCF est (cut tgts on NUE, STLD, STLC CN, AKS and X)

·     Retailers; BBY reversed earlier gains despite better earnings and after issuing strong guidance that takes into account at least some impact from tariffs/Q1 comp sales slightly better and Q2 revs just above ests; LB boosted the low end of its guidance on Bath & Body Works strength (comps up 13%), which offset weakness at Victoria’s Secret (comps fell -5%), while overall Q1 EPS/sales beat; SCVL posted a 1Q EPS beat on tax while sales fell short of estimates and raised the FY19 EPS outlook and reiterated its +LSD annual comp expectation; BJ Q1 EPS beat by 2c and backed its year outlook; CATO and SSI also movers on earnings

·     Medical equipment and devices; TMO three-year organic revenue growth outlook raised to 5-7% for the first time in TMO’s recent history, up from 4%-6% range; TTOO plunges after negative article saying “”Failed Product Launch And Covenant Violations Suggest 100% Downside” https://bit.ly/2HMXcCq ; MDT posts Q4 profit beat on surgical instruments business strength as EPS tops views on in-line revs and slightly better guidance; BSX has initiated a 1,600-subject global clinical trial, OPTION, evaluating its next-generation WATCHMAN FLX left atrial appendage closure device

·     Software movers; VRNT falls after being initiated strong sell by Spruce Point as sees 60%-70% downside saying he company has fallen far behind the evolving technological standards in the call center software industry; APPN both upgraded to equal-weight from underweight at Morgan Stanley as newer, more flexible approaches to development such as DevOps and Agile development are being adopted, fueling the rise of an emerging class of infrastructure software; PRO was upgraded to buy and tgt raised to $60 at Stifel as top line growth is accelerating, and free cash flows are finally poised to turn the corner into the black; CLDR downgraded at Wells Fargo as believe they have been too optimistic in terms of the timing of the potential inflection in customer adoption of CDP; ZEN positive mention by several analysts after investor day yesterday

 

Stock GAINERS

·     AVP +6%; as Brazilian cosmetics maker Natura agreed to buy the company in an all-stock deal that it valued at $3.7 billion https://on.mktw.net/2HyjSY3

·     CPRT +8%; after Q3 earnings results topped estimates

·     EVRI +7%; rises after Bloomberg reported the supplier of cash-withdrawal and machines to casinos, is exploring strategic alternatives including a potential sale

·     IOVA +3%; gets breakthrough therapy designation for LN-145

·     LB +14%; boosted the low end of its guidance on Bath & Body Works strength (comps up 13%), which offset weakness at Victoria’s Secret (comps fell -5%), while overall Q1 EPS/sales beat

·     SANW +14%; after the company and the agriculture division of DWDP announced they have entered into a new alfalfa agreement that terminates and replaces the December 2014 agreements between S&W and Pioneer Hi-Bred International

·     SNPS +1%; as reported solid F2Q results, with revenue and EPS better than consensus; FY19 outlook remains intact and continues to see strong demand trends in EDA

·     TSLA +1%; rebounds off pre-open lows around $185 – trying to snap 6-day losing streak

 

Stock LAGGARDS

·     HES -8%; among top decliners in the S&P 500 index given the rout in oil prices, crushing several sub-sectors such as E&P, drillers and equipment (CXO, FANG, XEC, PXD all down)

·     HRL -1% after results/cut forecast; Q2 mixed as EPS beat slightly on a revenue miss while lowers FY net sales to $9.50B-$10B from prior view $9.7B-$10.2B and lowers year EPS view to $1.71-$1.85, from prior $1.77-$1.91 (est. $1.80)

·     NTAP -13%; posted weaker-than-expected revenues for 4Q19 ($1.59B vs. $1.64 est. which was down 3% y/y), with a slower global demand environment providing continued pressure to top line and forward sales guide was ~$100M below Street

·     SDRL 16%; as reported a wider-than-expected loss for Q1 of $295M, wider than the $199M estimate (and compares to a $362M loss in the three preceding months)

·     TTOO -30%; after negative article saying “”Failed Product Launch And Covenant Violations Suggest 100% Downside” https://bit.ly/2HMXcCq

·     VRNT -7%; initiated strong sell by Spruce Point as sees 60%-70% downside saying he company has fallen far behind the evolving technological standards in the call center software industry

·     WB -12%; after Q1 results beat on EPS but miss on revenue and the Q2 outlook has downside revenue of $427-437M versus the $483.93M estimate

 

Syndicate

·     Bicycle Therapeutics (BCYC) 4.333M share IPO priced at $14.00

·     Guardant Health (GH) 4.5M share Spot Secondary priced at $71.00

·     IDEAYA Biosciences (IDYA) 5M share IPO priced at $10.00

·     Mercury Systems (MRCY) 6M share Secondary priced at $69.00

·     Rattler Midstream (RTLR) 38M share IPO priced at $17.50

·     Veoneer (VNE) 24M share Secondary priced at $17.50

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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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