Mid-Morning Look: August 05, 2019

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Mid-Morning Look

Monday, August 05, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-595.40

2.25%

25,889

S&P 500

-68.90

2.35%

2,864

Nasdaq

-239.79

3.00%

7,763

Russell 2000

-41.02

2.68%

1,492

 

 

U.S. equities plunging, adding to last week’s declines (which was the worst week of 2019), as trade tensions intensify this weekend with China devaluing its currency to the lowest level in 11-years vs. the dollar in retaliation for President Trump saying he would levy a 10% tariff on $300 billion in Chinese goods starting Sept. 1st after talks between trade reps from the U.S. and Chinese counterparts failed. Oil prices fell, extending last week’s tumble, on global growth concerns after the tariff threat, which could limit crude demand from the world’s two biggest buyers. With Treasury yields plunging – interest rate sensitive sectors active as financials/banks under pressure while utilities, REIT‘s, housing, telcos which that tend to benefit from lower yields edge higher. Gold prices surge as gold prices jump to 6-year highs above $1,475 an ounce, while China ADR‘s pressured on trade concerns (BABA, BIDU, JD, CTRP) – semi’s also another sector pressured on trade along with consumer discretionary. Industrials, agriculture, metals and mining names all pressured by the trade uncertainties. Meanwhile, 10-year Treasury yield at levels not seen since the immediate aftermath of the U.S. presidential election in further rotation into defensive, safe havens. President Trump tweeted about China and the Fed on Monday morning, saying: “China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!” All about trade this morning!

 

Treasuries, Currencies and Commodities

·     In currency markets, lots of volatility, sparked by China further devaluing its currency over the weekend as the Chinese yuan moved beyond 7 for the 1st time in 11 years (last around 7.0476, up 1.57%), while the U.S. dollar fell below 106 overnight against the Japanese yen to its lowest level since early January and the euro rebounds further from 2-week lows last week below 1.11. Bitcoin surges given currency mess with prices rising over 13% to $11,750

·     Commodity prices mixed as gold prices spike to best levels in 6-years around the $1,480 an ounce level on dollar and stock market slide as investors seek safe haven assets amid the trade uncertainty between the US and China. Crude oil futures on same uncertainties with oil prices down to around $55 per barrel

·     Treasury market’s at best levels in over 2-years as yields plunge with the benchmark 10-year yield falling to lows below 1.75% and the 2-year briefly sliding under 1.60% as investors pour into defensive assets on trade and market concerns.

 

Economic Data

·     ISM Non-Manufacturing Index for July falls to 53.7 (weakest since August 2016) vs. est. 55.5 (prior month 55.1), while business activity index 53.1 in July from 58.2 in June, prices paid index 56.5 in vs. 58.9 in last month; new orders index 54.1 from 55.8 in June and the employment index 56.2 in July up from 55.0 in June

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.62

55.04

Brent

-1.22

60.67

Gold

21.30

1,478.9.00

EUR/USD

0.0079

1.1188

JPY/USD

-0.56

106.03

10-Year Note

-0.088

1.756%

 

 

Sector Movers Today

·     Retailers; gun related stocks grabbing lots of headlines today after President Trump hinted at gun control after two more mass shootings this weekend in El Paso Texas and Dayton Ohio (shares of RGR, AOBC, DKS, SPWH, VSTO shares among those moving); luxury retailers (CPRI, TPR) with presence in Honk Kong remain weak after Philip Chan, CFO of Hong Kong said that retail sales have dropped by nearly 7% in month of June (amid protests) and last nine-days dropped nearly 3% points; TGT was upgraded to buy at Deutsche Bank while cut DLTR to hold

·     Internet; high beat names under pressure with market sell-off, but Chinese Internet names among the hardest hit on trade tensions (BIDU 52-week lows, BABA, VIPS, CTRP, JD, SOHU weak); CARS shares plunged after cutting its revenue forecast for the full year to a decline of (-6% to -9%) form prior -5% to +2% and Ebitda margin 27% to 29%, saw 30% to 31%, while also saying it will remain an independent public company after its board concluded a strategic review resulting in no actionable bids

·     Energy stocks bludgeoned again on falling oil prices, slowing economic growth concerns and trade impact uncertainty for demand; Natural gas leveraged names falling again (EQT, AR, RRC, SWN) as natural gas prices resume downward pressure; several names drop to 52-week lows this morning in S&P (COP, HAL, CXO, COG, XEC, HP)

·     Aerospace & Defense; Dow component BA shares dropped to its lowest opening level in seven months on trade impact concerns as well as reports that the plane maker is preparing a major fix to the flight software linked to its troubled 737 MAX aircraft; ATRO said it saw softer demand of its inflight entertainment and connectivity products due in part to the grounding of the Boeing 737 MAX as it posted a weaker profit and cut its year sales outlook to $740M-$775M from $760M-$805M prior (and below consensus $783.29M)

·     Industrial & Machinery; heavy duty trucks active (PCAR, CMI, NAV) after ACT reported heavy duty truck orders of 10.2k units for the month of July, down 81% YoY and the lowest absolute level since February 2010. On a seasonally adjusted basis, orders declined 19% MoM to 144.9k, well below replacement demand (~250k) and broadly in line with trough levels experienced in prior down cycles (~150k SAAR) – Wells Fargo had estimate between 12K-15K

 

Stock GAINERS

·     ABMD +1%; following continuation of current level of reimbursement for Impella heart pump as CMS said late Friday that the present level of Medicare reimbursement for certain procedures will be maintained for fiscal year 2020 (reimbursement rates to increase 2.6%, rather than falling 28% like the CMS had proposed in April)

·     ALLK +105%; released positive data from a Phase II clinical trial, ENIGMA, evaluating lead candidate AK002 in patients with eosinophilic gastritis and/or eosinophilic gastroenteritis

·     BCC +7%; shares rallied despite mixed quarterly results (EPS beat/revs miss)

·     JEC +2%; after Q3 EPS topped views as backlog +8% to $22.5B at end of FQ2 and boosted its 2019 EPS outlook to $4.75-$5.00 (excluding full year ECR)

·     NEM +3%; gold miners get a boost as investors flock to defensive assets; gold prices jump to 6-year highs, with broad strength in miners

·     OSTK +2%; as names leveraged to blockchain/Bitcoin rally behind the more than 13% jump in Bitcoin prices

·     TSN +7%; reported better-than-expected earnings helped by strong performances in its beef and prepared-food segments (Q3 EPS $1.47 beat by 3c) and maintained its 2019 guidance

 

Stock LAGGARDS

·     ATRO -13%; Q2 profit misses and cuts full-year view – said it saw softer demand of its inflight entertainment and connectivity products due in part to the grounding of the Boeing 737 MAX – cut its year sales outlook to $740M-$775M from $760M-$805M prior

·     ATVI -6%; along with broad weakness in video game (EA, TTWO) names after Trump said that the U.S. must stop or reduce violent culture, including video games that celebrate violence

·     CARS -33%; after cutting its revenue forecast for the full year to a decline of (-6% to -9%) form prior -5% to +2% and Ebitda margin 27% to 29%, saw 30% to 31%, and concludes strategic review with no actionable bids

·     COP -2%; amid drop in oil stocks, falling to 52-week lows this morning along with other energy related S&P components (HAL, CXO, COG, XEC, HP)

·     DO -14%; shares dropped to open at all-time low as the driller reported a bigger-than-expected Q2 loss on higher drilling expenses and posts revenue well below expectations

·     GLYC -61%; after partner PFE said a late-stage trial testing GLYC’s drug rivipansel failed the main goal of time to readiness-for-discharge from a hospital for patients with a complication of sickle cell disease

·     ON -9%; mixed Q2 that beat on the bottom line but missed on the top and guides downside Q3 with revenue of $1.36-1.41B (vs. est. $1.46B) and adjusted gross margin of 36.7-37.7%

·     WYNN -6%; as casino names feeling pain from China/US trade as well – the Chinese yuan slides past 7.0 against the U.S. dollar for the first time since 2008

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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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