Mid-Morning Look: August 23, 2019

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Mid-Morning Look

Friday, August 23, 2019

Index

Up/Down

%

Last

 

DJ Industrials

31.22

0.12%

26,282

S&P 500

0.89

0.03%

2,923

Nasdaq

10.59

0.13%

8,001

Russell 2000

-4.01

0.26%

1,502

 

 

U.S. equities fell initially, reversing course pre-open to trade sharply lower after China announced retaliatory tariffs vs. the U.S., imposing tariffs on $75 billion worth of U.S. products following the tariffs on $300 billion worth in additional Chinese goods the U.S. recently announced. China said it will impose tariffs of 5% and 10% (in two batches on Sept 1 and Sept 15) on what amounts to roughly the remaining U.S. imports it has yet to impose punitive taxes on. It said it will also impose tariffs on U.S. vehicles and car parts, instead of holding off on such a plan (but will allow certain car/parts to apply for exclusions). China also said it will impose added tariffs on soybeans, wheat, corn, beef and pork. The news sunk sentiment as tensions rise, with gold prices, Treasuries all edging higher and oil prices sliding. Treasury yields drop to 1.57% on the 10-year, from around 1.65% earlier in the morning. However stocks have since bounced following Fed Chairman Powell comments at 10:00 AM

 

Fed comments lift stocks – Fed speakers plentiful given the Jackson Hole central bank symposium: Fed Chairman Powell in his highly anticipated speech said the U.S. economy is in a “favorable place” and the Federal Reserve will “act as appropriate” to keep the current economic expansion on track. Between that, the possibility of a hard “Brexit,” tension in Hong Kong, an economic slowdown in places like Germany and other overseas troubles, Powell said the Fed needed to “look through” short-term turbulence and focus on how the U.S. is performing. Cleveland President Loretta Mester said earlier if the economy stays like this, Fed should keep rates where they are. St. Louis Fed head James Bullard said he expects a robust debate on a half-point rate cut even with the markets’ base case is for a 25-bps reduction. He said “I think we can afford to be kind of dovish here” because inflation expectations are too low and need to be pushed to the Fed’s 2% target (Bullard a voting FOMC member).

 

Treasuries, Currencies and Commodities

·     Commodity prices mixed as US benchmark oil prices dropped over 3% after China said it will slap a tariff on crude oil as of Sept. 1 as the US/China trade spat intensifies. Earlier, a stronger dollar was pressuring oil. Gold prices jump given the rising expectations of additional interest rate cuts following Fed Chairman Powell comments about the Fed will “act as appropriate to sustain the expansion.” Treasury market’s rally as yields slipped again erasing overnight declines after China announced retaliatory tariffs. The 10-year yield was recently 1.573% vs. 1.613% earlier. The U.S. dollar hits session lows vs. yen and turns lower vs. euro after Powell’s comments. July new home sales fell -12.8% to 635,000 annual rate, below the 647,000 estimate while new home sales fell 93k in July from prior month; previous three months’ new home sales data revised up by 78k

 

 

Macro

Up/Down

Last

 

WTI Crude

-1.07

54.28

Brent

-0.56

59.36

Gold

7.20

1,515.30

EUR/USD

-0.0001

1.1078

JPY/USD

-0.12

106.32

10-Year Note

-0.035

1.577%

 

 

Stock GAINERS

·     BA +2% after the Seattle Times reported late last night Boeing’s grounded MAX jets could be certified and back in service as early as October

·     CBLK +6%; as VMW announced acquisition of CBLK for $2.1B in cash ($26 per share)

·     CRM +5%; delivered another solid quarter of revenue upside, with strength across all areas (also (20-21% organic growth and 150bps+ organic operating leverage for FY20)

·     INTU +5%; posted a smaller-than-expected Q4 loss, revenue above estimates, boosted by growth across its business segments/raised the out year driven by strength in the QuickBooks franchise

·     PVTL +8%; as VMW also officially announced its acquisition of the 85% of PVTL it does not already own for $2B net in cash and stock

·     RRGB +6%; as Q2 results topped consensus estimates with comp sales falling (-1.5%)

 

Stock LAGGARDS

·     ATGE -11%; Q2 results beat estimates as results were mostly in line, while top end of FY2020 guidance was adjusted upward for the recent OCL acquisition, though EPS guidance is slightly below consensus

·     BREW -15%; BUD hasn’t made a qualifying offer for the remaining shares of BREW and will instead make an incentive payment of $20 million/the action comes as the deadline for a qualifying offer, as indicated by the 2016 International Distribution Agreement, expires

·     FL -12%; Q2 profit, revenue missed consensus estimates, while its same-store sales growth of 0.8% falls short of expectations (3.3% est.)

·     HAS -5%; will acquire eOne in an all-cash transaction valued at approximately £3.3 billion or US$4.0B; eOne shareholders will receive £5.60 in cash for each common share of eOne

·     HPQ -8%; after CEO Dion Weisler steps down and HPQ forecasts Q4 below estimates/Evercore ISI downgrades to in-line saying there is a lack of near term catalysts and a risk of tariff issues

·     VMW -7%; reporting roughly in-line F2Q and F20 guidance while F3Q guide was light, implying a slightly steeper F4Q ramp, and both F3Q and license forecast were light – but the big stories were two acquisitions as they officially announced its acquisition of the 85% of PVTL and CBLK

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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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