Mid-Morning Look: August 28, 2019

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Mid-Morning Look

Wednesday, August 28, 2019

Index

Up/Down

%

Last

 

DJ Industrials

67.74

0.26%

25,845

S&P 500

5.46

0.19%

2,874

Nasdaq

-10.30

0.14%

7,815

Russell 2000

3.85

0.27%

1,460

 

 

U.S. equities bouncing off lows, trading modestly higher after a weak open, as the continued decline in Treasury yields spark more investor concerns over a recession. The yield on the 2-10 curve continues to invert, with the two-year and 10-year yields currently down 4 bps each to 1.50% and 1.46%, respectively, while the 30-year Treasury touched a record low 1.907%, the 10-year German bund yield hit a record low -0.73%. Trade tensions between economic power houses China and the U.S. also remains a key factor to market nervousness along with the President’s daily attacks on the Fed not being accommodative enough regarding rates. European markets very active overnight amid ongoing political situations in the UK and Italy as the pound sank as much as 1% before paring losses after PM Boris Johnson moved to suspend Parliament, while the 10-year Italian bond yield hit a record low amid optimism over a new government. Energy prices (and stocks) getting a small boost this morning after bullish inventory data overnight from the API showed a decline of over 10M barrels in the latest week. The Federal Reserve reasserted that political considerations don’t play a role in their decision making, while former vice chairman Bill Dudley said the bank should refuse to dole out stimulus to cushion the damaging effects of Trump’s trade war.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar bounces mostly against the Pound, while up slightly vs. the safe-haven yen and little changed vs. the recently sliding euro; oil rose for a second day after an industry report showed a bigger-than-expected drop in American crude inventories, allaying concerns that the market is poised to tip back into oversupply; gold prices jumped earlier before pulling back from 6-year highs; treasury market’s rally early as the 10-year yield quietly moving to week lows, down as much as 2 bps to 1.45% (hit 3-year low of 1.44% on Monday) but has since pared losses; Italy’s 10Y yield drops below 1% for the first time, a record low, on optimism a new government will be formed

 

 

Macro

Up/Down

Last

 

WTI Crude

1.49

56.42

Brent

1.23

60.74

Gold

-4.60

1,547.20

EUR/USD

-0.001

1.108

JPY/USD

0.10

105.84

10-Year Note

-0.005

1.467%

 

 

Sector Movers Today

·     Energy; Morgan Stanley the latest firm to lower its oil price outlook for the rest of the year, citing softer demand growth due to weaker global economic growth and rising shale production that could offset OPEC’s attempts to support the market. Morgan now sees Brent at ~$60/bbl for the rest of the year from its prior forecast of $65/bbl and U.S. WTI crude at $55/bbl from $58 previously; Bank America downgraded NBR, NINE and QES to neutral

·     Retailers; TIF Q2 results were mixed as EPS of $1.12 topped estimates by about 7c on in-line total sales, but comp sales declined (-3%), missing the (-1.5%) estimate while gross margins of 62.7% dropped from the 64% YoY level (and below estimates) – warns Hong Kong protests could pressure results though reaffirms year; CHS Q2 comp sales fell (-6.1%) vs. est. (-5.3%) while raises gross margin decline for the year to -150bps-200bps from prior view -100-50 bps; EXPR shares slide after forecasting an unexpected Q3 loss and weak comp sales while reporting Q2 results that missed estimates; FIT announced the Versa 2, a new version of its popular smartwatch that brings new features like Amazon Alexa support, an improved screen, and longer battery life/watch launches on September 9 and will cost $200; COST was forced yesterday to close its new store in China early due to large crowds after officials warned on the impact on local traffic

·     Consumer Staples; COTY Q4 results were mostly in-line while announced a mutual decision to terminate their partnership with Younique; BF reported mixed Q1 results as EPS beat by 2c but sales of $766M missed the $773M estimate while reaffirmed its year outlook; MNST was moved to a top pick at Credit Suisse following price depreciation of 15% from July and said views recent launch into Walmart as the next leg to the Reign story; PPC to acquire Tulip Limited, an integrated prepared foods supplier for about $354M; BYND announced its partnership with Carl’s Jr in Canada/the launch of the Beyond Famous Star with Cheese in Canada

 

Stock GAINERS

·     COTY +5%; Q4 results were mostly in-line while announced a mutual decision to terminate their partnership with Younique and reaffirmed outlook

·     HPE +3%; Q3 results were mixed as revenues were below consensus, despite street estimates having come down materially, but gross margins were strong, resulting in a healthy EPS beat and raised its year profit outlook

·     LCI +43%; as Q4 results handily topped estimates (adjusted EPS 37c/$133.8M vs. est. 21c/$121.68M) and guides FY20 revenue $525M-$545M above est. $505.95M

·     MNST +1%; was moved to a top pick at Credit Suisse following price depreciation of 15% from July and said views recent launch into Walmart as the next leg to the Reign story

·     PZZA +6%; extends gains after jumping over 9% yesterday on CEO announcement – which has prompted at least three analyst upgrades the last 2-days (Stifel today)

·     TGE +36%; majority shareholder, Blackstone Group Inc.’s (BX) Blackstone Infrastructure Partners, has submitted a non-binding proposal to buy the rest of Tallgrass for $19.50 a share

·     XEC +6%; among a rebound in energy related names which have been beaten up the last month or so on plunging oil prices, slowing growth and demand fears

 

Stock LAGGARDS

·     ADSK -11%; beat consensus expectations for Q2 results across the board, except for current deferred revenue while cuts FY20 total ARR view to up 25%-27% from up 27%-29% and cuts FY20 adjusted EPS view to $2.69-$2.81 from $2.71-$2.90 as well as rev outlook

·     ALOT -20%; after Q2 results fell short on the top and bottom line

·     BF -3%; reported mixed Q1 results as EPS beat by 2c but sales of $766M missed the $773M estimate while reaffirmed its year outlook

·     MOV -20%; missed Wall Street’s Q2 earnings and revenue estimates and cut its full-year guidance for sales to $725M-$740M from prior view $750M-$765M

·     PAHC -22%; Q4 results missed (33c/$204M vs. est. 36c/$206M) and guides FY20 adjusted EPS $1.08-$1.15 below consensus $1.54 saying effects of African Swine Fever have significantly impacted our performance in the June quarter

·     TIF -4%; Q2 results were mixed as EPS of $1.12 topped estimates by about 7c on in-line total sales, but comp sales declined (-3%), missing the (-1.5%) estimate while gross margins of 62.7% dropped from the 64% YoY level

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Content is provided by Hammerstone Inc., which has no affiliation with Regal Securities, Inc. (“Regal”) This commentary is provided for information purposes only, and is not a recommendation, offer or solicitation by Regal to buy or sell securities or to adopt any investment strategy. Regal has not participated in the creation of the Hammerstone content and does not directly or indirectly endorse the content. Any reliance on this material is at the sole discretion of the reader.

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