Mid-Morning Look: August 30, 2019

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Mid-Morning Look

Friday, August 30, 2019

Index

Up/Down

%

Last

 

DJ Industrials

102.31

0.39%

26,464

S&P 500

9.44

0.32%

2,934

Nasdaq

11.38

0.14%

7,984

Russell 2000

4.00

0.27%

1,500

 

 

U.S. equities are higher, looking to bring winning streak to 3-day, and remain on track (barring a late day collapse) to tally their biggest weekly gains since June on easing China/U.S. trade tensions the last 2-days. However, stocks are still down on the month amid selling pressure for much of the month after the tit-for-tat tariff announcement by both economic power houses over the last few weeks. Some month end-rebalancing in front of a three-day holiday weekend also playing a part. European markets advanced for a second day after China indicated yesterday it wouldn’t immediately retaliate against the latest American tariff increase. Energy stocks took a turn lower given a sharp drop in oil, possible ahead of this weekend’s tariff implementation. Trump also taking another jab at the Fed this morning, pointing to the stronger dollar saying in a tweet “the Euro is dropping against the Dollar “like crazy,” giving them a big export and manufacturing advantage and the Fed does NOTHING! Our Dollar is now the strongest in history. Sounds good, doesn’t it? Except to those (manufacturers) that make product for sale outside the U.S.” Reinsurance names (RNR, RE, AXS) along with property & casualty names (ALL, CB, PGR) were volatile, pulling back ahead of expected landfall by Hurricane Dorian this weekend and damage related fears. Dorian expected to make U.S. landfall this weekend as a powerful Category 4 hurricane late Sunday or early Monday. Its latest trajectory suggests Dorian could hit somewhere between the Florida Keys and Georgia. Dorian thus far caused flooding and power outages, but no major damage in the Virgin Islands and off the coast of Puerto Rico. Tech taking a break after strong gains recently, while in retail, ULTA shares lose a quarter of its value on a miss and weak guidance.

 

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar was up modestly early, looking to add to yesterday gains, but took a turn lower following mixed economic data as confidence data (UoM) posted the weakest reading since Oct 2016, overshadowing a rise in manufacturing from Chicago PMI. The dollar also slips further after Trump bashed the Fed again, calling for more rate cuts.

·     Commodity prices are mixed as gold prices are flattish around the $1,537 level after having fallen over -0.8% late yesterday on the dollar spike and rotation back out of defensive assets given the 3-day bounce in global stocks. Oil prices took a sharp turn lower, erasing gains the prior two session on bullish weekly inventory data, possibly in positioning ahead of the Chinese tariffs which are expected to be implemented this weekend.

·     Treasury market’s little changed, down slightly as the yield on the 10-year up slightly at 1.51% (but off weekly 3-year lows of 1.44%), while the 30-year yield back under 2% after touching a life-time low this week of 1.90%. Mixed economic data, rising stocks, slowing global growth fears and central bank easing globally has created mass buying in bonds over the last month.

 

Economic Data

·     Personal Income for July rises a smaller than expected 0.1%, below the est. 0.3% while Personal Spending for July rises 0.6% vs. est. 0.5%. Regarding inflation data: PCE Deflator MoM for July in-line at 0.2% and PCE Deflator YoY for July also in-line at 1.4%. The PCE Core Deflator MoM for July in-line at 0.2% and PCE Core Deflator YoY for July in-line at 1.6%

·     Chicago PMI better, reported at 50.4, topping the 47.5 est. (and coming off recent 3 ½ year low of 44.4 in prior month) as priced paid rise faster, new orders also rose back to expansion while production and inventories declined (now contraction territory)

·     University of Michigan sentiment for August fell to 89.8 (lowest since October 2016), missing the 92.4 estimate as the expectations index fell to 79.9 vs. 90.5 last month while the current economic conditions index fell to 105.3 vs. 110.7 last month

 

 

Macro

Up/Down

Last

 

WTI Crude

-1.68

55.03

Brent

-0.69

60.39

Gold

0.10

1,536.70

EUR/USD

-0.0018

1.1039

JPY/USD

-0.37

106.15

10-Year Note

0.021

1.518%

 

 

Sector Movers Today

·     Metals & Materials; the Financial Times reported Nickel prices surged by 8% on Friday to their highest levels in four years as Indonesia, the world’s largest producer, said it would ban exports of raw ore in December (nickel names NILSY, ERMAF); overall, metals and miners extended gains for a 3rd day as trade talks optimism grows; precious metal stocks fall as gold pulls back from 6-year highs and after a good run in several names (KGC, AUY, AEM, GOLD); iron ore prices plunged 28% in the month, following 5-months of gains helped by supply disruptions in Brazil and Australia that lifted futures to the highest since 2014 – contract in Singapore sinks into $80s from July high of $120 (CLF, BHP, VALE, RIO)

 

Stock GAINERS

·     AMBA +20%; beat/raise results boosted by order pull-ins from China but also market share gains and strong CV trends in Security and broadening design win traction in Automotive (sees Q3 revenue $63M-$67M above est. $55.38M)

·     BIG +9%; is the latest of the dollar/discount related stores to post strong results/guidance (DG, DLTR, FIVE rose yesterday on results), as Q2 EPS beat on smaller forecast loss for Q3, though Q2 comps of 1.2% missed the 1.8% estimate

·     CPB +6%; reported Q4 adjusted EPS 50c on sales $2.02B, both est. 42c/$1.98B/Q4 organic rev rom cont ops up 2%/gross margin improved 260 bps to 34.0% of sales

·     DELL +9%; after raising its full-year profit outlook to $6.95-$7.40 from $6.05-$6.70 (est. $6.42) while mid-point of year rev guidance also tops consensus after better Q2 results

·     JKS +1%; after handily topping Q2 earnings expectations as revenues topped $1B, as solar module shipments exceeded company guidance/gross margin was 16.5% vs. 12% last quarter

·     TSLA +2%; after all models will be exempted from China’s auto tax on purchases, according to a statement posted on the industry minister’s website

 

Stock LAGGARDS

·     ALXN -8%; after AMGN challenged three patents covering top seller Soliris (eculizumab)/claiming the three patents shouldn’t have been issued/the USPTO has about a year to announce decision

·     AOBC -17%; dropped after reporting Q1 miss (first in 2-years as per to Wedbush) with an accompanying guide-down for the year as lowers year profit to 70c-78c from 76c-84c (est. 83c)

·     COO -6%; results as reported results that beat earnings but missed top-line expectations as miss was largely driven by tough comps in CVI and self-inflicted wounds in CSI where the company halted Paragard TV ad spend (as per Piper)

·     RE -2%; along with weakness in other reinsurers RNR, AXS, pulling back ahead of expected landfall by Hurricane Dorian this weekend and damage related fears

·     ULTA -27%; downgraded by several analysts with accompanying lower tgts after the company missed EPS expectations largely due to a lower comp vs. expected ( 6.2% vs. 6.7%) & EPS guidance was revised -7.5% lower for FY19

·     YEXT -12%; shares fall as negatives (F2Q billings grew +19% y/y to $69.7M, missing consensus by ~$5M, and growth decelerated from +29% in F1Q), outweigh positives for quarterly results (beat F2Q Street estimates and the high end of the guidance for revenue and EPS)

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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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