Mid-Morning Look: September 03, 2019

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Mid-Morning Look

Tuesday, September 03, 2019






DJ Industrials




S&P 500








Russell 2000






U.S. equities are firmly lower, with the Dow Jones Industrial Average falling as much as 400 points, with more than 1% declines across the board for major averages following a fresh round of U.S.-China tariffs imposed over the weekend. Tariffs on Chinese imports took effect on Sunday including China’s levy of 5% on U.S. crude while the U.S. began collecting 15% tariffs on more than $125 billion in Chinese imports, including several tech items and China started to impose additional tariffs on some of the U.S. goods on a $75-billion target list. Markets also continue to eye developments in the UK over Brexit, as well as the protests in Hong Kong, which pressured markets as well. Stocks took another leg lower following the weaker than expected monthly ISM-Manufacturing data, as it fell to its lowest levels since 2016 (likely pressuring the Fed again for additional rate cuts on slowing growth concerns). Energy stocks among the biggest market declines as WTI crude falls over 4% on tariff impact. The 10-year yield falls back to its lowest levels since 2016, falling nearly 5bps to 1.44% after the weak ISM data, while the 30-year yield falls back near all-time lows around 1.90%. Hurricane Dorian impact on travel, leisure, insurance, retail, etc. also a market concerns as it bears down on the Southeast.


Treasuries, Currencies and Commodities

·     The U.S. dollar trades to fresh 2019 highs (2-year highs), led by a surge against the British Pound following weak UK economic data this weekend (UK manufacturing activity contracted in August for the fourth consecutive month and at the fastest pace since 2012) as a showdown between UK Prime Minister Johnson and Parliament over Brexit pushed sterling below $1.20.

·     Commodity prices are mixed, with gold prices surging over $20 back above the $1,550 an ounce level (6-year highs) despite the surge in the US dollar earlier this morning, as the search for defensive assets boosts prices. However, oil prices down across the board after tariffs were imposed this weekend by China (new set of tariffs on Chinese imports took effect on Sunday including China’s levy of 5% on U.S. crude). WTI crude prices fall over 4% to below $53 per barrel.

·     Treasury market’s rally, extending gains after weaker U.S. economic data (ISM report) increased chances for additional rate cuts by the Fed this year, as the 2-year slides to 1.43% while the 10-year moves back to its lowest levels since 2016 of 1.44% and the 30-year back near its record low yields of 1.90%. The dollar index (DXY) jumps party due to relative weakness in the British pound after U.K. Prime Minister Johnson threatened to call a general election for Oct. 14 if parliament forces a three-month Brexit delay.


Economic Data

·     U.S. Markit Aug. Manufacturing PMI 50.3 vs Flash Reading 49.9 (vs. yr ago 54.7) and lowest reading since Sept. 2009 while output rises to 50.8 vs 50.5 in July and new orders fall MoM

·     ISM Manufacturing for August fell to 49.1 (lowest since January 2016) vs. est. 51.3; while new orders plunge to 47.2 from 50.8 prior month and employment fell to 47.4 vs. 51.7 prior; prices paid rose to 46.0 vs 45.1 and backlog of orders rose to 46.3 vs 43.1

·     Construction Spending MoM for July rises 0.1% vs. est. 0.3% (while prior month revised to -0.7% from prior -1.3%) – recap







WTI Crude















10-Year Note





Sector Movers Today

·     Consumer finance and lending; SQ was upgraded to buy at SunTrust saying they expect Square to invest in C20 to address complex retail and restaurants which should bolster capabilities for large, inventory-intensive retailers where we believe it currently competes poorly (also upgraded to buy at MoffettNathanson); TREE upgraded to buy from neutral at UBS and raised tgt to $395 from $355 to reflect revised outlook for improving revenues and EBITDA combined with the recent compression in the shares’ valuation; ADS upgraded to buy at UBS as view that the current valuation of ADS shares assigns almost zero equity value to the company’s LoyaltyOne unit or a deeply discounted valuation to its Card Services unit

·     Transports; Truckers WERN and SNDR both upgraded to buy from neutral at Citigroup with WERN tgt to $40 from $32 and SNDR to $23 from $22 as becoming more constructive on the s full truckload sector saying fundamentals are bottoming after a disappointing year of volume and pricing declines; in airlines, With Hurricane Dorian (now a Category 3 Hurricane) looming off the East Coast of Southern Florida, there have been elevated flight cancelations around the Southeast Florida region as a result – Stephens noted SAVE, LUV and JBLU as having the most exposure to these markets and likely could see stock pressure associated with these elevated cancelation levels (SAVE was downgraded at Raymond James)

·     Metals & Materials; group sharply under pressure on implementation of tariffs this weekend between the US and China as well as a stronger US dollar; RIO was upgraded to outperform at BMO Capital following a near 20% pullback from its highs; Bernstein said to watch lithium producers’ stocks (ALB, SQM, LTHM) after global electric-car sales fell for the first time in modern history in July (fell 14% to about 128K plug-ins) after China scaled back purchase subsidies; MT named top pick among European steel names at Credit Suisse; iron ore stocks under pressure again (CLF, BHP, RIO) after suffering its biggest one-month fall since 2011/down 27% to $85.85 a metric ton by the end of August, the most since October 2011, according to S&P Global Platts. The drop deepened amid sluggishness among the Chinese mills responsible for producing more than half the world’s steel, and concerns over future demand.

·     Pharma movers; VRTX to acquire privately held Semma Therapeutics for $950M, while separately, Goldman Sachs upgraded to conviction buy list as believes investor attention should now shift to the company’s emerging pipeline; CDTX surges after announced a partnership with Mundipharma with a total potential value of $568 million to Cidara; AZN said Farxig, its type-2 diabetes drug, reduced the chances of cardiovascular death or worsening heart failure by 26% in a recent trial. Its cardiovascular drug Brilinta also reduced the risk of death and heart attack by 10%; KURA announced positive topline results from an investigator-sponsored Phase 2 trial of its lead drug candidate, tipifarnib, in patients with relapsed or refractory urothelial carcinomas that carry HRAS mutations; MNK tgt cut to $1 at Berenberg as sees rising litigation risk for the company in the national and state opioid lawsuits



·     ARDX +30%; after positive results from a Phase 3 clinical trial, AMPLIFY, evaluating tenapanor, combined with phosphate binders, as the study met the primary and all key secondary endpoints

·     CDTX +50%; after announced a partnership with Mundipharma with a total potential value of $568 million to Cidara

·     CONN +14%; after earnings as beat on the top and bottom line while reports retail same-store sales fell 2.3% in Q2, in-line with the guidance range of -4% to -0%

·     MDCO +5%; presented late-breaker results from the Phase 3 ORION-11 trial of PCSK9 RNAi drug inclisiran at the European Society of Cardiology (ESC) meeting where analysts believe these results show inclisiran has good efficacy and safety, raising tgts (tgt to $55 at Citigroup)

·     SQ +2%; after being upgraded at both SunTrust and MoffettNathanson to buy

·     TLRD +6%; after entering into a “multi-year” licensing agreement with the National Football League where sports fans will be able to customize their suits and sport coats with linings from many of their favorite NFL teams



·     APA -5%; among top declines in the Dow given a 4% pullback in oil prices, weighing across the energy complex this morning (DVN, XEC, NBL )

·     ARDS -20%; following an unsuccessful Phase 2 clinical trial evaluating candidate AR-105, a fully human IgG1 monoclonal antibody, for the treatment of ventilator-associated pneumonia caused by Gram-negative Pseudomonas aeruginosa

·     BA -3%; on tariff concerns and friction with regulators could keep the 737 Max plane out of service through December holidays

·     Intelsat (I) -10%; after Eutelsat (ETL.PA) pulls out of their C-band alliance/SES SA, Eutelsat, and Intelsat had formed CBA in an aim to free up so-called C-band spectrum that could then be sold on to mobile operators for the rollout of 5G in U.S.

·     MNK -3%; falling an 8th straight day as tgt cut to $1 at Berenberg as sees rising litigation risk for the company in the national and state opioid lawsuits

·     SAM -6%; downgraded to Underperform at Jefferies on its view that the company faces stiffer competition in the alcoholic seltzer drink category, while cuts tgt to $332 from $360

·     WYNN -4%; casino stocks slide (WYNN, MLCO, LVS) as gambling revenue in Macau was hit by tapering demand/gross gaming revenue in the region fell 8.6% y/y in August, according to recent data worse than the estimate 4% decline


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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