Mid-Morning Look: September 12, 2019

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Mid-Morning Look

Thursday, September 12, 2019






DJ Industrials




S&P 500








Russell 2000






U.S. equities open the day higher (Dow above 27,200, S&P above 3,000 and Nasdaq tops 8,200), led by macro related stories again as President Donald Trump said he will delay the next tariff increase on China from October 1st to October 15th, as a gesture of good will, after Vice Premier of China (Liu He) noted that the People’s Republic of China will be celebrating their 70th Anniversary on October 1st. Also this morning, the European Central Bank (ECB) cut interest rates further below zero and said it will resume bond purchases. The news, coming ahead of the FOMC meeting next week, prompted another verbal attack from President Trump to the Fed saying “European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports…. And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest! The ECB actions raise expectations of more aggressive Fed moves next week…though today’s CPI reading came in higher, which the Fed will have to take into consideration. Stocks got another bounce on headlines that Trump advisers have discussed offering a limited trade agreement to China that would delay and even roll back some U.S. tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases. Those headlines pushed markets much higher and pared gains in Treasuries and gold. Weakness in retailers after weak results and guidance from OXM, TLRD and DLTH; truckers declined after lower guidance from LSTR last night; banks pressured amid falling Treasury yields; energy stocks drop alongside the decline in oil prices. Back to the ECB move today, they cut their deposit rate by 10 basis points to -0.50% while also saying QE will be restarted on Nov. 1 to the tune of €20B per month. The headlines sent the euro tumbling and pushed Treasury prices higher broadly, sending yields markedly lower. In other central bank news, Turkey longer-dated dollar bonds extend gains after central bank cuts interest rates by 325 bps to 16.5%. Inflation data was mixed in the U.S. today. Volatile moves early, but stocks looking to add to gains.


Treasuries, Currencies and Commodities

·     In currency markets, the dollar bounced initially after the ECB easing measures announced today (which sent the euro tumbling vs. most major currencies initially – has since recovered); but the buck has reversed lower vs. most currencies since amid rising expectations the Fed will announce its own easing measures and cut rates when they meet next week; Turkey’s lira jumps 1% against the U.S. dollar after the central bank cut its key repo rate, citing an improvement in the outlook for inflation.

·     Commodity prices are mixed with oil prices dropping after the IEA warned OPEC+ about a looming surplus in crude into 2020, and on follow through from late yesterday on reports President Trump was looking to possibly ease sanctions on Iran (which had promoted the resignation of former NSA advisor Bolton). Meanwhile, gold prices jump on rising rate cut expectation from the FOMC next week after the ECB action this morning.

·     Treasury market’s rally initially with the 10-year yield touching lows of 1.66% (over 6 bps) after the ECB easing moves this morning – raising the prospect of Fed getting more aggressive cutting rates – note the banks were down sharply on that. Treasury yields have since reversed, with the 10-year topping 1.76% on positive trade related headlines in what has been a volatile session thus far.


Economic Data

·     Weekly Jobless Claims fell 15K to 204K, well below the 215K estimate while prior week claims revised to 219K from 217K; 4-week moving avg. at 212.5k in the week ending Sept. 7 and Continuing claims fell 4k to 1.670m in the week ending Aug. 31

·     Consumer Price Index (CPI) MoM for August rose 0.1%, in-line with estimates while core CPI (ex food & energy) a tad higher at 0.3% vs. the 0.2% estimate; CPI Final Demand YoY for August was lower than anticipated at 1.7% vs. est. 1.8%, but core YoY up 2.4%, just above the 2.3% est.







WTI Crude















10-Year Note





Sector Movers Today

·     Bank movers; industry pressured after several days of strength, falling along with Treasury yields down sharp, with 10-yr yield down 6.5 bps to 1.67% after the ECB moves this morning – raises prospect of Fed getting more aggressive cutting rates – note the banks are down sharply; USB revises its long-term EPS growth view to 7%-10%, down from prior view of 8%-10% and sees long-term revenue growth 5%-7%, down from 6%-8% prior

·     Oil equipment & services; Wells Fargo lowered 2020 Lower 48 D&C spending forecast to -5% (vs +0%) to reflect a more cautious stance on oil supply/ demand and E&P capital discipline saying baking in weaker activity and pricing in 2H19, they cut 2020 EBITDA ests across NAM business lines 10-20%, and downgrade the land drilling sub-sector downgraded to underweight, while also cutting ratings on HP, NBR and PTEN to underperform citing falling leading-edge dayrates, limited contract coverage, and expectations for a weaker contracting environment in 2020-2021 ( also downgrades NINE and OIS to market perform; upgrades CJ to outperform)

·     Asset managers (monthly AUM data out); LAZ reported preliminary assets under management or AUM as of August 31 totaled approximately $228.8B; AB says preliminary AUM $587B as of August 31, up from $585B at the end of July; APAM AUM as of August 31 totaled $111.5B; IVZ prelim month-end assets under management, or AUM, of $1,175.1B, a decrease of 2.0%; LM prelim AUM of $776.8 billion as of Aug. 31, 2019; in research, JPMorgan upgraded BEN while downgraded IVZ and VCTR removed from Focus List as they see the traditional asset managers as having grown particularly inexpensive/valuations have contracted from ~18x prior to the Crisis to ~11x today/says based on a DCF, feel investors have priced in many risks; Wells Fargo raised tgts on HLNE, APO, ARES and KKR driven by higher applied multiples on fee related earnings

·     Consumer Staples; in grocers, WMT is rolling out an unlimited grocery delivery subscription service this fall, as the service will charge an annual membership fee of $98 for subscribers to access unlimited same-day delivery, which will be offered in 1,400 stores in 200 markets; KR reported mixed Q2 results as EPS missed and sales beat while identical store sales rose 2.2% in Q2 to top the consensus mark of +1.8%; HSY was downgraded to market-perform at Bernstein noting shares have outperformed the market by 42% over the past 12 months and is now trading at ~27x forward earnings (a 52% premium to the market) and 18.3x EV/EBITDA



·     AEE +2%; outperforms in utilities after being upgraded to outperform at Wolfe/also industry helped by falling yields in the early going

·     ATVI +2%; adds another analyst upgrade (Nomura) saying last month’s launch of World of Warcraft Classic has driven strong, above-expectations engagement in the franchise

·     LKQ +8%; as activist investor ValueAct Capital has taken a 5.2% stake in the auto parts company, according to a Securities and Exchange Commission filing

·     VAR +5%; was upgraded to in-line at Evercore/ISI after Varian received an exemption from China relative to the tariffs on imports from the U.S.

·     YELP +5%; after a report that GRPN could attempt to acquire the company. The WSJ reported that Groupon is seeking a large acquisition and that Yelp could be the target, even though Yelp is worth substantially more than Groupon. https://on.mktw.net/2lSs0dp



·     ACB -7%; after the pot company missed revenue expectations even after dropping its forecast; reported Q4 total net sales of C$98.9m below Stifel est. (C$103.5M) and the co’s preliminary guidance range offered last month driven by lower sales on non-cannabis businesses

·     AVYA -12%; after saying its review of strategic alternatives is “ongoing” and remains in advanced discussions. https://on.mktw.net/2kucV1D

·     DLTH -10%; Q2 EPS and sales miss and guides FY19 sales $610M-$620M on EPS 60c-66c, below the $648M/72c estimate as adjusted EBITDA came in at $9.6M vs. $13.1M a year ago

·     DXC -13%; after Mike Lawrie retired as president and chief executive and was succeeded by Mike Salvino, but will remain on as chairman until the end of the year

·     LSTR -5% issues warning saying it won’t meet the bottom end of its EPS forecast range (on July 24th had guided Q3 EPS $1.48-$1.54 vs. est. $1.55)

·     MCFT -17%; after Q4 sales of $122.8M missed the $126.2M estimate and said it sees sales down by a low-single digit percentage for the full year

·     OLED -8%; downgraded to negative from neutral at Susquehanna and cut tgt to $80 from $130 saying bill of materials cost increase, especially for 5G phones, plus a material cost variance between LCD and OLED displays will slow the penetration of OLED displays into smartphones

·     ORCL -5%; earnings results disappoint, as revenue miss was driven by a lower than expected Cloud and on-premise license revenue (- 6.1%), Hardware (-3.2%) and services (-4.4%)/also said CEO Hurd takes leave citing personal reasons

·     TLRD -27%; as Q2 retail comps fell -3.6% vs. 1.7% YoY, suspends quarterly dividend starting in Q4 and guides Q3 EPS 40c-45c below the est. 74c

·     USB -2%; revises its long-term EPS growth view to 7%-10%, down from prior view of 8%-10% and sees long-term revenue growth 5%-7%, down from 6%-8% prior


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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