Mid-Morning Look: September 17, 2019

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Mid-Morning Look

Tuesday, September 17, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-28.00

0.10%

27,048

S&P 500

0.88

0.03%

2,998

Nasdaq

-7.17

0.09%

8,146

Russell 2000

-13.58

0.86%

1,571

 

 

U.S. equities are edging lower, as oil prices pare yesterday gains and markets eagerly await the results of the Fed policy meeting tomorrow, where investors are looking for additional easing measures such as another rate cut to keep up with other central banks. A day after posting its biggest one day gain in a decade for WTI and nearly three-decades for Brent, oil prices are broadly lower, dragging energy stocks down as well after Reuters reported Saudi Arabia is close to restoring 70% of the oil production lost after this weekend’s attack. Brent crude dropped over 6% as the report cited an unidentified Saudi source saying it would return to full production in the next two to three weeks. The headlines dragged big oil names lower (HES, APA, MRO,) and gave a boost to airlines (AAL, UAL) and truckers which dropped yesterday on the Saudi story. Garnering a lot of attention today was action in the repo markets as ZeroHedge noted back in the summer of 2013, China’s banking system was on the verge of collapse when its overnight repo rates briefly soared to the mid-20% range, prompting the central bank to take emergency intervention to avoid a funding freeze. As of this morning, the US is halfway there as overnight repo has now hit 10% and shows no signs of slowing. In response, the NY Fed took action today to end the squeezing effect saying will conduct an overnight repo operation today for up to $75B (which will be the first such operation in a decade). Earnings results from FDX tonight will be good barometer for economy along with earnings from software company ADBE.

 

Treasuries, Currencies and Commodities

·     The U.S. dollar was strong yesterday, rising vs. most rival currencies but little changed today ahead of the FOMC interest rate policy meeting tomorrow. Same can be said for gold prices which remain down slightly awaiting results while Treasury prices rise for a second session (after having fallen the 8-prior sessions), with yields edging lower (10-year yields down about 3 bps to 1.125% after topping out at 1.90% late last week after falling as low as 1.427% the week prior).

·     Oil prices giving back about half of its near 15% gains yesterday (biggest single day jump in over a decade) after Reuters reports that Saudi oil output will return to normal levels quicker than initially thought after operations were disrupted this weekend from drone attacks on key oil facilities; the headlines sunk Brent and WTI oil prices.

 

Economic Data

·     Industrial Production for July jumps 0.6% topping the 0.2% est. (prior month revised to -0.1% from -0.2%); Capacity Utilization at 77.9% vs. 77.6% est. (and 77.5% in July)

·     NAHB Housing market index for September reported at 68 vs. est. 66 (and 67 last month), while Present single family sales rise to 75 vs 73 last month and the future single family sales falls to 70 vs 71 MoM; Prospective buyers traffic unchanged at 50

 

 

Macro

Up/Down

Last

 

WTI Crude

-3.46

59.44

Brent

-4.27

64.75

Gold

-1.60

1,509.90

EUR/USD

0.0036

1.1037

JPY/USD

0.08

108.20

10-Year Note

-0.033

1.813%

 

 

Sector Movers Today

·     Transports; FDX expected to report earnings after the close tonight – good barometer for the economy; in rails, UBS lowered rail EPS estimates to reflect worse than expected volumes for the group with only KSU realizing volumes in line with their model and the large U.S. rails showing the greatest weakness versus our prior forecast (cuts NSC, CSX, UNP, CP, CNI)/assume essentially flat volume for CSX, NSC, and UNP in 2020; airlines remain volatile (AAL, DAL, UAL) given the spike in fuel costs after the Saudi Arabia oil facilities were hurt this past weekend, cutting 50% of their production – names jumped as oil rolled; AAWW downgraded at Susquehanna as see risk-reward here as skewed to the downside, despite shares being down 34% YTD already

·     Casino & Leisure movers; SEAS announced CEO Gustavo Antorcha resigns from his position and from its Board (was named CEOP this past February) citing disagreements over the Board’s involvement in the decision making/current CFO Marc Swanson promoted to Interim CEO; EXPE to become the global optimized distributor of MAR wholesale rates, availability, and content to a network of global travel providers, effective October 15, 2019; in gaming, Nomura Instinet updates on Macau gaming revenue trends after tracking last week’s action in the region saying gross gaming revenue rose by about 3% compared to the prior week and is forecast to rise 2% to 3% year-over-year for the full month (WYNN, MLCO, LVS)

·     Retailers; notable weakness in department stores with M, JWN, KSS and GPS under pressure early; quiet on news front, though a couple of upgrades at UBS for TJX to neutral from sell on each saying for each tariffs likely drive incremental market share gains; FNKO shares fall after announcing filing to sell 4M in shares overnight

·     Pharma movers; MRK received FDA Priority review for V920 investigational vaccine for Ebola Zaire virus; NVO was upgraded to buy from neutral at Citigroup; ACRS announced positive results from its Phase 3 clinical trial, THWART-2 (WART-302), of A-101 45% Topical Solution (A-101), an investigational drug for the treatment of common warts. A-101 met the primary and all secondary efficacy endpoints, achieving clinically and statistically significant clearance of common warts; CSBR falls as Q1 adjusted EPS loss of (5c) on revs $6.7M (vs. 5c profit a year ago for EPS) vs. est. revs $7.5M

 

Stock GAINERS

·     AAL +4%; bounce in airlines as oil prices pullback from yesterday gains, after Reuters reported that Saudi oil output will return to normal levels quicker than initially thought

·     ACRS +53%; announced positive results from its Phase 3 clinical trial, THWART-2 (WART-302), of A-101 45% Topical Solution (A-101), an investigational drug for the treatment of common warts. A-101 met the primary and all secondary efficacy endpoints, achieving clinically and statistically significant clearance of common warts

·     APOG +10%; Q2 adjusted EPS 72c/$357.1M vs. est. 65c/$352.7M; still sees year EPS $3.00-$3.20 vs. est. $3.05 and still sees year capex $60M-$65M

·     CME +3%; strength in the commodity exchanges as they outperform a second day given the high volume of contracts traded the last 2-days on oil volatility

·     KLAC +2%; raises quarterly dividend to 85c from 75c and adds $1B share buyback authorization while guides Q3 EPS $2.04-$2.34 on revs $1.31B-$1.39B vs. est. $2.20/$1.38B

·     NEWR +5%; added to Fresh Pick List at Baird as like management’s decision to address the sales and product misexecution challenges through personnel change

·     SPLK +1%; upgraded to overweight from neutral at JPMorgan with $130 tgt following a 19% selloff since late July as firm expects a bookings growth rebound in 2H’19

 

Stock LAGGARDS

·     CSBR -15%; as Q1 adjusted EPS loss of (5c) on revs $6.7M (vs. 5c profit a year ago for EPS) vs. est. revs $7.5M; said slightly weaker revs was mainly due to the timing

·     DRQ -3%; slipped after Repsol terminates its contract award for the Ca Rong Do project offshore Vietnam which was awarded in Feb. 2018 and was last extended until Dec. 31, 2019, but the project had suffered from several delays

·     EVER -9%; after being double downgraded to underperform at Bank America concerned with valuation given recent outperformance

·     GLW -6%; after cutting full-year guidance for its optical communications and display technologies units (sees down 3%-5% vs. prior view low-to-mid single digit increase)

·     KHC -3%; as 25M share Block Trade priced at $28.60

·     SEAS -4%; CEO Gustavo Antorcha resigns from his position and from its Board (was named CEOP this past February) citing disagreements over the Board’s involvement in the decision making

·     XLRN -1%; after saying it would discontinue development of ACE-083, its experimental treatment for a genetic muscle-wasting disorder/plans to report data from another trial testing ACE-083 in patients with a neuromuscular disorder in Q1 next year

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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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