Mid-Morning Look: September 23, 2019

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Mid-Morning Look

Monday, September 23, 2019






DJ Industrials




S&P 500








Russell 2000






Renewed global growth concerns pushing U.S. stocks lower, dragged down by weakness in Europe after manufacturing and services numbers for the euro zone fell well short of consensus estimates and marked multi-year lows. ECB President Draghi said this morning that the ECB ready to use all instruments – follows weak manufacturing data in the Eurozone overnight as the flash euro zone manufacturing purchasing managers index fell to an 83-month low of 45.6 in September, down from 47 in August (vs. est. 47.3). German manufacturing PMI fell to 41.4 in September from 43.5, the worst reading in more than a decade. Incoming ECB President Lagarde said the threat against trade is the biggest hurdle for global economy. Treasury prices resume strength as investors rotate back into safe-haven assets (gold also higher), with the 10-year yield down a 6th straight session (and now more than 20 bps off 2-week ago highs of 1.90%). Markets also remain cautious ahead of trade talks between high-level trade representatives from China and the U.S. next month.


Treasuries, Currencies and Commodities

·     In currency markets, the euro is broadly lower given the extremely weak manufacturing and service data overnight in the Eurozone, while the dollar is mixed, falling against the Japanese yen, but rising against the British Pound. Commodity prices mixed as safe haven gold prices rise over $15 to $1,530 an ounce while oil prices slip marginally. Treasury market’s rally again as Treasury yields sliding with the 10-year down 4.4 bps to 1.676% (after falling 18 bps last week to 1.72%)


Economic Data

·     The Chicago Fed National Activity Index rose to positive territory in August after sinking below zero in July. For August, the index was 0.10, up from -0.41 the month before. The Federal Reserve Bank of Chicago said all four broad categories that comprise the index increased from July, but three of the four categories negatively contributed.

·     U.S. flash September Markit manufacturing PMI rose 0.7 points to 51.0 after 50.3 in August and is the highest since April (vs. 55.6 last year). The employment component improved to 50.9 from 50.1 previously and is the second straight monthly gain. The service index edged up to 50.9 from 50.7 (which was the lowest since February 2016). The index was at 53.5 a year ago







WTI Crude















10-Year Note





Sector Movers Today

·     Metals & Materials; steel sector weak again after more cautious analyst comments, as JPMorgan downgraded shares of U.S. Steel (X) along with AKS and lowers price targets in group to reflect more flattish price environment for steel saying if current economic and trade conditions hold, steel prices to likely fluctuate between $500/ton and $600/ton over near to medium term. Separately, Goldman Sachs downgraded AA in aluminum sector, citing lower aluminum and alumina prices expected in the near-term and few company-specific catalysts and cut ratings on CMC and SCHN in the steel space; CLF was downgraded to neutral at JPMorgan

·     Semiconductors; in the semi-equipment sector, Citigroup upgraded AEIS to buy and moved MKSI to its top small and mid-cap pick list saying recent supply chain checks indicate NAND prices are poised to rise as much as 20% in Q4 and that normalizing hyperscale cloud inventory is helping stabilize DRAM pricing (also said LRCX and AMAT remain their top equipment picks while downgraded BRKS to neutral from buy with $42 tgt; NVDA tgt raised to $216 at SunTrust as see revenue, margins, and sentiment improving across NVDA’s end markets

·     Biotech movers; Guggenheim with a few rating changes as they upgrade AGIO to buy amid underperformance (20% YTD vs +6% BTK) as investor sentiment on its pipeline has declined in absence of news flow, in line with our prior thesis; Gugg also upgraded REGN to buy and upped tgt to $403 from $355 based on our view that competitive headwinds on the Eylea franchise are manageable, and the IPI fear is fairly reflected in the current valuation; lastly, SNY was upgraded to buy at Guggenheim

·     Industrial & Machinery; ITW was downgraded to sell at Goldman Sachs saying given the company’s deteriorating fundamentals, there is downside risk to consensus estimates and its valuation premium relative to Large Cap Defensive peers appears high; Wells Fargo transferred coverage of Industrial Distribution and maintaining the Market Weight rating on the sector as a whole, but upgraded AXE to Outperform and our top sector pick ($90 PT from $70 PT) and downgraded WCC to MP with PT of $45 from $60

·     Oil equipment and services; Citigroup trimmed its U.S. rig count to 910 in 2020 from a previous 983, which represents a 5% decline from the 958 average we estimate from 2019, while transfers coverage as VAL downgraded VAL (TP to $4.75) and NE (TP to $1) to Sell from Neutral, remain Neutral on BORR (TP to $7) and RIG (TP to $7) and remain Sell on DO (TP to $5), while remain Neutral on SLCA while our TP moves to $12 from $10



·     ARTX +30%; to be bought by Greenbriar Equity for $3 a share, an aggregate equity value of ~$80.8M https://bit.ly/2kvRPzK

·     EXAS +5%; after company says FDA approves cancer screening test for use in younger patients

·     MNK +9%; after the company said a Phase 3 clinical trial of its investigational StrataGraft regenerative tissue met both primary endpoints, evaluated the efficacy and safety of a single application of StrataGraft in the treatment of deep partial-thickness thermal burns

·     PSMT +15%; will replace Finisar Corp. (FNSR) in the S&P SmallCap 600

·     PSTV +41%; announcement that BARDA will reimburse it $4.6M for work performed during fiscal years 2012 – 2019 to account for retrospective changes in indirect cost rates under their contract

·     PTE +8%; rises in reaction to positive results from a retrospective study of its SkinTE skin regeneration product in patients with difficult-to-treat wounds



·     AAL -2%; amid weakness in airline sector given analyst downgrades in space today (SAVE downgraded by two firms and AAL cut at Bank America)

·     AKCA -23%; said that its board of directors has appointed Damien McDevitt, Ph.D., a member of its board of directors, as interim chief executive officer, effective immediately – announced along with several other mgmt. members

·     ITW -2%; downgraded to sell at Goldman Sachs saying given the company’s deteriorating fundamentals, there is downside risk to consensus estimates

·     KTOS -9%; after Baird noted after the close Friday, NOC was awarded a $1.1 billion contract from the Missile Defense Agency (MDA) for hypersonic test drones beating out KTOS

·     OSTK -15%; after announcing the appointment of Jonathan Johnson as CEO (had been serving as interim CEO since August 22), while says CFO Greg Iverson has resigned

·     RCL 2%; amid weakness in cruise lines as SunTrust noted forward booking volumes & pricing was relatively strong up until early September, when they observed a pull-back due to the hurricane

·     X -1%; weak again after more cautious analyst comments, as JPMorgan downgraded share along with AKS downgrade and lower price targets/Goldman Sachs also cautious on steel sector


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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