quity Market Recap
· U.S. stocks end higher, paring some of yesterday’s hefty losses (worst daily loss in 3-weeks) as a rebound in the energy sector and news that President Trump and Congressional leader’s ended immediate concerns about a debt default by agreeing to an extension until December 15th helped prop markets higher. Markets also were unphased by news that Fed Vice Chairman Stanley Fischer announced plans to resign from the central bank in mid-October. Markets were flat to mixed earlier as investors closely watch Hurricane Irma, as it hit landfall in the Caribbean this morning and is expected to make landfall in Florida this week. However, as near-term debt default concerns were put to the backburner (for now) given the deal in Washington, bonds and gold prices slipped and stocks pushed higher.
· President Donald Trump and congressional leaders agreed to extend the debt limit and fund the government until Dec. 15, as well as approve aid for victims of Hurricane Harvey, Democratic leaders said today. Senate Democratic Leader Chuck Schumer and House Minority Leader Nancy Pelosi said “both sides have every intention of avoiding default in December.
· Macro stories: Economic data was mixed as the US services sector expanded in August to its highest level in two months according to the ISM, while the trade deficit widened. The Bank of Canada raised its benchmark interest rate by a quarter of a percentage point on Wednesday, adding to a rate increase in July amid robust growth (note the ECB holds its interest rate meeting tomorrow morning). Hurricane Irma is an absolute monster, and it’s starting to make landfall over islands in the Caribbean as it heads toward Florida. The House also passed the first tranche of Hurricane Harvey aid in the amount of $7.85B. In Fed news, well know “hawk” Federal Reserve Vice Chairman Stanley Fischer announced that he plans to resign around October 13th citing “personal reasons.”
· ISM Non-Manufacturing (services) for August rises to 55.3, mostly in-line with the 55.6 estimate; and came in above 53.9 the prior month; Business activity rose to 57.5 vs 55.9 prior month; segment breakdown showed: new orders rose to 57.1 vs 55.1, employment rose to 56.2 vs 53.6, prices paid rose to 57.9 vs 55.7 and backlog of orders rose to 53.5 vs 52
· Trade Deficit for July widened to (-$43.7B) in July from (-$43.5B), but came in below estimates of (-$44.7B). The U.S. trade deficit is running almost 10% higher through the first seven months of 2017 compared to the same period in year before: $319.1 billion vs $291.2 billion. A bigger deficit subtracts from gross domestic product. Imports fell 0.2% in July to $238.07b from $238.49b in June and Exports fell 0.3% in July to $194.38b from $194.95b in June
· Oil prices advanced for a 4th straight session, as WTI crude rose 50c, or 1% to settle at $49.16 per barrel (high $49.42 and low $48.52). Prices have rebounded (after falling early last week) on hopes for renewed demand for crude from restarted refineries in the Gulf Coast. Brent crude trading up around its best level in a few months. The storm (Harvey) knocked out more than 20% of U.S. refining capacity, cutting demand for crude and weighing on prices. WTI ends near the highest in almost 4-week.s Next up, weekly inventory data from API tonight and EIA tomorrow.
· Gold prices for December declined -$5.50, or 0.4%, to settle at $1,339 an ounce, slipping from one-year highs amid a rebound in stocks, and as the debt ceiling deadline was pushed back 3-months until December, and agreed to fund the government until then. Gold had rallied to start the holiday-shortened week amid fears over North Korea’s weekend nuclear display combined with weakness in the dollar and broad losses in U.S. equities. Orange juice prices jump as Irma approaches Florida
· The U.S. dollar was little changed as the dollar index (DXY) bounced off afternoon lows of 92 to end back around 92.25 (little changed on day). The greenback fell to lows of 1.2146 against the Canadian dollar before paring losses, but still a 2-low after the Bank of Canada raised its key interest rate by 25 bps. The dollar slipped against the euro as questions about further tightening by the U.S. Federal Reserve lingered (euro back above 1.192), while the dollar trades higher vs. the yen; the British Pound to 1-month highs vs. dollar. Bitcoin rebounds over 3% to trade back above $4,600 after falling to lows of $4,100 yesterday (off record highs $4,921 last week). Earlier in the session, the dollar slipped against major rivals as Federal Reserve Vice Chairman Stanley Fischer announced his resignation.
· Bonds reversed part of yesterday’s gains as yields climbed higher; after settling around the 2.065% level late yesterday, the 10-yr bounced back around the 2.10% level after The President and Congress agreed to pass aid for Harvey, announce an extension of the debt limit, and a continuing resolution both to December 15 (removing n-t fear of a US debt default). They did not lift the debt ceiling limit and the ongoing problems with North Korea are largely unsolved, so a bid to bonds remains to some degree. Economic data today was mixed. Bond yields are coming off fresh 10-month lows on Tuesday on fears of unsettling developments from the North Korean regime’s nuclear capabilities and concerns about upcoming Hurricane Irma’s impact.
Sector News Breakdown
· Retailers; apparel designers active after GIII reported better-than-expected 2Q and increased year forecasts (GIL, RL, PERYwere among movers); FRAN Q2 sales slightly better, but Q3 guidance of 0c-5c on revs $481M-$491M came in well below estimate 23c/$506.5M; FRED reported narrower than expected Q2 EPS loss though sales of $5-7M missed; DLTH with EPS beat driven by better-than-expected direct revenues/lower SG&A expenses; toy retailers slipped late day (HAS, MAT) after CNBC reported Toys R Us weighs a possible bankruptcy filing; department stores were also strong on the day (M, JCP, KSS); KSS higher after the company announced a partnership with AMZN, to roll out a “smart home experience” in 10 stores
· Restaurants; PLAY reported mixed results as EPS topped views but overall revs and comps missed; WING was added to focus list at Baird saying the l-t growth outlook for Wingstop remains healthy and the company maintains an attractive business model with solid comps and margins
· Housing & Building Products; RBC Capital said Homebuilders and building products 2H17 estimates are likely to move lower as near-term demand is delayed and management teams assess damage from Hurricane Harvey (USG, CBPX, FBM, GMS); JELDupgraded to overweight at JP Morgan as believe valuation more than discounts recent investor concerns regarding North American volume growth; NWL lowers year EPS view due to impact of Harvey storm citing disruption to a large part of their U.S. resin manufacturing supply chain that is resulting in higher delivered cost
· Casino, Lodging & Leisure; cruise lines in focus after impact of Hurricane Irma in Caribbean and Florida (RCL, CCL, NCLH); NY Times noted in article that vacation rentals turn into shelters in Harvey’s wake/said nearly 1,100 homes and rooms are being offered for free to evacuees of Hurricane Harvey through vacation rental sites
· Energy sector with a solid rally today, as E&P stocks outperformed, along with gains in drillers and services; refiners bounce after yesterday’s pullback as refineries come “back on line” after outage during flooding due to Harvey storm; WTI crude oil topped $49 per barrel; stocks leveraged to gas pared gains midday (SWN, CHK, RRC)
· Few headlines in energy; MPC announced the decision to maintain the Speedway retail network as a fully integrated business within MPC; XOM was upgraded to neutral from sell at UBS after underperformance in shares; Jefferies said land drillers appear poised to lead oil services; APA said it has taken steps to mitigate disruptions to Permian sales; DAVN update after Harvey saying producing assets/facilities had only minimal damage; WMB reports no major offshore damage from Harvey
· Large Cap banks rally in afternoon as yields bounce; banks seeing reversal higher as debt ceiling extension pushed out another three months, taking away temporary fears of a US default; MA holding analyst day tomorrow; insurance (P&C) sector remains in focus as Hurricane Irma reaches category 5 level and makes landfall in the Caribbean and Florida (UVE, HRTG, HCI, UIHC, FNHC, RE, RNR, XL, BRKA, PGR, ALL) and as loss estimates for Hurricane Harvey continue to rise. Morgan Stanley noted under coverage: BRKA (6.7% market share), PGR (6.0%), ALL (3.4%), and AIG (3.3%) have the most property exposure in Florida
· Large Cap Pharma; VYGR reported positive results from an ongoing phase 1b trial of BY-AADC01 for advanced Parkinson’s disease; VRTX announced that Tom Graney would be its new chief financial officer and senior vice president (coming fromIRWD), starting September 13; RXDX shares active following update on key candidate entrectinib/on track for 2H’18 NDA filing;PTLA now sees a launch in November at the soonest and possibly as late as 1Q of 2018 (had seen rollout of Bevyxxa as soon as this month)
· Biotech movers; VSTM shares soar after an experimental cancer drug met its main goal of extending patients’ lives without their disease progressing (also won fast track status for the same drug in a new setting); SRPT reports results on 4053-101 study as statistical significance met on all primary and secondary biological endpoints; INSM issues stock offering of $250M shares of common stock after drug soared yesterday on key study; BCRX was upgraded at both Jefferies and JP Morgan on encouraging HAE data results
· Healthcare facilities and services; RBC Capital said hospital companies including HCA, THC, CYH and UHS all have “significant exposure” to Florida and may seem some disruptions from Hurricane Irma; HQY shares advanced after quarterly results beat estimates on all key metrics in; MYGN announced riskScore, an enhancement to its myRisk hereditary cancer test that quantifies a woman’s risk of developing breast cancer.
Industrials & Materials
· Transports; Rails active after CSX lowered its 2017 EPS growth view to 20%-25%, down from prior view of around 25% (UNP, KSU, NSC among movers on guide) though shares moved higher; in car rental (CAR, HTZ), Bloomberg reports that rental rates in Houston have surged in the wake of Hurricane Harvey
· Airlines fall; JBLU lowers Q3 RASM growth to negative 1% to positive 1% vs. prior view of (0.5) to 2.5%; says the reduction in RASM guidance largely reflects the current competitive industry pricing environment (also lowers capacity growth); UAL lowers Q3 PRASM view to down (3%-5%), worse than prior view of down 1% to up 1%, while lowered pre-tax margin view to 8%-10% (from 12.5%-14.5%) and capacity; guidance follows lowered updates from DAL and SAVE yesterday)
· Multi-industry/industrial stocks; LDR to be acquired by FTV for $67.25 per share/$770M deal https://goo.gl/jHV7WK; CAT at lows in afternoon after earlier trading to fresh 52-week high; Preliminary Class 8 truck net orders for August were 20,700 units, up 14% m/m and 50% y/y, FTR reported saying it is the best August order performance since 2014 (CMI, PCAR, NAV)
· Metals & Mining; TECK raised its 3Q coal sales volume to 7.2m-7.5m vs their prior view of at least 7m tonnes, due to strong coal demand in the quarter; STLD announces $350M notes offering; gold miners give up recent gains as gold prices turn lower (NEM, ABX, AEM)
Technology, Media & Telecom
· Internet; TRVG lowered FY revenue growth view to around 40%, down from 50% growth projected previously, and said expects FY adjusted Ebitda lower than in 2016 while remaining positive (PCLN, EXPE fell initially); GDDY 20M share Spot Secondary priced at $44.00; NFLX shares jumped after TMUS said it will start including a NFLX subscription for certain customers
· Semiconductors; INTC helps lead the Dow after it won a round in its eight-year fight with the European Union over a 1.06 billion-euro ($1.26 billion) fine/EU’s top court ruled that Intel’s appeal had to be reexamined by a lower tribunal; NXPI/QCOM EU merger review was suspended again (EU earlier this month had restarted the process after a suspension to demand missing info about the $47 billion tie-up); MCHP shares slipped early after reaffirmed forecast for year; MXIM lowered long term revenue expectations and raised margin targets
· Software, Hardware & Storage movers; HPE reported strong Q3 results with both sales and EPS beating Street expectations, while the outlook is largely in line with estimates (though shares downgraded to underperform at Bank America); NTNXprovided restated financials last night post-close and updated guidance to reflect new accounting practices; COUP Q2 results beat as billings growth (up 45% YoY) reaccelerated, highlighted by large deal momentum
· Tech services; CSRA disclosed that Eagle Alliance signed a contract with an agency of the Department of Defense for enterprise IT services valued at $2.4B over 10-years; EFII rises after saying it does not currently expect to report any material error that would require a restatement of any of its previously-reported financial results for any period
· Media & Telecom; ad agencies IPG (upgraded to buy) and OMC (upgraded to neutral) raised at Citigroup as believe the recent slowdown is both cyclical and structural…but don’t expect weakness to persist indefinitely (calls risk/reward attractive); TMUSsaid it will start including a NFLX subscription for customers who have at least two lines on an unlimited data plan; Reuters reported that bankers are lining up $70B in debt financing to back a potential bid from Altice and its U.S. unit ATUS for CHTRhttps://goo.gl/PjVejL
Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P. Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.