Friday, September 28, 2018
U.S. stocks have rebounded off earlier lows, while European markets remain unsettled after today’s budget-induced Italian asset concerns hit the EuroZone (Italian bonds jump while yields rise to highest levels in 4-years). Economic data in the U.S. showed increases in personal income and spending for recent month another positive reading in Chicago manufacturing and market sentiment near best levels of the year – but all data points are down slightly from the prior month, or slowing. Banking stocks drop as Treasury yields give back early weekly gains, while Italian banks were hit hard. The dollar extended its weekly gains vs. the euro, pound, and Argentine peso among others while oil prices are on track for strong weekly returns. Top corporate story today is the weakness in TSLA shares after the SEC sued CEO Elon Musk for misleading comments made on conference call last month. Homebuilders rise for the first time in more than a week, while technology shares rise. Markets still uncertain about trade with China and the U.S. moving further apart this week after increased tariffs and no progress at all made between the US and Canada – also moving further apart.
Treasuries, Currencies and Commodities
· In currency markets, the U.S. dollar is strong as dollar index (DXY) at 95.30 – best levels in 2-weeks (and off recent low 93.81 on 9/21). The Argentine peso falls over 4% as reached new record lows/central bank said to plan higher reserve requirements. The British Pound sunk to lows around 1.30, its lowest levels since Sept 12th as concerns about Brexit, a disappointing GDP, and threats to the government weigh. The euro slides back under 1.16 to lows around 1.157 before paring losses (down over 1.3% for the week) on Italian market concerns. Japanese yen hold near 2018 highs above 113.50. The US dollar sinks to lows vs. Canadian dollar around 1.2960 (off earlier highs 1.3049) as oil prices rise
· Commodity prices: Precious metals are rebounding off 6-week lows, bouncing back above the $1,190 an ounce level, though another surge in the dollar keeps prices in check. Oil prices are on track for strong returns this week, as Brent crude was set to rise 4.5%. It was on track for a monthly gain of around 6% and a quarterly advance of 4.9%. U.S. WTI oil was poised for a weekly gain of 2.1% and a monthly rise of 3.6%. The market has been bolstered by declining Iranian crude exports ahead of U.S. economic sanctions as well as bullish inventory data.
· Treasury markets are up slightly, but off best levels, as the yield on the benchmark 10-year yield slides under 3.05% (down from 5-month high above 3.11% earlier in the week). Bonds getting a lift amid concerns in European markets as Italian bonds surged sending yields to their highest levels in over 4-years amid budget concerns
· Personal Income for August rose 0.3%, slightly below the 0.4% economist estimate while personal consumption rose 0.3%, matching estimates but moderated after five straight strong gains and growing at the slowest pace since February; PCE core inflation was unchanged vs. est. up 0.1%, while rising 2.0% YoY (in-line with estimates); the savings rate at 6.6% in Aug., unchanged MoM
· Chicago Purchasing Managers index fell to 60.4 reading (5-,month lows), down from the 63.6 last month and below the 62.0 economist estimate; prices paid rose at a slower pace, signaling expansion while new orders rose at a slower pace, and employment rose at a slower pace, signaling expansion
· University of Michigan Sept final confidence sentiment rose to 100.1 vs. the est. 100.6 (down from 100.8 in the preliminary reading but well above the 96.2 last month). The expectations index rose to 90.5 vs. 87.1 last month while the current economic conditions index rose to 115.2 vs. 110.3 last month.
Sector Movers Today
· Housing & Building Products; rough week for homebuilders as the XHB comes into the day with a 7-day losing streak on rising rates, weaker housing data and cautious analyst commentary citing the environment; KBH shares fell this week after mixed Q3 results (EPS beat, revs missed), with results from LENexpected next week (10/3); LOW was upgraded to buy at SunTrust and tgt raised to $138 (also had tgt raised by other analysts) saying recent 2Q earnings and analyst meeting with LOW’s new CEO point to a turnaround that is internally focused and should come at a consistent pace over next the 2-3 years
· Containers; Wells Fargo downgraded TRTN, CMRE, and CAI to market perform and cut both TGH and SSW to underperform while maintaining market perform on MATX as they believe 2020 will potentially create pockets of material counterparty risk, which they expect to eventually weigh heavily on valuation/too much history supporting the idea that Container Line credit risk leads to poor equity performance for Box/Ship Lessors to justify staying even remotely constructive
· E&P sector assumed coverage at Piper (upgrade DVN and cut HES and APA): as sees the long-term investment case for the group being more attractive than it’s been for “quite some time.” Sees 3Q results being a potential opportunity with weak 4Q18/2019 guidance getting the “bad news” out, and offering a chance to buy the attractive 2H19+ outlook; prefers FANG and MRO
· Mortgage insurers (MTG, ESNT, RDN) shares were active as new rules published by Fannie Mae and Freddie Mac seem like they won’t hurt private mortgage insurers as much as had been feared said analysts. Susquehanna said the news is a non-event in our view with MTG still holding an ~16% capital buffer while NMIH’s buffer actually increased. ESNT and RDN are yet to comment as of press time, but on their 2Q18 earnings call they indicated they believe the buffer would be largely unchanged post PMIERs 2.0
· Pharma movers; BHC shares active after its Salix Pharma unit was sued/settled with the SEC; ADMP said the FDA approved Adamis’ lower dose version (0.15mg) of Symjepi for the emergency treatment of allergic reactions (Type I) including anaphylaxis; ENDP is voluntarily recalling two lots of Robaxin 750mg Tablets 100 Count Bottle pack to the consumer level; GRTS 6.071M share IPO priced at $15.00; GWPH tgt raised to $240 at Morgan Stanley following the DEA’s assignment of Epidiolex to Schedule V, which he said was a better classification than he expected; LLY said the FDA has approved its drug Emgality for the preventive treatment of migraine in adults; ALDX 5.25M share secondary priced at $13.75 per share; NITE 4M share Secondary priced at $18.00
· BB +5%; Q2 EPS beat by 3c on higher revenue and margins, and confirmed its forecast for the fiscal year, buoyed by its software business
· BCOR +9%; as JPMorgan upgraded to Overweight with more clarity on the 2019 tax season competitive environment
· CAMP +6%; reported Q2 EPS/revs above consensus due to better than anticipated gross margin and stronger software and subscription revenue, but issued mixed Q3 guidance
· LOW +1%; upgraded to buy at SunTrust and tgt raised to $138 (also had tgt raised by other analysts) after recent 2Q earnings and analyst meeting
· RDN +2%; new rules published by Fannie Mae and Freddie Mac seem like they won’t hurt private mortgage insurers as much as had been feared
· SNCR +15%; as Nasdaq will lift Synchronoss Tech’s suspension on Monday as Nasdaq Listing Qualifications Staff approved company’s listing
· TDOC +2%; after several analysts raise tgts following investor day as the company highlighted a new partnership with CNC and global reach through the recent Advance Medical acquisition
· AAOI -14%; cuts Q3 revenue view to $55M-$58M from $82M-$92M (below est. $88.48M) saying during Q3 they identified an issue with a small percentage of 25G lasers within a specific customer environment
· BTU -10%; was downgraded to neutral at Seaport Global and also cut to neutral at Clarksons with lowered tgt of $47
· JCP -9%; after the retailer’s CFO announced he is resigning after less than two years in job
· PRGS -13%; after Q3 sales missed estimates and guided Q4 adjusted EPS 71c-74c on revs $107M-$110M, below est. 78c/$116.67M (narrowed year EPS view and cut revenue outlook)
· TSLA -12%; after the SEC sued its CEO Elon Musk of misleading investors when he tweeted that he was “virtually certain” he could take the company private if he wanted to
· Aldeyra (ALDX) 5.25M share secondary priced at $13.75 per share
· CooTek (CTK) 4.35M share IPO priced at $12.00
· Gritstone (GRTS) 6.071M share IPO priced at $15.00
· Nightstar Therapeutics (NITE) 4M share Secondary priced at $18.00
· Rosehill Resources (ROSE) 6.15M share Secondary priced at $6.10
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.