Morning Preview: November 05, 2018

Terrie AmengualDaily Market Report

Early Look

Monday, November 5, 2018

Stock futures are flat to start the week, with Asian markets falling overnight and European markets little changed, as US markets turn their attention to politics. With the monthly jobs number behind us, the possible trade talks between President Trump and Chinese leader Xi still a few weeks away at the upcoming G20 meeting and quarterly earnings now more than half-way through, markets turn their attention to tomorrow’s mid-term elections, where current polls point to Democrats potentially re-taking back the House, which could lead to deadlock in Washington. In Asian markets, The Nikkei Index dropped -344 points (1.55%) to settle at 21,898, the Shanghai Index dipped -11 points to 2,665 and the Hang Seng Index fell -551 points to 25,934. In Europe, the German DAX is up a few points at 11,525, while the FTSE 100 is little changed around Friday’s close of just under 7,100. Weakness in Asia came after softer Chinese service sector growth data and the BoJ results. Another busy week of earnings are ahead, but macro catalysts still playing a large part in the direction of major averages. Oil markets likely active as Iran sanctions kick in to start the new month.

Stocks ended last Friday lower, snapping the 3-day win streak for major averages, but still managed to post gains on the week amid hopes regarding a near-term resolution to the tense U.S.-China trade relations that have weighed on market sentiment over the last few months. A weaker than expected holiday sales forecast for Dow component Apple’s (AAPL) weighed heavily on the broader market Friday after the iPhone maker said it would stop disclosing unit sales. On Friday, President Donald Trump said progress was being made in talks with Chinese leadership, countering remarks made minutes earlier by one of his top economic aides, Larry Kudlow. Friday’s action also came after the Labor Department said the U.S. economy added 250,000 new jobs in October, topping expectations of around 202,000.

Market Closing Prices Yesterday

· The S&P 500 Index dropped -17.31 points, or 0.63%, to 2,723.06

· The Dow Jones Industrial Average fell -109.91 points, or 0.43%, to 25,270.83

· The Nasdaq Composite slumped -77.06 points, or 1.04%, to 7,356.99

· The Russell 2000 Index advanced 3.00 points, or 0.19% to 1,547.98

Events Calendar for Today

· 9:45 AM EST Markit US Services PMI, Oct-F…est. 54.6

· 9:45 AMEST Markit US Composite PMI, Oct-F…est.

· 10:00 AM EST ISM Non-Manufacturing Index for Oct…est. 59.1

Earnings Calendar:

· Earnings Before the Open: D, DO, FOLD, L, RACE, SEAS, SHO, SRC, SYY, WBT, WRK.

· Earnings After the Close: ACHC, ATUS, CALX, CAR, COHU, BKNG, ELF, FMC, FN, GSHD, IFF, MAR, MTW, MWA, MYL, OXY, RNG, SBAC, THC, TROX, VVV

World News

· Growth in activity in China’s service sector slipped to a 13-month low in October, as the Caixin China services purchasing managers’ index slipped to 50.8 in October from 53.1 in September, Caixin Media Co. and research firm Markit said. The reading is the lowest since September 2017.

· The British pound advanced vs. the dollar to $1.3070 from $1.2966 late Friday. Fresh gains for the currency came after The Sunday Times said May has a “secret” deal that will avoid a feared hard border with Northern Ireland, and which will also keep a parliamentary revolt at bay

· The Bank of Japan left bond-purchase amounts unchanged at its regular operation on Monday. Governor Haruhiko Kuroda says the Bank of Japan needs to keep its strong commitment to achieve its inflation target and it will continue with powerful easing

· Chinese president Xi Jinping told an international import fair that his country will cut tariffs and reduce investment barriers. Xi Jinping pledged to further cut tariffs and import $30 trillion of goods over the next 15 years, higher than previous targets

· Democrats hold a seven-point advantage with about 24 hours to go, down slightly from the nine-point lead last month, an NBC/WSJ poll showed. A CBS poll predicted they may win 225 House seats in the most likely of three scenarios analyzed. Bloomberg

Sector News Breakdown

Consumer

· MGM (MGM) has hired investment bank Morgan Stanley (MS) and law firm Weil, Gotshal & Manges to begin exploring the idea of a merger with Caesars Entertainment (CZR), although no offer is on the table, the New York Post reports https://nyp.st/2JF4okn

· SeaWorld (SEAS) Q3 EPS $1.1 vs. est. $1.11; Q3 Ebitda $212.4M; Q3 attendance up 9.7% to 8.3M

· Starbucks (SBUX) upgraded to Buy and raised its price target to $75 at Mizuho

· Subaru cut its full-year forecasts and said it will announce further recalls this week at a cost of ¥6.5bn ($57M) following a scandal over improper vehicle testing

Energy

· Marathon Petroleum (MPC) shares could rise 40% over the next year according to Barron’s as oil refining profit margins resume a longer-term increase. Marathon could earn $8 per share by 2020 against an estimated $5.26 this year

· Shell Midstream (SHLX) files $1B mixed securities shelf

· Total SA (TOT) and Sempra Energy (SRE) have signed a memorandum of understanding to develop North American liquefied natural gas export projects, the companies said. The agreement covers the development of the Cameron LNG project in Louisiana and the Energia Costa Azul project in Mexico’s Baja California

Healthcare

· Sage Therapeutics (SAGE) announced that the FDA Psychopharmacologic Drugs Advisory Committee and Drug Safety and Risk Management Advisory Committee jointly voted, 17 yes, 1 no, that data support the favorable benefit-risk profile of ZULRESSO injection for the treatment of postpartum depression

Industrials & Materials

· BHP Billiton (BHP) has suspended rail operations in Western Australia, the home of its giant iron ore business, after it was forced to derail a runaway locomotive laden with the steelmaking ingredient

· Defense companies Northrop Grumman (NOC), Raytheon (RTN) and Lockheed Martin (LMT) are oversold according to Barron’s noting they should see increased revenue through the end of the decade, thanks to spending that’s already earmarked. Based on 2020 earnings projections of the three defense companies, their prices look low based on historical price-to-earnings ratios, if next year’s defense budget isn’t cut

· Barron’s noted copper prices have dropped 18% in recent weeks, creating a long-term opportunity to get in on some cheap copper-mining giants with generous dividend payouts. Investors should consider buying shares of a handful of European-based miners: Rio Tinto (RIO) and Glencore (GLNCY), which look cheap to the main U.S. rival Freeport-McMoRan (FCX)

· Honeywell (HON) completed the spinout of Resideo Technologies (REZI) earlier this week, Barron’s noted as it can be a way for investors to get exposure to the Internet of Things, adding that the stock could be worth about $29 per share, up 45% from current levels

· Ingersoll-Rand (IR) and Lennox (LII) look ready to rally according to Barron’s saying the heating, ventilation, and air-conditioning group (HVAC) industry is a high-quality niche that can still deliver upside, despite recent housing concerns

· The United Steelworkers union and ArcelorMittal (MT) have reached a tentative agreement on a new labor deal covering roughly 15,000 workers following several months of negotiations – WSJ

Technology, Media & Telecom

· Apple Inc. (AAPL) shares extended Friday’s declines after a report from Japan’s Nikkei business newspaper that the tech giant is asking assemblers in Asia to scrap some additional production plans amid tepid demand for its new iPhone XR. The Nikkei said Foxconn and Pegatron were asked to halt the new production capacity – Bloomberg

· Changyou.com (CYOU) Q3 revenue $117.96M vs. est. $120.2M; sees Q4 EPS 41c-50c on revs $110M-$120M vs. est. 35c/$116.86M

· Sohu.com (SOHU) Q3 revenue $460M, consensus $458.5M; sees 4Q revenue $465M-$495M vs. estimate $539.5M; sees 4Q adjusted loss per share $1.15 to $1.40 vs. est. loss/share $1.54

· Viacom (VIAB) downgraded to Neutral from Buy at UBS

· SoftBank smashed estimates with Q2 operating profit of 706 billion yen ($6.2 billion), compared with an expected 373 billion yen

· F5 Networks (FFIV) to buy back up to an added $1B in stock

· STMicroelectronics NV (STM) said it is launching a $750 million share buyback

 

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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.

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