Mid-Morning Look: November 30, 2018

Terrie AmengualDaily Market Report

Mid-Morning Look

Friday, November 30, 2018

U.S. stocks equities drop initially amid trade anxieties with China ahead of the G-20 summit weighing on investor sentiment, though stocks have gradually reversed to the upside, with major averages now near their best levels of the day. Helping lift stocks, Trade Representative Robert Lighthizer said on Friday he would be surprised if Saturday’s dinner between Trump and Jinping “wasn’t a success.” Also helping lift market sentiment, businesses in Chicago region grow at fastest pace in 4 1/2 years, according to today’s Chicago PMI survey. Software sector moves higher after mostly positive reactions to earnings results/guidance in the space, especially for VMware, Workday, and Splunk. Metals are mixed, ahead of highly anticipated Trump-Xi meeting at G-20 this weekend, despite weak Chinese PMI data. Treasury prices gain, the dollar spikes, hitting commodity prices again (with WTI crude moving back down near $50 per barrel ahead of OPEC meeting late next week). Also today, the leaders of the US, Canada and Mexico on Friday formally signed the agreement to replace Nafta on the sidelines of the G20 summit in Argentina. All three main U.S. equity benchmarks are on track for strong weekly gains: coming into the day, Dow is set to post a gain of 4.3% and a monthly advance of about 0.9%, the S&P 500 is poised for a weekly rise of 4% and a 1% November increase, while the Nasdaq is set to show a weekly climb of 4.8%, but a monthly decline of 0.5%.

Treasuries, Currencies and Commodities

· In currency markets, the dollar jumps following a strong Chicago manufacturing data point for November, handily topping estimates and ahead of the G20 meeting, with attention firmly on Trump/Chinese XI prospects for a trade deal with China; Euro moving to lows vs. dollar, down -0.5% at 1.1333, giving back some of yesterday’s gains, while the pound slides to 1.2750 ahead of Brexit vote in next 2-weeks while buck rises above 113.50 vs. the Japanese yen; Bitcoin drops back below $4,000, down around 5%

· Commodity prices pressured by the bounce in the U.S. dollar as gold slips over $7 to $1,223 an ounce (after recently rebounding on dovish Fed Chair Powell comments on Wednesday, implying a potential slowdown in the pace of interest rate hikes).

· Energy futures resume their downward momentum as WTI crude dipped briefly under the $50 mark, bottoming at $49.98 before edging up to $50.27 highs as prices remain pressured despite hopes for OPEC output reduction at next week’s OPEC meeting in Vienna. Note Russia’s energy minister said Russia was comfortable with current crude price

· Treasury markets gain as yields fall as President Donald Trump is set to meet his Chinese counterpart Xi Jinping on the sidelines of the Group of 20 summit in Buenos Aires. The 10-year Treasury note yield fell 2 basis points to 3.015%. Stronger US data fails to weigh on bonds.

Economic Data

· Chicago Purchasing Managers index rises to 66.4 from 58.4 in the prior month and well above the 58.5 estimate as Prices paid rose at a slower pace, while both New orders and Employment rose at a faster pace, signaling expansion

Sector Movers Today

· Software movers; VMW shares rise following a solid F3Q19 beat and raise and strong FY20 guidance as revenue, license, and license billings all accelerated over F2Q, to 14%, 17%, and 22% respectively. Total billings growth eased slightly q/q to 11% from 13% but on a tough comp; SPLK strong quarter with all key financial metrics coming in ahead of guidance/consensus, and giving management the confidence to raise the company’s FY20 revenue target; WDAYquarterly results beat as all key financial metrics beating management’s guidance and consensus estimates – subscription revenue, operating margins, and billings came in above consensus/guidance and overall net new ACV growth accelerated vs. 1H19; COUP was upgraded to buy at Loop Capital citing improving fundamentals despite the recent selloff in shares; ZUO slides early despite better earnings and higher guidance

· Medical devices; ABT was upgraded to buy at Goldman Sachs as sees a tangible path to revenue upside from products such as MitraClip, Libre and HeartMate 3; overall, Goldman notes that market fundamentals in MedTech remain favorable, with innovation driving growth. However, in Life Science Tools & Diagnostics, stays neutral as forecast a top-line deceleration in 2019 and believe the current healthy operating backdrop is fully appreciated in valuations (firm downgraded DGX and WAT while upgraded MYGN to neutral)

· Pharma movers; strength in large cap Pharma early with 52-week highs for PFE, LLY, ANTM (along with gains in other Pharma names); AZN said a Phase 2a clinical trial, INCONTRO, evaluating its Z second-generation inhalable TLR9 agonist AZD1419 failed to achieve the primary endpoint of time to loss of asthma control up to week 52; ANTM reaffirmed all 2018 guidance metrics other than membership saying YE18 membership is expected to be about 39.5M due to the delayed start of BCBSMN Medicaid partnership

· E&P sector; Cowen launched coverage on E&P sector with NBL, PXD, PE and WPX as Top Picks and outperform ratings on APC, CDEV, CPE and FANG as well saying constructive on the group with a real pivot to FCF generation. Oppenheimer said a perfect storm of negative data points emerging quarter to date has dented their bullish thesis on oil prices such as resurgent US oil production, global economic growth concerns and uncertainty on OPEC production cuts weigh on prices. And the Trump administration’s surprisingly dovish near-term stance toward Iran is the straw breaking the camel’s back (downgrade DNR and trim 2019/20E WTI by 15%/3% to $61/$65/b and lower earnings estimates accordingly in the sector

       Stock GAINERS

· AMBA +13%; Q3 earnings topped expectations but guided F4Q easily below consensus, while announced 4 Auto CV “design wins”

· DAL +3%; strength in airlines as WTI crude slides back to $50 per barrel

· DY +5%; rally early from AT&T’s capital spend commentary on Thursday

· EQGP +17%; ETRN entered into definitive purchase agreements with certain unitholders of EQGP to acquire limited partner interests in EQGP for $20.00 per unit in cash, which is a 17.5% premium to yesterday price https://yhoo.it/2FOOq8Z

· PVH +4%; Q3’s results show an EPS beat & full-year raise though noted underperformance of Calvin Klein (jeans & Collection)

· SPLK +6%; all key financial metrics coming in ahead of guidance/consensus, and giving management the confidence to raise the company’s FY20 revenue target

· UAA +4%; upgraded to outperform at Wells Fargo saying the worst is over and its analyst day, which he said is scheduled for Dec. 12, should be a more positive catalyst than a negative one

· VMW +4%; following a solid F3Q19 beat and raise and strong FY20 guidance as revenue, license, and license billings all accelerated over F2Q, to 14%, 17%, and 22% respectively

· WDAY +11%; as Q3 Subscription revenue, operating margins, and billings came in above consensus/guidance and overall net new ACV growth accelerated vs. 1H19

Stock LAGGARDS

· CMG -3%; Cleveland Research said 4Q comps seem to be running below consensus as modest traffic improvement is likely offset by less menu pricing, sending shares lower

· GE -5%; after the WSJ reported former employees have told SEC investigators that certain insurance risks were ignored, leading the company to have less-than-sufficient reserves to cover losses https://on.wsj.com/2BIOxza

· GME -12%; lowered its full-year profit view to $2.55-$2.75 from $3.00-$3.35 prior and $3.05 consensus, despite a strong performance during Black Friday and Cyber Monday/said anticipate that Q4 sales will skew more towards hardware than initially planned

· GS -2%; as the Federal Reserve is ramping up its probe into how Goldman Sachs executives eluded the bank’s internal controls as it helped Malaysian authorities raise billions of dollars that later went missing, Bloomberg reports https://bloom.bg/2BJ9jhK

· LH -10%; updated its FY 2018 guidance lower as total Revenue growth is revised to 9.9%-10.3% from 10.5%-11.0% prior and LabCorp Diagnostics Revenue growth of 2.1%-2.5% from 3.0%-3.5%; cuts year EPS from $11.25-11.45 to $10.95-11.05 (follows weak DGX guide Thursday)

· MAR -5%; disclosed a “data security incident” of its Starwood guest reservation database that contains information for 327M of the guests, the information includes some combination of name, phone number, passport number email address, mailing address, date of birth and gender

· PAGS -15%; after Q3 results beat but issued conservative forward earnings guidance for 2019

· SFM -14%; on double downgrade to underperform from buy at Bank America and cut tgt to $21 from $35 after Thursday’s news that CEO Maredia will leave to company on Dec. 30.

Syndicate

· Arbor Realty (ABR) 8.7M share Spot Secondary priced at $11.81

· Intelsat (I) 10M share Secondary priced at $25.75

· Iqvia (IQV) 6M share Spot Secondary priced at $124.25

· Vivint Solar (VSLR) 8M share Spot Secondary priced at $5.50

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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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