Mid-Morning Look: December 3, 2018

Terrie AmengualDaily Market Insights

Mid-Morning Look

Monday, December 3, 2018

U.S. equities rise to start the week amid a morning of very busy headlines, with stocks boosted amid positive trade developments between the US and China, a recovery in oil prices, M&A deals lifting biotech and media stocks, while a cancer conference in San Diego moving the needle on several names as well. Overall, green arrows around the world to start the week. News of a U.S.-China trade truce sent the dollar into reverse, driving a gauge of currencies to the highest in almost four months while global stock markets cheered the news. The U.S. said it won’t impose 25% tariffs on Chinese goods in January, as it had planned, and China agreed to buy more U.S. agricultural goods (leaving U.S. tariffs on $200M worth of Chinese products at 10% for now). However, the deal opened a 90-day window to negotiate a deal not just on trade but also on protecting intellectual property. Industrials, Materials and Energy among the top sector gainers early, while autos get a boost after a “tweet” from President Trump last night saying that China had agreed to “reduce and remove” tariffs on U.S. cars, now set at 40%.

Oil prices surge ahead of this week’s OPEC meeting in Vienna (Thursday), getting a lift on the China news, as Russia and Saudi Arabia have agreed to extend OPEC’s efforts to stabilize oil markets and as Canada’s province of Alberta to cut crude production nearly 9% for next year. The news items helping lift oil prices, which have fallen more than 30% from their October highs on slowing demand and increasing supply concerns. Stocks are already coming off their best weekly returns (around 4.5%) in over 7-years last week after Fed Chairman Powell comments at its policy meeting was perceived as more “dovish”, lowering the likelihood of more aggressive rate hikes in 2019.

Also this morning, a deal in the biotech sector (GSK buys TSRO in $5B deal) and media space (NXST buys TRCO in $4B deal), several economic data points (construction spending and ISM Manufacturing), monthly auto sales data for November released, and the U.S. mourns the death of former President George Bush, passing away Friday at the age of 94 (NYSE and Nasdaq will be closed on Wednesday in observance). With today’s market moves, the benchmark S&P 500 index pushed above both its 50-day and 200-day moving averages for the first time since early October.

Treasuries, Currencies and Commodities

· In currency markets, the dollar bouncing off its overnight lows (dollar index – DXY – off lows of 96.71), but still down as investors bullish on stocks given reduced China/US trade fears and softer tone from the Fed last week regarding rising rates. Treasury markets little changed early, with the 10-year yield holding above 3%

· Commodity prices jumping on the positive trade development this weekend between the US and China, boosting metals and mining names while sinking the US dollar; the weaker dollar helping gold prices push higher while oil prices rise after Russia and Saudi Arabia have agreed to extend OPEC’s efforts to stabilize oil markets and Canada’s province of Alberta to cut crude production nearly 9% for next year – both bullish news items ahead of OPEC meeting this week.

Economic Data

· ISM Manufacturing for November rises to 59.3 from 57.7 last month and topped the 57.5 est.; new orders rose to 62.1 vs 57.4, while employment rose to 58.4 vs 56.8 though supplier deliveries fell to 62.5 vs 63.8; prices paid fell to 60.7 vs 71.6; largest monthly decline since June 2012; backlog of orders rose to 56.4 vs 55.8

· Construction Spending for October fell (-0.1%), missing the 0.4% estimate increase; Sept. was revised to -0.1% from 0.0%; private construction fell 0.4% in Oct. and private residential construction fell 0.5%

· IHS Markit manufacturing PMI falls to 55.3 in November from 55.7

Sector Movers Today

· Autos higher; shares of GM, F, FCAU and suppliers move higher after Donald Trump said China had agreed to “reduce and remove” tariffs on imported American-made cars (which is now set at 40%); also today, sales for November releases: FCAU Nov auto sales rose 17% vs. est. up 15%; TM said Nov US auto sales fell (-0.6%) vs. est. up 0.1%; HMC said Nov US auto sales fell (-9.5%) vs. Bloomberg est. down (-5.9%); Ford (F) Nov US auto sales fall (-7.1%), better than the est. loss of (-8.7%); NSANY Nov auto sales fell (-18.7%) vs. est. loss of down (-15%); APTV shares mentioned positively in Barron’s saying its worth a look and could reach over $100 in the next two years

· Industrial & Machinery; among the biggest sector winners on the day following the truce between the U.S. and China at the G20 this weekend; CAT was upgraded to buy at Bank America as macro risks recede for now while firm also upgraded AGCO to buy; CAT was raised to “bullish fresh pick” at Baird as well on developments; ag names also rise, with DE jumping after China agreed to buy more U.S. agricultural goods; TEX and MTW were downgraded by OTR Global

· Semiconductors; QCOM ruled out any chance of a return to its abandoned bid for NXPI after U.S. and Chinese political leaders appeared to open the way for possible approval of the transaction; AVGO was upgraded to buy at FBR/B Riley as adds CA Technologies to estimates, which much more than offsets an iPhone and cyclical-induced core business cut, raising our price target from $250 to $300; ASML announced a fire at a supplier over weekend likely to impact shipments in early 2019; Craig Hallum noted positive developments on US & China trade over the weekend likely to help automotive suppliers work higher (CY, STM, ON)

· Casino & Leisure movers; gaming stocks (LVS, WYNN, MLCO) rise after gross gaming revenue in Macau rose 8.5% in November to 25 billion patacas ($3.1 billion) from a year earlier, according to data Saturday from the Gaming Inspection & Coordination Bureau. That beat the median analyst estimate for growth of 4% according to Bloomberg

· Highlights from ASH conference in San Diego this weekend: 1) BLUE shares slip after updated data of its gene therapy, LentiGlobin showed an emerging significant adverse event that could overshadow encouraging data; 2) GILD reported the median duration of complete response for its CAR-T therapy Yescarta was not reached after two years of follow-up; 3) KPTI reports positive results from Phase 2b SADAL data for selinexor in patients with DLBCL/for the SADAL study’s primary endpoint, selinexor achieved a 29.6% overall response rate, including 9.6% complete response; 4) CELG and XLRN shares active after data from a Phase 3 trial of luspatercept met high expectations; 5) INCY Phase 2 “Reach1” study of Jakafi in combination with corticosteroids that previously met its primary goal

· Media & Telecom movers; in media space, NXST agreed to buy TRCO for about $4.1B, creating the largest owner of local-TV stations in the U.S., with holders getting $46.50 a share, and including debt, deal at $6.4B https://bloom.bg/2DWSD89 ; CTL removed from US analyst list at JP Morgan while AT&T (T) was added to US analyst focus list; VZ was downgraded at JPMorgan after rally in shares; Cowen upgraded shares of AT&T (T) to outperform as thinks the plan laid out to get Entertainment EBITDA stable is credible, the dividend is safe and the stock is cheap

        Stock GAINERS

· ADM +2%; after President Donald Trump touted an easing in the trade war with China and said farmers will be a very big and fast beneficiary of a deal between the two countries

· GBT +42%; as the FDA agrees with Global Blood Therapeutics’ proposal relating to use of an accelerated approval pathway for voxelotor for the treatment of sickle cell disease (SCD).

· KPTI +11%; as reports positive results from Phase 2b SADAL data for selinexor in patients with DLBCL/for the SADAL study’s primary endpoint, selinexor achieved a 29.6% overall response rate, including 9.6% complete response.

· TRCO +9%; NXST agreed to buy TRCO for about $4.1B, creating the largest owner of local-TV stations in the U.S., with holders getting $46.50 a share, and including debt, deal at $6.4B https://bloom.bg/2DWSD89

· TSRO +59%; to be acquired by GSK for $5.1B, with shareholders to receive $75 a share for the business/ GSK’s guidance for full-year 2018 adjusted EPS growth remains unchanged at 8 to 10% https://reut.rs/2BMJGwy

· WYNN +10%; gaming stocks (LVS, WYNN, MLCO) rise after gross gaming revenue in Macau rose 8.5% in November to 25 billion patacas ($3.1 billion) from a year earlier, beating the median analyst estimate for growth of 4% according to Bloomberg

Stock LAGGARDS

· APHA -21%; after being pitched as a short idea by Quintessential Capital’s Gabriel Grego at Whitney Tilson’s short ideas conference.

· ARLO -8%; after cuts Q4 outlook, as sees 4q net revenue of $125M-$130M vs. prior view of $140M-$155M on a delay in timing of Ultra shipments following a battery issue

· BLUE -8%; after updated data of its gene therapy, LentiGlobin showed an emerging significant adverse event that could overshadow encouraging data

· DISCA -6%; weakness early, top S&P decliner early on (set to speak at UBS conference)

· PEP -3%; as defensive consumer staples pullback after recent rally

· TTWO -3%; notable weakness in the video gamer software sector early

· VZ -3%; downgraded at JPMorgan following recent rally/outperformance in shares

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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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