Friday, December 7, 2018
U.S. equities open the day mixed, with energy stocks helping pace the gains in the S&P and Dow, while China trade tensions concerns linger, weighing on tech stocks (semis, opticals). However, stocks have since reversed lower, trading around the worst levels of the morning. After a promising start to the week, with global markets jumping on Monday following the China/U.S. trade truce at the G20 this weekend, delaying tariff hikes 90 days and China buying added US agricultural products, things turned sour quick. Stocks turned south Tuesday, erasing nearly all prior day gains, while the arrest of the Huawei CFO on Wednesday in Canada and US request for extradition for breaking sanctions did not sit well with markets. This morning, monthly jobs data fell short of consensus (jobs 155K vs. est. 198K est.) while unemployment rate remained at a 49-year low of 3.7%, and average hourly wages rose by 0.2% (missing the 0.3% est.) The U.S. dollar dropped in reaction to the data, as it increases chances for the Fed to slow its rate hike cycle in 2019 (after dovish comments last week by Powell). Energy stocks leading markets as OPEC ministers, Russia and other non-OPEC allies worked toward an agreement to cut oil production by more than previously suggested (cutting by 1.2M b/d, with OPEC shouldering 800k and non-OPEC 400k). Earlier this week, Saudi Arabia’s energy minister had said 1m b/d was adequate for an OPEC+ cut. Note that Iran is exempt from making cuts (deal to be reviewed again in April). Transports fall, led by declines in oil and airlines as oil prices spike on OPEC cuts. Overall, U.S. stocks on track for weekly declines, with gold rising and Treasury yields plunging.
Treasuries, Currencies and Commodities
· In currency markets, the U.S. dollar slipped into negative territory, dropping to session-lows after Friday’s jobs report missed estimates (jobs 155K vs. est. 198K an) while unemployment rate remained at a 49-year low of 3.7%, and average hourly wages rose by 0.2% (missing the 0.3% est.). While the Fed is expected to hike interest rates next week, its path for increases in 2019 is less certain given the recent data and stock market collapse over the last month on trade and tariff impact fears with China. The dollar was broadly lower vs. major currencies. Currencies leveraged to oil for their economy (Canada dollar, Russian Ruble) seeing a rebound as prices rise on OPEC news. Bitcoin slumped to a new year-low on falling over 5% to around $3,400.
· Precious metals jumped following the weaker-than-expected monthly payrolls report, further lessening chances of an aggressive rate hike cycle; the dollar fell which helped boost gold prices to their best levels in roughly 5-months and on track to post its biggest weekly gain since August
· Oil prices jumped more than 5% after OPEC broadly agreed a deal to cut oil production by 1.2M barrels a day with OPEC itself shouldering 800,000 barrels. Iran emerged as a winner on reports it secured an exemption from cuts as it suffers the effects of U.S. sanction. WTI crude touched highs above $54 per barrel (off lows yesterday just above $50) while Brent trades above $63.
· Treasury markets whipsawed this morning after a week of gains (and subsequent declines for yields); the 10-yr yield rose back to 2.89% after falling to 3-month lows yesterday (below 2.85%) amid a flight to safety as stocks rolled and the Fed gets more dovish on rate hike cycle. Today’s weaker nonfarm payroll report helps support view of slowing rate hikes, lifting Treasuries.
· Nonfarm Payrolls for November rose 155K, missing the 198K estimate for nonfarm payrolls (net revisions, -12K from prior two months), while Nonfarm private payrolls rose 161K, missing the 198K estimate and below last month number of 251K; the participation rate 62.9% vs prior 62.9%; wages grow, but less than forecast at 0.2% vs. est.0.3% (but above last month 0.1%); manufacturing payrolls rose 27k after rising 26k in the prior month; the unemployment rate held steady at 3.7% (in-line with estimates)
· The preliminary University of Michigan consumer sentiment survey for Dec. at 97.5, unchanged from the prior month while the current economic conditions index rose to 115.2 vs. 112.3 last month and the expectations index fell to 86.1 vs. 88.1 last month.
· Wholesale Inventories rose 0.8% in Oct., slightly above the 0.7% est. as wholesale inventories increased to $652.1b vs $646.8b in prior month; Sept. inventories revised to 0.7% from 0.6%; wholesale inventories excluding oil rose 1.2% in Oct.
Sector Movers Today
· Energy stocks pacing the market gains early as oil prices jump on OPEC production cut agreements; among the top S&P top gainers, energy dominated with large advances for MRO, FANG, EOG, APC, SLB, HP among others; CVX raised its spending budget for the first time since 2014 bosting investments by 9.3% to $20 billion next year;
· E&P sector rating changes: JPMorgan downgrades XOG, HPR two notches, to underweight from overweight; downgrades DVN, GPOR, MTDR, and SRCI to neutral from overweight; downgrades CHK, CRZO, HK to underweight from neutral; upgrades EOG to overweight from neutral as sees risk for material consensus estimate revisions at strip pricing, with JPM’s updated cash flow forecasts 16% below the Street in 2019, and more than 20% in 2020. Seaport Global upgraded HP to Neutral from Sell, downgraded ERII to Neutral and withdrew rating and price target for EMES
· Healthcare services and providers; DPLO was upgraded to neutral at Baird saying they are less cautious than they were following the 3Q18 report; QTNT9.23M share Spot Secondary priced at $6.50; FMS shares fall overseas after saying it won’t meet its financial goals through 2020, the second profit warning in two months/also said sales growth and net income may be comparable to this year’s level; COO mixed 4Q results, with EPS coming in lighter because of for-ex and some transitory product costs according to Piper/guidance for 2019 was below Street estimates
· Transports; sector lower amid rising oil prices after OPEC agreed to cut production; Wolfe Research downgraded airlines AAL, JBLU citing the double whammy macro backdrop of recession and oil concerns/prefers outperform rated DAL and LUV; EXPD was downgraded to sell as Goldman Sachs as expects earnings will be pressured by continued slowdown in the Airfreight business and structural headwinds in Ocean freight
· Software movers; DOCU strong Q3 results highlighted by robust billings growth of 40% year over year (above est. 23%) that accelerated from 32% in Q2, while Q4 guidance also topped consensus estimates; DOMO rises as reported better-than-expected Q3 results with EPS loss of ($1.06) narrower than ($1.38) est. on billings growth of 29% y/y (consensus 19% y/y) and revenue growth of 30% y/y
· AOBC +22%; reported Q2 results that easily exceeded expectations on all fronts while 2019 guidance was increased as new products/bundled promos drove market share gains
· AVGO +4%; reported a solid quarter, beating on both top and bottom line, with a 51% dividend raise and strong FY19 outlook/cuts CA spending from $2B+ to $900M, driving significant FCF
· CRON +31%; MO agreed to acquire 146.2 M newly issued shares representing a 45% stake in CRON at C$16.25 per share, for a deal total of $1.8B
· DOMO +14%; reported better-than-expected Q3 results with EPS loss of ($1.06) narrower than ($1.38) est. on billings growth of 29% y/y (consensus 19% y/y) and revenue growth of 30% y/y
· EOG +3%; upgraded at JPMorgan while energy stocks higher in general in reaction to OPEC production cut and rally in WTI crude
· TSLA +2%; upgraded to buy from hold at Jefferies and raise tgt to $450 from $360 saying the company looks positioned to outperform electric-vehicle peers in the coming year.
· BIG -19%; said expects near-term results this holiday season “to be challenging” as the company cut its full-year EPS outlook 3rd time to $3.55-$3.75 from prior view of $4.40-$4.55 and est. $4.45
· COO -8%; mixed 4Q results, with EPS coming in lighter than estimated because of for-ex and some transitory product costs according to Piper/guidance for 2019 was below Street estimates
· FMS -9%; said it won’t meet its financial goals through 2020, the second profit warning in two months/also said sales growth and net income may be comparable to this year’s level
· MTN -9%; after posting a wider-than-expected Q1 EPS loss while revs of $220M missed the $235M est., but reaffirmed year guidance
· ULTA -8%; reported Q3 EPS beat on in-line total and comp sales though posted margin shortfall while Q4 comp and overall outlook missed estimates/one analyst noted clearance headwinds were the primary driver of the gross margin miss
· UNFI -9%; shares weak as Q1 sales and Ebitda disappointed and 2019 guidance was below analyst expectations/Q1 EPS missed by 14c
· DiaMedica Therapeutics (DMAC) 4.1M share IPO priced at $4.00
· Global Blood Therapeutics (GBT) 3.41M share Spot Secondary priced at $44.00
· Inspire Medical (INSP) 2.5M share Secondary priced at $40.00
· Moderna (MRNA) 26M share IPO priced at $23.00
· Momenta (MNTA) 17.4M share Secondary priced at $11.50
· OrthoPediatrics (KIDS) 1.5M share Spot Secondary priced at $27.00
· Quotient (QTNT) 9.23M share Spot Secondary priced at $6.50
· Synthorx (THOR) 11.9M share IPO priced at $11.00
· Viveve (VIVE) 13.333M share Spot Secondary priced at $1.50
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.