Mid-Morning Look: July 19, 2019

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Mid-Morning Look

Friday, July 19, 2019

Index

Up/Down

%

Last

 

DJ Industrials

67.80

0.25%

27,290

S&P 500

4.06

0.14%

2,999

Nasdaq

12.89

0.16%

8,219

Russell 2000

5.02

0.32%

1,560

 

 

U.S. equities are edging higher in choppy action early on, still on track for modest losses for the week despite touching all-time highs on Monday, led by a strong earnings report from Dow component Microsoft (though Dow component AXP weighs following higher expenses in its results) and continuing confidence that the Fed will cut rates at the end of this month. Dow component Boeing shares also adding the index gains after it announced a $4.9 billion charge on the grounding of the 737 Max jets which met some expectations on the Street. Asian markets surged overnight, playing catchup with the dovish commentary by NY Fed President Williams yesterday that pushed US stocks higher (though the NY Fed walked back those comments overnight – saying Williams was citing academic research and was not suggesting what the Fed should do at its upcoming meeting,). U.S. Treasury prices edge lower, pushing yields higher (though down on the week), while the dollar rebounds, gold prices at new 6-year highs and oil prices paring weekly losses. In macro news, Reuters reported senior U.S. administration official rejects Iran denial it did not have a drone destroyed on Thursday, says “we have very clear evidence.” Markets have been raising expectations the Fed may in fact cut rates by as much as 50bp later this month, which has juiced global stocks.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar rebounding after sharp declines yesterday (fell to 3-week lows against the safe-haven Japanese yen), but markets still anticipating an aggressive rate cut by the Fed in less than two weeks. Commodity prices rise with gold and oil pushing higher; although on track for a weekly decline of around 9% (biggest weekly decline in 7-weeks), WTI crude oil prices rise as tensions spiked again in the Middle East after the U.S. said it had destroyed an Iranian drone in the Strait of Hormuz late yesterday in defensive action. Gold prices 1,440 level, up 0.75%

·     Treasury market’s slip as yields inch higher (but still lower on the week), with the yield on the 10-year note rising to 2.05% (up 2bps) while the 2-year-note yield, sensitive to shifting expectations for Fed policy, ticked up slightly after falling in recent sessions (10-yr off week high of 2.1463% 7/15) after comments by NY Fed President Williams that rattled markets yesterday. Williams said central banks must take swift action when faced with adverse economic conditions, which markets interpreted as signaling a 0.5% rate cut in July. However, the bank later said Mr. Williams didn’t intend to signal any specific policy changes (comments overnight).

 

Economic Data

·     University of Michigan Confidence for July-P reported at 98.4 vs. est. 98.8 (after 98.2 prior); while the current economic conditions index fell to 111.1 vs. 111.9 last month and expectations index rose to 90.1 vs. 89.3 MoM

 

 

Macro

Up/Down

Last

 

WTI Crude

0.41

55.71

Brent

0.70

62.63

Gold

9.40

1,437.60

EUR/USD

-0.0048

1.1229

JPY/USD

0.36

107.66

10-Year Note

0.02

2.044%

 

 

Sector Movers Today

·     Consumer finance and lending; mixed after earnings: AXP reported Q2 profit that topped estimates, fueled by higher spending though total expenses rise 9.2% YoY and the company said it expects operating expenses to rise more this year compared to recent years as AXP drives revenue growth; COF shares rallied after posting Q2 adjusted EPS of $3.37 handily topped estimates of $2.86 while provision for credit losses rose 5.2% YoY to $1.34B and NIM rises to 6.80% vs. 6.66% YoY, and net interest income $5.75B up 3.5% YoY; SYF Q2 EPS topped consensus by a narrow margin while said active accounts up 9% in Q2; ADS starts a “modified Dutch auction” tender offer to buy back up to $750M of its outstanding shares

·     Bank movers; good day of results in banking sector as STT shares outperform after Q2 profit, revenue beat estimates, while raising its target for job cuts to 2,300 by year end and said Investment Management AUM as of quarter-end increased 7% driven by higher equity markets and growth from institutional and ETF inflows; RF posted in-line Q2 EPS of 39c with net interest income and other financing income $942M, down 0.6% qoq and NIM of 3.45% falling from 3.53% in Q1 and 3.49% YoY; CFG shares rise after better Q2 profit, topping estimates as Q2 mortgage banking fees more than double to $62M and capital market fees rose ~19%

·     Metals movers; big strength early in metals with copper, aluminum and streel stocks rising; CLF posted Q2 results that beat estimates, with record high Q2 sales volumes of 6.23M long tons, up 4.3% Y/Y, and a six-year high average pellet realization of $113/lt and maintained its full-year sales and production volume expectation of 20M long tons; AA was downgraded by both Jefferies and Argus post earnings yesterday saying the stock is inexpensive on some metrics following Q2 results but that alone is not reason enough to buy

·     Consumer Staples; PEP agreed to acquire South Africa’s Pioneer Food Group for $1.7B; WW was upgraded to buy from neutral and raise tgt to $32 from $24.50 at Davidson saying data pointed to improved sentiment and subscriber trends; BUD said it’s selling its Australian subsidiary for A$16 billion ($11.3 billion) just days after scrapping the IPO of its Asia business; POST was upgraded to overweight at Piper given the outlook for its Active Nutrition IPO given better than expected improvement in trends and potential IPO valuation; PM upgraded at Barclays

·     Software movers; Dow component MSFT reported all revenue segments, operating profit, and EPS near the high end of guidance and above consensus ests, driven by strong execution and robust demand across the entire portfolio/ IC’s 19% growth (21% constant currency) in the quarter was driven primarily by Azure, which grew 64% (68% CC); in video games, Piper noted NPD video game sales data is down 13% for the full June quarter and said believe June quarter NPD results are positive for TTWO and less positive for EA MDLA 15.5M share IPO price $21.00; PAYC was downgraded to hold at Jefferies based on valuation not a call on fundamentals

 

Stock GAINERS

·     BA +3%; after the company announced a $4.9 billion charge on the grounding of the 737 Max jets which met some expectations on the Street/ guidance assumes the 737-MAX will return to service in early Q4:19 (shares of suppliers also rise in sympathy (SPR)

·     CRWD +13%; reported Q1 revenue of $96.1M, slightly exceeding expectations by 0.5%, billings of $121.2M exceeded expectations of $119.5M and operating margin of -22.8% was slightly ahead and provided improved guidance going forward

·     EXPO +9%; shares hit record high after the company raises FY revenue and Ebitda margin outlook

·     GCI +25%; DJ reported late Thursday it is in advanced talks to combine with GateHouse Media, saying a deal could be announced in next few weeks https://on.wsj.com/32xpvy8

·     MSFT +1%; reported all revenue segments, operating profit, EPS near high end of guidance and above consensus ests, driven by strong execution and robust demand across the entire portfolio

·     RRGB +14%; after Vintage Capital, which holds an 11.6% stake, proposed to acquire the restaurant chain at $40 per share https://on.mktw.net/2LZ0Ahe 

·     SKX +12%; as Q2 tops Q2 profit estimates while Q3 sales/profit forecast also above expectations as believes international growth remains (sales rose 19.8% int’l) the primary growth driver

·     STT +4%; after Q2 profit, revenue beat estimates, while raising its target for job cuts to 2,300 by year end and said Investment Management AUM as of quarter-end increased 7%

·     WW +1%; upgraded to buy from neutral and raise tgt to $32 from $24.50 at Davidson saying data pointed to improved sentiment and subscriber trends

 

Stock LAGGARDS

·     AXP -2%; earnings beat, but said total expenses rise 9.2% YoY and expects operating expenses to rise more this year compared to recent years as AXP drives revenue growth

·     IIN -4%; lowers FY19 revenue outlook to $115M-$117.5M from $128M-$133M saying the reduced guidance primarily reflects lower order volume related to its largest customer’s

·     JCP -14%; shares fell on a Reuters report that the retailer has hired advisers to explore debt restructuring options

·     MSGN -3%; downgraded to underweight from neutral at JPMorgan and cut tgt to $19 from $23 ahead of a challenging period for video subs

·     QEP -7%; after the NY Post reported that Elliott Management cut the price of its takeover bid for the company, throwing the $2B deal into doubt https://nyp.st/2O55xrs

 

Syndicate

·     Afya (AFYA) 13.744M share IPO priced at $19.00

·     Amarin (AMRN) 22.222M share Secondary priced at $18.00

·     Atara Biotherapeutics (ATRA) 6.87M share Spot Secondary priced at $15.28

·     HyreCar (HYRE) 3.5M share Secondary priced at $3.00

·     Intercorp Financial Services (IFS) 9M share IPO priced at $46.00

·     Medallia (MDLA) 15.5M share IPO price $21.00

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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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