Market Review: August 12, 2019

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Closing Recap

Monday, August 12, 2019

Index

Up/Down

%

Last

DJ Industrials

-391.00

1.49%

25,896

S&P 500

-36.03

1.25%

2,882

Nasdaq

-95.73

1.20%

7,863

Russell 2000

-18.54

1.23%

1,494


 

Equity Market Recap

·     U.S. stocks were markedly lower on the day, falling broadly as global uncertainties weigh on U.S. markets, specifically the events in Hong Kong as protests enter their 9th week and in Argentina following a surprise political outcome. Overall on the day, gold spiked as stocks plunged while Treasury yields move near record lows (30-year yield hit YTD lows below 2.12%). Volumes were lighter than normal with big market swings (in part due to big vacation weeks likely through the rest of August). Prices dropped overnight as thousands of demonstrators flood Hong Kong’s airport prompting officials there to cancel more than 100 flights, the latest in a strong of protests. The news adds to market trade concerns between the U.S. and China and its trade dispute, along with other macro concerns including short-range missile launches in North Korea by Kim, the UK Brexit deadline in October and recent weakness in Italy amid political chaos with Deputy Prime Minister Matteo Salvini calling for a snap election/Salvini’s call for a general election sent Italian bond yields soaring. Also a market factor today, Argentina stocks plunged after Macri’s defeat in primary vote with shares of YPF, GGAL, PAM, LOMA, MELI, ARCO, SUPV among names crushed as opposition candidate Alberto Fernandez and his running mate won by a much larger than expected margin over Macri (who is considered to have market friendly positions) ahead of the Oct. 27 presidential election. Outside of the macro stories, market news was overall quiet.

 

Commodities

·     Oil prices managed to push higher despite stock market weakness, with WTI crude rising 43c or 0.8% to settle at $54.93 per barrel, while natural gas prices slipped -0.7% to $2.11 mln btu (back near 3-year lows). Headlines were quiet in the energy sector which held up relatively well despite the more aggressive selling in risker stocks. Gold prices rise $8.70 or 0.6% to $1,517.20 an ounce, driven by geopolitical fears as investors looked to safe haven assets once again. Buying has been driven by trade-war fears between the U.S./China and escalating tensions in Hong Kong. Chinese authorities condemned weekend protests and vowed a crackdown on demonstrators. Authorities also canceled outgoing flights from the city’s airport after it was swarmed with protesters.

 

Currencies & Treasuries

·     It was a quiet day for the U.S. dollar giving up overnight gains, sliding against the euro, yen, franc, and British Pound. But the story of the day was the Argentine peso falling as much as 24%, weaker at 60 per us dollar after Macri’s poor performance in Sunday primary election. Trading in Treasuries was similar to recent weeks, as prices gained and yields drop sharply across the board, especially on the long-end as the 30-yr yield down fell over 12 bps to 2.13% (hit lows of 2.117%) and the 10-yr down over 12 bps to lows below 1.63% (2-yr down about 6 bps at 1.58%). No major economic data to move either market which just like equities focused on macro headlines.

 

 

Macro

Up/Down

Last

WTI Crude

0.43

54.93

Brent

0.04

58.57

Gold

8.70

1,517.20

EUR/USD

0.0015

1.1215

JPY/USD

-0.38

105.31

10-Year Note

-0.092

1.652%

 

 

Sector News Breakdown

Consumer

·     Retailers; luxury retailers TPR, CPRI are among names facing serious backlash from Chinese consumers over defying China’s One-China Policy, according to reports with some boycotts against the brands having been fired up on social media platforms; SONO rose on reports Sonos speaker brings Bluetooth to the table (according to Slashgear)

·     Consumer Staples; SYY Q4 of $1.10 beat by 4c on lighter sales ($15.5B vs. $15.64B) as case volume was up 0.4% in FQ4, driven higher by a 1.3% increase in local organic case volume. And gross margin was up 3 bps during the quarter to 20.1% of sales vs 19.1% consensus; SPTN announced mgmt changes with interim CEO as current resigns and cuts year Ebitda view

·     Housing & Building Products; HD tgt raised to $230 from $210 at Stifel but lowered comp and EPS slightly with LOW staying unchanged ahead of Q2 earnings next week

·     Casino & Leisure movers; in casino’s (WYNN, MLCO) Macau gross gaming revenue (GGR) on an average daily basis for the week of August 5-11 improved to 814 million patacas compared to the 750 million patacas for the Aug. 1-4 period, as the month-to-date average daily rate is "flat"; NIO delivered 837 vehicles in July, consisting of 673 ES6s, the Company’s 5-searter high-performance premium electric SUV, and 164 ES8s

 

Energy

·     Energy stocks have had lots of trouble rallying given the pullback in oil prices, slowing global growth fears, over capacity and lower demand (recall the IEA cut its global demand outlook for oil last week), and the impact trade tensions with China will have. Tullow Oil (TUWOY) shares rise after discovery in Guyana; OXY was downgraded to in-line at Evercore saying its acquisition of Anadarko Petroleum makes the company larger but less valuable; Utilities setting 52-week highs for LNT, WEC, AWK, SO, ETR as Treasury yields slip

 

Financials

·     Bank movers; banks sinking across the board early on low yields while several REITs setting 52-week highs given low Treasury yields including ESS, UDR, MAA, EQIX as well as towers SBAC, CCI; asset managers; LAZ said preliminary assets under management of $234.8B at July 31, 2019 rose 1% from $237.5B at June 30, 2019/July’s AUM includes $1.5B of market appreciation, $2.0B of net outflows, and foreign exchange depreciation of $2.1B; LM preliminary assets under management (AUM) of $780.5 billion as of July 31, 2019. This month’s AUM included long-term net inflows of $0.1 billion, driven by alternative inflows of $1.6 billion and fixed income; TROW preliminary assets under management of $1.136T at July 31, 2019 increased 1.0% from $1.125T at June 20, 2019.

 

Healthcare

·     Pharma movers; CTST shares dropped as much as 25% following a recent audit by Health Canada that determined its Vaughan, Ontario facility is non-compliant with certain regulations. A month ago, management voluntarily instituted a hold on cannabis sales and shipments while it works through the regulatory issues.; MNK said the first patient has been enrolled in a Phase 2a clinical trial evaluating its MN-6106 compared to BHC’s Xifaxan in patients with liver cirrhosis and HE; NFLX sinks, adding to its Friday losses of near 30% after negative updates with its 2Q call including no lung data at ESMO, manufacturing issues and identification of suboptimal production lots of bempeg, and narrowing of the scope of the BMY collaboration

·     Biotech movers; AMGN added to Friday’s near 6% gains after winning the favorable court ruling on the validity of Enbrel patents against Sandoz, as many analysts weigh in positively saying as it removes an overhang in shares; EOLS posts Q2 revenue of $2.3M from early sales of Jeuveau, its newly launched rival to AGN’s Botox, which was ahead of its expectations; NVAX announced new data from its Phase 3 clinical trial, Prepare, evaluating maternal immunization with its RSV vaccine ResVax; APTX reported a smaller-than-expected Q2 EPS loss of (36c) vs. est. (52c)

 

Industrials & Materials

·     Industrial & Machinery; in the agricultural sector, DE, AGCO, CF, MOS, NTR among active names falling after the WASDE crop report came in bearish, with corn futures falling limit down after the report showed yields are forecast at 169.5 bushels an acre (vs. estimates around 165M) and U.S. corn acreage is pegged at 90 million acres, the USDA said – above the 87.7M est.; MTW was downgraded to underperform at Baird saying the company’s backlog and earnings will be pressured as demand has slowed as Q2 marked the third consecutive quarter of double-digit order decline; LOMA shares hammered in another name falling in reaction to the political surprise in the country weighing on stocks

·     Transports; Dow Transports fell over 1% early, but remains above last week lows 9,959) with nearly all components down – led a drop in CAR and airlines AAL, UAL, ALK; Cathay Pacific Airways closed at a 10-year low in Asia after the Hong Kong after protests spilled into airports. China’s civil aviation regulator demanded on Friday the airline suspend personnel who engaged in or supported illegal protests in Hong Kong from staffing flights into its airspace, citing safety

·     Chemicals and Materials; LTHM downgraded to underperform from neutral at Bank America saying electric vehicles, which use lithium hydroxide, may not have enough growth to absorb the new lithium capacity coming over the next 6-12 months; in metals, GOLD boosted its gold production forecast for the full year (to 5.10B-5.60B from 5.1M-5.6M) as profit jumped; metals names continue their recent slide (steel, iron, ore, aluminum) on slowing global growth fears

 

Technology, Media & Telecom

·     Software, Internet; NTES downgraded to neutral at Goldman Sachs saying they don’t expect China’s regulatory environment to improve until 2020E, which will continue to limit the supply of new games in 2019E; FTCH partially rebounds after plunging 44% on Friday after earnings; CTK lowered its 2Q total revenue view to a range of $34M-$36M, down from prior view of $45M-$50M; CLDR said it reached a voting and standstill agreement with Carl C. Icahn and certain of his affiliated entities on board membership; PINS shares outperformed

·     Media & Telecom movers; NWSA was upgraded to outperform at Credit Suisse saying despite a miss at the revenue line, NWS delivered a solid EBITDA result, ahead consensus as good cost control in both News & Info Services and Subscription Video Services contributed to the EBITDA beat relative to our numbers; ROKU tgt raised to Street high $150 at Needham (from $120) saying vs. NFLX, they have similar valuations but prefer ROKU –as value proposition to advertisers is growing and SVOD rev shares represent upside to ests in ’20-’21

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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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