Mid-Morning Look: September 10, 2019

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Mid-Morning Look

Tuesday, September 10, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-69.81

0.26%

26,765

S&P 500

-15.14

0.51%

2,963

Nasdaq

-50.77

0.63%

8,036

Russell 2000

-0.10

0.00%

1,524

 

 

U.S. equities under pressure early, led by declines in technology, healthcare and further selling in 2019 top gainers/momentum related sectors for a second day (software, payments, and defense). Banking stocks rise again as Treasury yields inch higher, while beaten up energy stocks and select retailers also find solid footing for a second straight day. Restaurant stocks under pressure following a sharp profit warning from WEN last night and announced it would launch breakfast, while pharma stocks (MRK, LLY, PFE) decline following House leader Pelosi drug pricing plan, which Evercore/ISI said is on the more aggressive side. In tech, software remains weak, but all eyes on AAPL ahead of press event scheduled for 1:00 PM EST, where it is expected to unveil its latest iPhones (three new ones) an updated Apple Watch and more details on its new streaming service, Apple TV+ (watch NFLX, DIS on streaming news). Analysts forecast co could sell up to 200 mln of its latest iPhones to existing users upgrading devices, with China leading demand. Economic data in the U.S. quiet again today but picks up tomorrow and Thursday with inflation reports from PPI and CPI respectively. Markets await central bank action later this week as the ECB convenes on Thursday.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar edging higher, inching up against the euro ahead of the ECB central bank meeting this Thursday where easing measures are expected; the dollar hold gains vs. the yen, while falling against the Canadian dollar on oil strength and the British Pound

·     Commodity prices are mixed with gold prices on track for a 4th straight decline off recent 6-year highs, but still holding above the $1,500 an ounce level, while oil prices edge higher ahead of weekly inventory data tonight (API)

·     Treasury market’s slip as yields rise; the 10-year yield up a few bps to 1.66%, as spread against the 2-year widens to 5 bps (2-yr 1.61%) and also narrows (but remains inverted) against the 3-month yield which stands at 1.93%; the 30-year yield up around 2.13%

 

 

Macro

Up/Down

Last

 

WTI Crude

0.45

58.30

Brent

0.61

63.20

Gold

-4.10

1,507.10

EUR/USD

-0.0015

1.1032

JPY/USD

-0.04

107.20

10-Year Note

0.025

1.669%

 

 

Sector Movers Today

·     Retailers; VSTO updated guidance ahead of an investor day event saying it now expects FY20 revenue of $1.75B-$1.85B, down from prior view $1.79B-$1.89B (est. $1.83B) while execs plan to outline an accelerated transformation plan and updates on the operating model at the event; DG was downgraded to market perform at Bernstein as believes its future story is well understood, and the upside is probably priced into the stock already; FIVE was initiated buy and $168 tgt at Craig Hallum; FRAN shares soared after reports higher Q2 net income and smaller quarterly decline in comparable sales, helped by cost-cut measures and higher sales in newer products

·     Auto’s; FCAU shares slipped after Renault CEO said the company is no longer in talks with FCAU, merger deal no longer on the table, it’s in the past; Moody’s Investors Service downgraded the senior unsecured debt rating of Ford Motor Company (F) to Ba1 from Baa3; VNE and its software joint venture Zenuity nominated to supply global automaker to supply its next generation Mono Vision System for vehicles in Europe; RACE unveiled new models yesterday just ahead of the Frankfurt Motor Show where it launched the F8 spider and 812 GTS in Maranello, Italy

·     E&P sector; Bank America downgraded WLL and JAG to neutral while upgraded PDCE to buy saying a deteriorating global oil demand outlook, along with several high-profile operating hiccups have not helped industry sentiment/sees anemic free cash flow from both WLL and JAG, but upgraded PDCE on improved FCF profile, following its recent acquisition of SRCI; OBE said it has initiated a formal process to explore strategic alternatives, including a potential sale of the company; SLCA was downgraded to hold from buy at Lafferty based on anticipated weaker North American well completion activity during the second half of 2019 from lower oil prices and producers cutting cost to preserve cash flow; CHK entered into a privately negotiated securities exchange agreement under which it has agreed to issue 250.7M common shares (~15% of total current shares outstanding) in exchange for ~$588M of Senior Notes and Preferred Stock

·     Consumer finance and lending; SunTrust said the three leading developed economy Networks, (V, MA, PYPL) are vying for durable share of Electronic Payments and eCommerce volume against a backdrop of rising emerging market competition, a large quickly developing B2B oppty and an evolving fast payments and cx-border ecosystem – views MA as strategically best positioned; CNBC reported that JPM is taking on Stripe and SQ with faster payments for merchants; GPN tgt was raised to $210 at SunTrust as they prefer it for growth investors, among the three consolidated Merchant/FI Processors; FNF announces mutual termination agreement with STC after not obtaining the necessary approval by the U.S. Federal Trade Commission

·     Pharma movers; large cap Pharma (MRK, LLY, PFE, JNJ) fall following comments from Evercore/ISI citing House leader Pelosi drug pricing plan, which the firm says is on the more aggressive side; BMY’s Opdivo shows sustained survival benefit in NSCLC as pooled data from the late-stage CheckMate-017 and -057 studies evaluating Opdivo (nivolumab) in patients with previously treated advanced non-small cell lung cancer (NSCLC) showed a sustained survival benefit; MNK announced a deal to sell its contract development and manufacturing subsidiary BioVectra for $250Mto an affiliate of private equity firm H.I.G. Capital

 

Stock GAINERS

·     FRAN +82%; after reports higher Q2 net income and smaller quarterly decline in comparable sales, helped by cost-cut measures and higher sales in newer products

·     MESO +14%; rose in reaction to its partnership with Grünenthal to develop and commercialize allogeneic cell therapy candidate MPC-06-ID/Mesoblast will receive $15M upfront, up to $135M in prelaunch milestones, up to ~$1B in cumulative milestones

·     MNK +24%; announced a deal to sell its contract development and manufacturing subsidiary BioVectra for $250Mto an affiliate of private equity firm H.I.G. Capital

·     MOS +3%; said it would initiate $250M in stock buybacks under its repurchase existing authorization, and announcing plans to idle ~500K metric tons of phosphates production

·     PWR +4%; announced that its subsidiary, Valard Construction, was selected for the Wataynikaneyap Transmission Project to provide EPC services in Northwestern Ontario, Canada/the contract award is one of the largest projects ever awarded to PWR

·     SLB +3%; upgraded at Morgan Stanley with $51 tgt saying that while the stock struggled over the past several years, its relative outlook is improving

·     VNE +4%; and its software joint venture Zenuity nominated to supply global automaker to supply its next generation Mono Vision System for vehicles in Europe

 

Stock LAGGARDS

·     AMT -4%; amid weakness in tower stocks (SBAC) pulling back from 52-week highs just last week as selling of winners/momentum names carries into second day

·     CTRP -3% on guidance as expects 2019 net rev to grow by 10%-15% yoy vs previous forecast of 16%-21% growth; analysts were expecting a grow of ~18%

·     F -4%; as Moody’s Investors Service downgraded the senior unsecured debt rating of Ford Motor Company (F) to Ba1 from Baa3

·     HDS -5%; after lowering outlook for FY19 adjusted EPS view to 3.45-$3.60 from $3.52-$3.70 (est. $3.58) while also lowers FY19 revenue view to $6.1B-$6.2B from $6.25B-$6.35B (est. $6.26B)

·     ITCI -8%; as the company announces the FDA does not have plans to schedule Advisory Committee meeting for review of the NDA for lumateperone for treatment of schizophrenia.

·     MELI -4%; on reports AMZN bringing “Prime” to Brazil (increased competition), which overshadowed an upgrade to buy at BTIG with $720 tgt after recent underperformance

·     MRK -3%; large cap Pharma (MRK, LLY, PFE, JNJ) fall following comments from Evercore/ISI citing House leader Pelosi drug pricing plan, which the firm says is on the more aggressive side

·     WEN -8%; said it sees 2019 adjusted EPS down (3.5%-6.5%) vs. prior view up 3.5%-7% while shares were downgraded by two analysts following the company’s announcement of a system-wide breakfast launch planned for 2020 given uncertainty about its success and economic impact

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Content is provided by Hammerstone Inc., which has no affiliation with Regal Securities, Inc. (“Regal”) This commentary is provided for information purposes only, and is not a recommendation, offer or solicitation by Regal to buy or sell securities or to adopt any investment strategy. Regal has not participated in the creation of the Hammerstone content and does not directly or indirectly endorse the content. Any reliance on this material is at the sole discretion of the reader.

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