Mid-Morning Look: September 11, 2019

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Mid-Morning Look

Wednesday, September 11, 2019

Index

Up/Down

%

Last

 

DJ Industrials

46.98

0.17%

26,956

S&P 500

7.86

0.26%

2,987

Nasdaq

43.68

0.54%

8,127

Russell 2000

13.50

0.88%

1,556

 

 

U.S. equities with modest moves higher, underperforming large gains in Asia and Europe overnight, as several macro related headlines and stories are pushing markets around ahead of tomorrow’s ECB rate meeting. Stock s caught a bid overnight after reports that China plans to exempt 16 products from the first round of extra tariffs on U.S. imports, which will take effect September 17, citing the Customs Tariff Commission of the State Council. Markets were volatile after the monthly PPI inflation reading came in “hotter” than expected with CPI monthly data due out tomorrow. President Trump also renewed his attack on the Federal Reserve, calling for the “boneheads” at the central bank to cut interest rates to zero or lower to enable the US to refinance its debt. Dow Jones reported this morning that President Trump is again mulling capital gains tax cut with advisers set to meet Wednesday to discuss indexing capital gains taxes to inflation. There was also another report out of the South China Morning Post today, on rates (yesterday was on trade) saying China tipped to start rate cutting ‘road map’ as early as next week, as economic slowdown deepens. There were a handful of stocks moving on earnings with tech security names lower on weaker ZS guidance (shares down 20%), while the mass selling pressure over the last two trading sessions in momentum/2019 YTD winners such as payments, defense, software names has abated for the time being, while Small Caps surge a third session.

 

Treasuries, Currencies and Commodities

·     In currency markets, the US dollar bounces vs. the euro ahead of tomorrow’s European Central Bank (ECB) meeting where additional easing measures are expected, falling back below the 1.10 level, while the buck rises to 107.75 against the Japanese yen, its best levels since early August as safe haven assets pullback over the last few days with stocks rising. The dollar generally getting a boost vs. most currencies following the hawkish PPI data (CPI data tomorrow)

·     Commodity prices mostly higher as oil prices edge higher on bullish US inventory data and as investors digest the exit of President Trump’s national security adviser John Bolton (which sunk prices midday on rising expectations it may bean a deal with Iran is in the future after he was a proponent of sanctions), while gold is steady around $1,500 an ounce

·     Treasury market’s slip initially on rising inflation data, but has since pared gains, with the 10-year yield holding above the 1.7% level (nearly a 30 bps move higher since last week)

 

Economic Data

·     PPI inflation data hotter than expected across the board – Producer Price Index (PPI) MoM for August rises 0.1% vs. est. 0.0% while PPI Ex: Food & Energy (core) MoM for August rises 0.3% vs. est. 0.2%; the PPI Final Demand YoY for August higher at 1.8% vs. est. 1.7% and PPI (core) Ex: Food & Energy YoY for August 2.3% vs. est. 2.2% – recap – Treasury yields move higher on data

·     July Wholesale Inventories MoM reported at 0.2%, in-line w ests and Wholesale sales reported at 0.3% after falling -0.3% last month)

 

 

Macro

Up/Down

Last

 

WTI Crude

0.30

57.70

Brent

0.57

62.95

Gold

1.60

1,500.80

EUR/USD

-0.0056

1.0987

JPY/USD

0.13

107.68

10-Year Note

-0.008

1.723%

 

 

Sector Movers Today

·     Housing & Building Products; RH posted quarterly results that tops mgmt better-than-expected pre-announcement and raised the year forecasts (sees FY adj operating margin 13.6-13.8% up from 12.9%-13.4% on higher EPS/revs) but shares fell after the recent run higher in shares (stock had hit 52-week highs yesterday); in homebuilders, JPMorgan downgraded shares of NVR and LGIH while upgraded PHM, CCS and MTH as believe the homebuilding stocks still contain some modest remaining upside potential as we anticipate further improvement across most industry and company data points; LOVE shares jump after Q2 results top consensus (posts narrower quarterly loss) and reiterates its year view for revenue growth of 40%-50%

·     Consumer Staples; LK tgt raised to $24 at KeyBanc as came away from mgmt meetings incrementally positive that Luckin is on track to deliver against previously communicated targets; PM raises quarterly dividend to $1.17 per share from $1.14 per share; CAG announced that it has entered into a definitive agreement to sell its Direct Store Delivery snacks business to Utz Quality Foods; FARM shares fall as Q4 results disappoint with larger EPS loss (52c) on weaker sales ($142M) as FBR lowers tgt to $10.50 from $21

·     Healthcare services and providers; in dental space, shares of ALGN, PDCO, HSIC and XRAY were active ahead of the SDC IPO which is expected to price tonight (58M share deal with pricing range of $19-$22), expected to raise as much as $1.3B; CNBC reported that it just got very hard for AMZN’s online pharmacy to access patient medication as Surescripts said it is terminating its relationship with ReMy Health, a third party that supplied PillPack with information about patient prescriptions

·     Semiconductors; MU positive analyst mentions as Longbow upgraded to buy saying its checks highlight upside in shipments and improving DRAM and NAND pricing fundamentals (also upped WDC tgt to $76 on same reasoning), while Wells Fargo raised its tgt to $60 from $50 and increase estimates (DRAM-driven); KLAC tgt raised to $165 from $150 at UBS as still see excitement around the upcoming Analyst Day on 9/17 in NYC/earnings per share of more than $16 is possible for 2022; KeyBanc said believe AVGO and SWKS are well-positioned to benefit from content gains in the new phones given increasing LTE and pre-5G bands, WiFi 6, and enhanced cellular capabilities in the new AAPL iPhone 11/believe CY is another beneficiary of the upcoming cycle

 

Stock GAINERS

·     AA +4%; upgraded to outperform at Credit Suisse as they expect alumina prices to recover on significant capacity cuts in China, an end to inventory destocking, and the Al part shutdown

·     AIMT +12%; rises ahead of the FDA Allergenic Products Advisory Committee meeting on Friday, September 13, to review and discuss the marketing application for AR101, branded as Palforzia, to reduce the incidence and severity of peanut allergies

·     LOVE +20%; after Q2 results top consensus (posts narrower quarterly loss) and reiterates its year view for revenue growth of 40%-50%

·     LXRX +34%; as the company regained all rights to diabetes med Zynquista (sotagliflozin) after its collaboration agreement with SNY expired yesterday/SNY agreed to pay Lexicon $260M, $208M upfront and the remaining $52M within 12 months

·     MU +3%; 52-week highs after positive analyst mentions as Longbow upgraded to buy saying its checks highlight upside in shipments and improving DRAM and NAND pricing fundamentals (also upped WDC tgt to $76 on same reasoning), while Wells Fargo raised its tgt to $60 from $50

·     RH +3%; posted quarterly results that tops mgmt better-than-expected pre-announcement and raised the year forecasts for EPS, revs and op margin

 

Stock LAGGARDS

·     BANC -7%; downgraded to hold at Sandler O’Neill after an 8-K disclosed expectations that it will record a $35 million loan loss provision and related charge-off on a commercial line of credit extended to a company engaged in the financing of California liquor licenses

·     DAN -4%; dragging auto suppliers lower after providing an update ahead of a presentation at the RBC Capital conference/said weaker off-highway end market demand during July and August means Q3 sales are likely to fall $100M below expectations

·     DVA -2%; downgraded to market perform at William Blair saying slowing patient growth and ongoing policy/regulatory overhangs make this a less attractive growth story than in years past

·     FARM -20%; shares fall as Q4 results disappoint with larger EPS loss (52c) on weaker sales ($142M) as FBR lowers tgt to $10.50 from $21

·     GME -12%; company posted a wider than expected Q2 EPS loss and gave an outlook that was well below what had been expected (guides year EPS $1.15-$1.30 below the $1.57 estimate)

·     PLAY -7%; downgraded by a couple of analysts after the company lowers FY comps to -2% to -3.5%, from prior view -1.5% to +0.5% and lowers FY net income to $91M-$100M from $103M-$113M prior) citing a competitive environment

·     PNC -1%; said it sees 3Q net interest income down a percent from 2Q (below its prior view of flat) and sees intense deposit competition from small banks

·     ZS -20%; after its FY profit target fell short of expectations as it guided FY EPS 12c-15c below the est. 18c (though better revs) and forecasts FY20 calculated billings of $490M-$500M vs. est. $500.7M

_________________________________________________________________

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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