Mid-Morning Look: September 16, 2019

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Mid-Morning Look

Monday, September 16, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-106.89

0.39%

27,112

S&P 500

-7.71

0.26%

2,999

Nasdaq

-19.35

0.23%

8,157

Russell 2000

4.42

0.28%

1,582

 

 

U.S. equities opened lower, pressured by geopolitical market concerns, as oil prices jump following a strike on Saudi Arabian oil facilities. Oil prices are up roughly 10% on the lower output/market disruption while also on fears the U.S. government may respond against Iran (who may or may not be responsible for the attack – they said it wasn’t them). The news today has overshadowed the expected top story of the week, which is the FOMC interest rate meeting that takes place Wednesday, where a rate cut is likely currently baked into markets, especially after the recent moves by other central banks last week (ECB cut their deposit rate by 10 basis points to -0.50% while also saying QE will be restarted on Nov. 1 to the tune of €20B per month). Treasury yields slip as the 10-year Treasury yield – which has risen a massive 45 bps since Labor Day – is lower by 3 bps this morning to 1.86% (but comes into today with an 8-session streak of the 10-year yield rising). Energy stocks are jumping while transportation stocks (AAL, UAL, DAL) show early weakness. Goldman Sachs said the recent attacks on Saudi oil assets represent a sharp escalation in threats to global oil supply with risks of further attacks and that an outage that lasts 2-6 weeks, look for oil prices to rise by $5-$14 per barrel. The Yemeni based Houthi rebels took responsibility for attacks on the oil processing facility servicing the Ghawar Field and others and also attacks on the Khurais oil field as well in Saudi Arabia with drones on Saturday, temporarily knocking 5.7 MMbpd of production offline. However, the U.S. says that evidence suggests that Iran is behind the attacks. Saudi Aramco’s CEO said that one-third of the oil output will be restored by the end of the day on Monday and other reports say full production restoration may take several weeks. In the lone piece of US economic data, New York manufacturing missed estimates.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar moved broadly higher vs. most currencies, as the dollar index (DXY) rises 0.3% to around the 98.50 level, even rising vs. the safe-haven Japanese yen to around the 108 level. Treasury market’s rally as yields pull back from recent 5-week highs (note we came into the day with an 8-session streak of the 10-year yield moving higher). Commodity prices among the top stories today given the 10% jump in oil prices after Saturday’s drone attacks on 2 Saudi Arabia refineries that resulted in half of its output being shut.

 

Economic Data

·     Empire Manufacturing for September rose a slightly smaller than expected 2.0, below the 4.0 estimate and prior month at 4.8; the new orders index was 3.5 vs. 6.7 in August, while prices paid index 29.4 in September vs 23.2 in august and employment index at 9.7 vs. -1.6 MoM; the six-month business conditions index 13.7 in September vs 25.7 in August

 

 

Macro

Up/Down

Last

 

WTI Crude

5.45

60.30

Brent

6.18

66.40

Gold

4.10

1,503.60

EUR/USD

-0.006

1.1013

JPY/USD

-0.14

107.95

10-Year Note

-0.028

1.867%

 

 

Sector Movers Today

·     Energy stocks surge across the board after Saturday’s drone attacks on 2 Saudi Arabia refineries that resulted in half of its output being shut (and also is responsible for roughly 5% of global production); reports were for a third of that production going back online today. Shares of large and SMID related energy names all leading markets to the upside: WLL, CHK, MRO, XOM, APA, DVN, HAL, SLB, PTEN, RIG, PXD, EOG, etc. – oil prices jumped after a coordinated drone attack hit

·     Autos; GM shares fell after labor union United Auto Workers (UAW) went on strike Sunday midnight as U.S. labor contract talks reached an impasse on Sunday as about 48,000 hourly workers at co’s facilities were headed for the picket lines, union officials said; HSBC upgraded shares of both UBER and LYFT to buy saying sentiment has turned more sour on the stocks following large reported losses, regulatory headlines out of California and concerns around slowing growth, but feels those concerns are priced in; CARS upgraded to buy at Craig Hallum with $15 tgt as thinks shares are mostly de-risked following the massive selloff after the conclusion of the company’s strategic review.

·     Refiners; industry was pressured (VLO, DK, MPC, PBF) as RBC Capital said thinks the disruption of 5+ million barrels per day of Saudi oil supply is a clear negative for the US refiners – said the medium and heavy grades that Saudi produces are already in short supply, and a likely increase in oil prices could have a negative impact on demand given an already tenuous economic backdrop. A sudden spike in prices could also hurt retail margins for DK, MPC, PARR and PSX

·     Monthly credit card data: COF reports August net charge-offs 4.18% vs. 4.25% last month and said August delinquencies 3.50% vs. 3.49% last month; JPM reports August net charge-offs 2.45% vs. 2.21% last month and August delinquencies 1.14% vs. 1.15% last month; SYF reported charge-offs for August of 3.90% and monthly delinquencies of 2.58%; ADS reported delinquencies for August of 5.6% and August charge-offs 5.7%

·     Transports; airlines were the biggest drag in the index (which had been rallying over the last 2-weeks), pressured by the spike in oil prices/supply concerns (AAL, JBLU, UAL, LUV); in rails, KeyBanc upgraded both GBX, WAB to overweight from sector weight saying that the rail companies had a positive set-up given recent share-price declines

 

Stock GAINERS

·     ALDR +83%; as Lundbeck bids for the company at $1.95B net of cash, with holders to receive $18 per share in cash plus one non-tradeable Contingent Value Right (CVR) for an additional $2 per share if migraine med eptinezumab is approved by the EMA https://bit.ly/2lRewie

·     HP +8%; among a list of energy related stocks pushing higher given the spike in oil prices after the Saudi Arabian facilities struck this weekend (MRO, HAL, DVN, APA, etc.)

·     LYFT +5%; shares of both UBER and LYFT upgraded to buy at HSBC saying sentiment has turned more sour on the stocks following large reported losses, regulatory headlines out of California and concerns around slowing growth, but feels those concerns are priced in

·     RTN +2%; upgraded to overweight at JPMorgan as view RTN outperformance thus far in Sept as a sign of increasing investor confidence in the outlook for Raytheon and for the RTX combination

·     SEMG +60%; after Energy Transfer (ET) agreed to buy the company for $1.35B in a cash and stock deal, with holders to receive $17 per share that includes $6.80 in cash and 0.7275 of ET shares (with debt deal about $5B) https://on.mktw.net/2kC39dX

·     SLB +6%; upgraded to overweight by Barclays in the service sector and upped tgt to $50 as believes the company is firmly on the path to recovery, while downgraded HAL to EW

·     TPR +2%; positive mention in Barron’s this weekend – said the stock’s recent weakness however, opens an opportunity

 

Stock LAGGARDS

·     AAL -4%; as airlines among the biggest decliners given the increased cost concerns following the spike in oil prices on Saudi oil fields attacks this weekend

·     ACB -3%; downgraded to sell at Stifel saying the near-term outlook suggests downside to FY estimates for sales and core earnings

·     AIMT -4%; won FDA Panel approval, as advisers to the FDA said there is adequate data showing that its Palforzia drug for peanut allergy works in children, voting in favor while 2 voted against the efficacy and also voted 8-1 in favor of safety approval (pulls back after run-up into vote)

·     CCL -3%; along with the sharp decline in transport prices given the big jump in oil prices, cruise lines also felt the pinch of higher fuel costs (CCL, RCL, NCLH)

·     GM -3%; after labor union United Auto Workers (UAW) went on strike Sunday midnight as U.S. labor contract talks reached an impasse on Sunday as about 48,000 hourly workers at co’s facilities were headed for the picket lines

·     NEWR -11%; after mgmt changes and updates guidance to the downside as affirms Q2 revenue outlook between $143M-$145M but lowers FY2020 revenue to be between $586M-$593M (+22% to +24% Y/Y), down from $600M-$607M

·     NUE ; guided Q3 EPS 75c-80c, below the estimate of $1.26 and well below last year comp of $2.13 saying expects Q3 performance in its steel mills segment to decrease compared to Q2

·     VLO -6%; refiners pressured given the disruption of 5+ million barrels per day of Saudi oil supply – RBC Capital said the medium and heavy grades that Saudi produces are already in short supply, and a likely increase in oil prices could have a negative impact on demand

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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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