Mid-Morning Look: September 18, 2019

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Mid-Morning Look

Wednesday, September 18, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-44.29

0.16%

27,066

S&P 500

-5.57

0.19%

3,000

Nasdaq

-20.94

0.26%

8,164

Russell 2000

-5.10

0.32%

1,573

 

 

U.S. equities are bouncing around, currently lower ahead of the main market catalyst later this afternoon, where the Federal Reserve is expected to cut rates by another 25 bps points and some speculation you could see other type of easing measures to keep pace with other central banks. Housing data today certainly did not validate the need for another interest rate cut by the Fed, with monthly Housing Starts jumping over 12% for August, well above expectations with upwardly revised revisions for July as well. Oil prices slip on weaker inventory data, while President Trump tweeted earlier today “I have just instructed the Secretary of the Treasury to substantially increase Sanctions on the country of Iran!” The comments in reaction to the recent attacks against Saudi oil facilities. Transports under pressure, led by a 12% decline in Fed-Ex (FDX) this morning after earnings missed for the quarter and guided year earnings well below consensus views. Liquidity concerns stoking more Fed actions as the NY Fed conducted another overnight repo to address the squeeze in the funding markets, taking in $75B in the operation, which was oversubscribed as dealers submitted $80.1B. The Fed accepted $51.6B in Treasuries at a 2.10% rate, along with $22.8B in MBS, and $700M in agencies. The actions the last two days have helped ease market conditions with overnight general collateral having dipped to 2.80% this morning, from over 8% yesterday. Gold prices and the dollar narrow trading ahead of the FOMC, while Treasury prices slip and oil edges lower

 

Treasuries, Currencies and Commodities

·     Gold prices trading in narrow range ahead of the FOMC meeting later today, around $1,513 an ounce while the dollar was mixed/little changed and Treasury prices rise, sending yields lower for a 3rd straight day (after topping out at 5-week highs last Friday – 10-year hit 1.90%), with the 10-year down at 1.77% also awaiting cues from the FOMC. Oil prices still focused on the disruption of facilities in Saudi Arabia, while weekly EIA and API inventory data was bearish, showing unexpected weekly builds in inventories.

 

Economic Data

·     Housing Starts for August jumped 12.3% to 1.364M vs. est. down -1.3% to 1.25M (and revised up to 1.215M from 1.191M); Building Permits MoM for August rose 7.7% vs. est. down -1.3% to 1.3M (prior month revised to 1.317M from 1.336M)

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.90

58.44

Brent

-0.60

63.95

Gold

-0.70

1,512.70

EUR/USD

-0.0015

1.1057

JPY/USD

0.06

108.18

10-Year Note

-0.043

1.757%

 

 

Sector Movers Today

·     Transports; sector was pressured as FDX shares dropped following a 9c EPS miss and revs just missing estimates citing weakening global economic conditions, increased costs with worse-than-expected margins at Ground, while also lowered its FY20 adj EPS to $11-13 vs est. $14.73 (prompted several analyst downgrades); in airlines, LUV cuts Q3 CASM view to up 8%-10% vs. previous 9%-11% view and guides Q3 capacity down approximately 3% vs. previous down 2%-3% view; in rails, Cowen said 3Q rail volumes have come in light thus far – likely driven by remnants of the pre-tariff pull-forward, ongoing trade concerns, or a global economic slowdown – and as a result we’re lowering estimates on the group, and cutting price targets for NSC and UNP

·     Housing & Building Products; monthly housing starts and building permits data came in well above the economic estimate, a positive for homebuilders showing strength in space (LEN, TOL, KBH, PHM); MAS was downgraded at Buckingham to neutral as believe accurately reflects the possible benefits from tariff resolutions and/or a slightly higher realized price for the for-sale businesses; LEN was downgraded at KeyBanc as sees upside/downside catalysts balanced, following a 36% return YTD; KeyBanc also downgraded WHR citing limited valuation upside as earnings momentum weakens saying they are concerned that slowing GDP in Europe, China, and now India while also cut SWK on limited valuation upside as well

·     Internet; FB unveiled new models of its Portal video chatting devices, making the company’s first foray into TV streaming hardware but offering a limited selection of subscription services (shares of ROKU slipped on headlines); AMZN PayCode, already available in 19 countries around the world, launches today in the U.S. and allows customers to choose Amazon PayCode at checkout and then pay for their purchase in cash at one of 15,000 WU locations; online retailer CHWY beat on quarterly sales but said its net loss widened from a year earlier on an unadjusted basis

·     Biotech movers; ACAD 6.25M share Spot Secondary priced at $40.00; BIIB said it will launch a new study to evaluate whether a higher dose of Spinraza can provide greater efficacy in the treatment of the neuromuscular disease spinal muscular atrophy; PTCT 2.48M share Spot Secondary priced at $40.40; TBIO 9M share Spot Secondary priced at $10.00; IGMS 10.937M share IPO priced at $16.00; NLNK reacts to the FDA’s acceptance of licensee Merck’s marketing application for Ebola vaccine V920/the agency’s action date is March 14, 2020

 

Stock GAINERS

·     AMBC +3%; as Appellate court upheld the Supreme Court decision preserves Ambac’s breach of contract and fraudulent inducement claims against Countrywide and eliminates a jury trial in favor of a bench trial for the BAC claims

·     CPRI +2%; Jefferies saying believe the Street is overlooking the L-T oppty in Asia and that Jimmy Choo and Versace op margins are depressed as mgmt invests in the businesses

·     GOGO +4% after DAL said that his company will soon offer free inflight Wi-Fi

·     PZZA +1%; initiated at Oppenheimer saying believe PZZA represents an enticing turnaround story with a revamped board, management team and business strategy all in place

·     WU ; as AMZN PayCode launches in the U.S. and allows customers to choose Amazon PayCode at checkout and then pay for their purchase in cash at one of 15,000 WU locations

 

Stock LAGGARDS

·     ADBE -5%; as quarterly sales grew more than consensus expectations, though projections for the current period were weaker than consensus targets/sees Q4 EPS $2.25 on revs about $2.97B below est. $2.30/$3.03B

·     CHWY -7%; beat on quarterly sales but said its net loss widened from a year earlier on an unadjusted basis

·     FDX -12%; following a 9c EPS miss and revs just missing estimates citing weakening global economic conditions, increased costs with worse-than-expected margins at Ground, while also lowered its FY20 adj EPS to $11-13 vs est. $14.73 (prompted several analyst downgrades)

·     LUV ; cuts Q3 CASM view to up 8%-10% vs. previous 9%-11% view and guides Q3 capacity down approximately 3% vs. previous down 2%-3% view

·     NPTN -11%; among top decliners in the Russell after B Riley downgraded to neutral

·     ROKU -6%; as FB unveiled new models of its Portal video chatting devices, making the company’s first foray into TV streaming hardware but offering a limited selection of subscription services. Also CMCSA announced that Xfinity Flex is now included with an Xfinity Internet-only subscription

·     ZYNE -21%; stage study data on open-label Phase 2 clinical trial, BELIEVE 1, evaluating topical gel Zygel (ZYN002) in epileptic children, as safety concerns weigh (said was well tolerated but noted two serious adverse events (lower respiratory tract infection and status epilepticus)

SYNDICATE

·     Acadia (ACAD) 6.25M share Spot Secondary priced at $40.00

·     IGM Biosciences (IGMS) 10.937M share IPO priced at $16.00

·     Envista (NVST) 26.77M share IPO priced at $22.00

·     Translate Bio (TBIO) 9M share Spot Secondary priced at $10.00

·     Construction Partners (ROAD) 5M share Secondary priced at $14.25

·     Invitation Homes (INVH) 44M share Spot Secondary priced at $28.25

·     PTC Therapeutics (PTCT) 2.48M share Spot Secondary priced at $40.40

_________________________________________________________________

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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