Mid-Morning Look: September 19, 2019

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Mid-Morning Look

Thursday, September 19, 2019

Index

Up/Down

%

Last

 

DJ Industrials

106.73

0.39%

27,253

S&P 500

13.16

0.44%

3,019

Nasdaq

53.46

0.65%

8,230

Russell 2000

7.75

0.49%

1,576

 

 

U.S. equities pushing higher, adding to the late day gains Wednesday following the positive assessment on the economy by Fed Chairman Powell at his press conference, while the Fed cut interest rates for a second straight meeting as insurance ahead of uncertain times (Brexit, trade with China, and noted slowing global growth concerns as well). Separately, the New York Fed conducted its third repurchase operation in as many days, injecting another $75B into the repo market (see below). There were several central bank actions overnight weighing on currencies, while in stock news, metals are lower after dismal guidance from U.S. Steel (X) overnight, punishing the sector. European markets edge higher, banks are leading in the U.S. and Europe along with strength in software. The OECD downgraded its assessment of the global economy to the worst growth rate since the financial crisis, cutting global GDP view to 2.9% this year, a downgraded of 0.3% points in its interim report, and its growth view for 2020 was reduced by 0.4% points to 3%.

 

It was central bank mania overnight, with a handful making rate changes (following the U.S. Fed’s 25 bps cut yesterday) and some holding steady: 1) the Swiss National Bank held interest rates steady even as it slashed its growth forecast; 2) Norway’s central bank boosted interest rates again (by 25 bps), going against the grain in monetary policy; 3) Taiwan’s central bank left its policy rate unchanged and raised its 2019 growth forecast; 4) the Bank of England’s (BOE) kept its key Bank Rate at 0.75% in a unanimous vote of 9-0 voted to maintain stock of U.K. government bond purchases, financed by the issuance of central bank reserves at £435B; 5) the Bank of Japan left policy unchanged but hinted at possible action at its next meeting, saying it believes momentum toward achieving its inflation target may be falling short; 6) Brazil’s central bank cut its benchmark interest rate for a second straight meeting

 

The NY Federal Reserve intervened for a third time to ease the strain on money markets (liquidity concerns) as they accepted $75B of $83.875B in bids submitted at overnight repo operation (oversubscribed for a second straight session) as accepts $55.843B of $56.325B in repo bids backed by treasuries at stop-out rate of 1.8%. The intention of this third round of repo operations was to help maintain the Federal Funds rate within the target range of 1.75%-2.00%. The New York Fed held a second repurchasing auction early Wednesday, injecting another $75 billion which followed its first overnight repurchase auction in a decade Monday.

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar bounced off following the better-than-expected monthly existing home sales data, but overall pulling back after yesterday’s late day push higher, coming despite an expected rate cut by the Fed (25 bps) as the outlook for future rate cuts remain cloudy. The dollar slides early vs. the Euro, British Pound and Japanese yen. Commodity prices are mostly higher, with rebounds in oil and gold prices on the dollar decline. Treasury market’s rally after yesterday’s late day spike, with yields pulling back

 

Economic Data

·     Weekly Jobless Claims rose 2K to 208K, below the 213K estimate (prior claims to 206K from 204K) and 4-week moving average at 212.3K; continuing Claims fell 13K to 1.661M vs. est. 1.672M

·     Philly Fed Survey Outlook for Sept reported at 12.0, topping the est. of 10.5 (but down from prior month reading of 16.8); segment breakdown shows: prices paid rose to 33.0 vs. 12.8 last month, new orders slipped to 24.8 from 25.8, employment rose to 15.8 from 3.6 and shipments rose to 26.4 from 19.0 MoM

·     U.S. 2Q current account deficit at (-$128.2B) compared to est. (-$127.4B); and narrowed from $136.2B prior quarter; the balance of goods and services deficit widened to $163.3B compared to $156.5B prior quarter

·     Aug Existing Home Sales rise 1.3% to 5.49M .vs. est. -0.7% to 5.38M; 30-year fixed mortgage rate for week ended today rose to 3.73% from 3.56%, marking the largest weekly gain since Oct. 2018

·     Leading Index for Aug reported at unchanged vs. with est. (-0.1%)

 

 

Macro

Up/Down

Last

 

WTI Crude

0.38

58.49

Brent

0.81

64.41

Gold

-6.50

1,50930

EUR/USD

0.0028

1.1058

JPY/USD

-0.43

108.02

10-Year Note

-0.033

1.763%

 

 

Sector Movers Today

·     Software movers; MSFT announces $40B share buyback and raises dividend to 51c from 46c; DDOG 24M share IPO priced at $27.00 (follows Bloomberg report overnight that CSCO approached the company in recent weeks with a takeover offer significantly higher than the $7 billion valuation it is aiming for in an initial public offering https://yhoo.it/2mlWlkV; several rating changes in software sector today; CHKP was downgraded to underperform at Bank America, while Morgan Stanley upgraded TWLO to overweight ($135 tgt), while downgraded BAND to underweight (tgt down to $67) and cut FIVN to equal-weight

·     Media & Telecom movers; DISH shares active after reports last night that it is not in talks with AT over a deal with DirecTV due to regulatory issues, Reuters reports. Report follows earlier story in the Wall Street Journal that AT&T was exploring parting ways with its satellite TV unit DirecTV – https://reut.rs/2kTaMg2 ; Comm Infrastructure sector downgraded to In-Line from Attractive at Morgan Stanley noting that the group is up about 100% since early 2016 and about 30% this year (firm upgraded QTS to overweight citing improved execution while downgraded DLR and SBAC primarily on valuation while raising tgts for each; Intelsat (I) tgt raised to $32 from $27 at JPM as believes the FCC and C-Band Alliance are working toward an order that would include 300 MHz of cleared C-Band spectrum, targeting a November order

·     Pharma movers; LGND was upgraded to overweight at Barclay’s citing post-new P3 Kyprolis data and mgmt meeting, as re-visit LGND’s pipeline potential and note expanded opportunities, which drives our medium-term revenue forecasts higher and improved risk/reward profile; CBPO received a preliminary non-binding go private proposal letter for shares not already owned by the Buyer Group for $120 per share in cash https://yhoo.it/2kUjYRl ; AERI seeks FDA approval for sale of Ireland-produced Rocklatan in U.S.; Credit Suisse said they estimate JNJ’s pipeline will add ~2% to WW Pharma growth in 2020 on a risk-adjusted basis, nearly offsetting biosimilar pressure on Remicade/expect 2020 top line growth to accelerate vs. 2019

 

Stock GAINERS

·     CBPO +6%; received a preliminary non-binding go private proposal letter for shares not already owned by the Buyer Group for $120 per share in cash https://yhoo.it/2kUjYRl

·     EROS +24%; and MSFT will build a next-gen online video platform on Azure for customers around the world

·     MLHR +9%; after total sales increased 7.4% YoY to $670.9M, topping the $661M estimate with organic sales up 7.7% YoY and total orders increased 6.9% YoY on a reported basis

·     MSFT +2%; announces $40B share buyback and raises dividend to 51c from 46c

 

Stock LAGGARDS

·     CLF -4%; as metals fall along with weakness in US Steel guidance while also KeyBanc said Q3 earnings may take sizable hit

·     COST -2%; downgraded to underperform at Bernstein as see new competitive pressure as they near peak club counts, members per club, and revenue per member

·     COTY -2%; cautious mention at Citigroup saying overall 1Q sales growth is trending towards the lower-end of their previous guidance

·     DRI -3%; posts Q1 sales of $2.13B, mostly in-line with the $2.14B estimate (on slightly better EPS) while comp-store sales miss with Q1 growth of 0.9%, below the estimate of 1.3% increase

·     OSTK -9%; after founder and largest holder Patrick Byrne sold almost 4.7 million shares (entire stake) at a range of $16.32 to $21.84 from Monday to Wednesday

·     X -12%; revealed 3Q19 EBITDA guidance of $115M (excluding a cash impact from Clairton of $53M and restructuring), below the Street’s $195M with larger Q3 EPS loss of (35c)

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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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