Mid-Morning Look: September 25, 2019

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Mid-Morning Look

Wednesday, September 25, 2019

Index

Up/Down

%

Last

 

DJ Industrials

99.55

0.37%

26,907

S&P 500

0.75

0.03%

2,967

Nasdaq

-10.93

0.15%

7,981

Russell 2000

-2.22

0.15%

1,531

 

 

U.S. stocks are mixed following details of President Trump’s phone call to Ukraine showed he asked Ukrainian President Volodymyr Zelenskiy to investigate whether former VP Joe Biden shut down an investigation into a company where his son worked, according to a summary of the call released by the Trump administration on Wednesday. “There’s a lot of talk about Biden’s son, that Biden stopped the prosecution and a lot of people want to find out about that so whatever you can do with the Attorney General would be great,” Trump said in the call, according to the summary provided by the Justice Department. “Biden went around bragging that he stopped the prosecution so if you can look into it. It sounds horrible to me,” he said, according to the memo, as per Reuters. NY Times notes the transcript shows President Trump urged Ukraine’s leader to contact Attorney General William Barr about opening an inquiry tied to Joe Biden. Reports indicate this was the only mention of Biden in the five-page transcript. The release of the call details came after House Speaker Nancy Pelosi announced a formal impeachment inquiry of Trump yesterday, saying his actions were a ‘betrayal of national security.” “Therefore, today, I am announcing the House of Representatives is moving forward with an official impeachment inquiry.” The news of the phone call, impeachment talk has overshadowed more weakness in oil earlier today, strong earnings from Dow component Nike (NKE) as shares trade to all-time highs and a strong housing data reading (New Home Sales).

 

Treasuries, Currencies and Commodities

·     In currency markets, the dollar is spiking today, supported by a very strong reading on monthly New Home Sales data, and the release of the Trump/Ukraine President transcript, which is pushing gold prices lower, while the British Pound is under pressure near two-week’s lows, sub-1.2400 handle (1.235), now at session lows and the euro extends its recent slide this week

·     Commodity prices remain volatile as oil prices resume downward momentum, now trading where it was on the Friday before the attacks on Saudi oil fields, erasing over 15% of gains last Monday on bearish inventory data (API overnight), slowing global growth fears and reports that Saudi Arabia is making progress in restoring output. Treasury prices down slightly as yields rebound from their week long decline; the 10-year around 1.68% up 3 bps (down from highs of 1.9% over a week ago) after better economic data.

 

Economic Data

·     New Home Sales for August rise 7.1% to 713K vs. est. for sales to rise 3.8% MoM to 659K (last month revised to 666K from 635K last month) – the data very strong following the big drop in mortgage rates that occurred last month when the 30-year fell to all-time lows of 1.9%

 

 

Macro

Up/Down

Last

 

WTI Crude

-1.46

55.83

Brent

-1.66

61.44

Gold

-5.80

1,534.40

EUR/USD

-0.0057

1.0962

JPY/USD

0.61

107.68

10-Year Note

0.034

1.68%

 

 

Sector Movers Today

·     Semiconductors; MU tgt was raised to $46 from $38 at Cowen ahead of earnings tomorrow night as expect a beat and raise which is in-line with investor expectations but are still cautious on memory pricing and demand into 2020 (firm notes capex guide will be first look at memory spending into 2020 and thinks consensus is ~6.5B-$7B down from $9B this year and that anything <$6B would likely be viewed negatively for ICHR which the firm downgraded); NVDA tgt was raised to $192 from $179 at Goldman Sachs; AVGO shares fell as prices upsized mandatory convertible preferred stock offering

·     Oil drilling; RBC Capital with a broad call as they downgraded offshore drillers DO, NE, VAL and RIG to sector perform saying despite tangible signs of increased activity and pricing, the duration of contracts and magnitude of day-rate improvement for UDW drillships has been less than initially anticipated when they upgraded the group in August 2018. For land drillers, maintaining OP ratings on HP and PTEN but downgraded NBR and ICD, taking a more selective approach by focusing on the companies with the best cap structures and FCF profiles given current expectation that US land rig count will be down in 2020

·     Housing & Building Products; Raymond James upgraded KBH, TOL and LEN to outperform ahead of upcoming earnings announcements that we believe will reveal decidedly improved housing fundamentals and potential upside to current consensus FY20 estimates. For the week, the MBA said that Mortgage Applications tumble -10.1%, Purchase Index -3.1% and Refinancing Index fell -15.2%; BECN commences a private offering of $300M of senior secured notes due 2026; also a positive monthly new home sales economic data report helping the sector

·     Consumer Staples; tobacco industry; dominates news as giants MO and PM announced they ended merger talks saying “after much deliberation, the companies have agreed to focus on launching IQOS in the U.S. as part of their mutual interest to achieve a smoke-free future.” Separately, E-cigarettes maker Juul, in which MO has a 35% stake, said it would suspend all broadcast, print and digital product advertising in the U.S amid heightened regulatory scrutiny, and replace CEO Kevin Burns with MO executive K.C. Crosthwaite. The news comes after a crackdown on e-cigarettes by the U.S. FDA following a recent outbreak of severe lung disease that appears to be related to vaping

 

Stock GAINERS

·     ACHN +6%; said it received FDA breakthrough therapy status for its blood disease drug in combination with a C5 monoclonal antibody for patients/the treatment currently in mid-stage trial and ACHN expects results in Q4

·     HDS +4%; announced its intention to split into two publicly traded entities (Facilities Maintenance and Construction & Industrial) through a distribution, which is expected to be tax-free to holders

·     MDCO +7%; ORION-9 Phase 3 study met all primary & secondary endpoints, as did its ORION-10 Phase study as Inclisiran demonstrated durable & potent efficacy & well-tolerated in ORION-9

·     MPC +5% after Elliott Management calls for MPC to separate into three independent business as the activist investor sees $22 bln potential value unlock, a total of upside of ~61% in MPC

·     NKE +5%; delivered strong Q1 results with upside highlighted by gross margins up +150 bps and regions (highlighted by Q/Q Greater China acceleration), though North America revenue of +4% was light of the Street, overcoming incremental FX headwinds

·     PM +5%; announced they ended merger talks with MO saying “after much deliberation, the companies have agreed to focus on launching IQOS in the U.S. as part of their mutual interest to achieve a smoke-free future

·     SNX +15%; after reported Q3 revenue and non-GAAP EPS well above consensus as revenue upside came from the Technology Solutions distribution segment, which grew 11% q/q (16% y/y)

 

Stock LAGGARDS

·     AVGO -3%; shares fell as prices upsized mandatory convertible preferred stock offering

·     EBAY -2%; Scott Schenkel, most recently eBay’s Senior Vice President, CFO, named as interim CEO as Devin Wenig steps down as President and CEO, while firm reaffirmed 2019 guidance

·     LCI -16% after company prices its convertible notes offering; offers privately $75M 7-yr 4.50% convertible senior notes

·     MDT -2%; robotic-assisted surgery (RAS) platform yesterday had no major surprises relative to what analysts were anticipating going into the meeting, as JPM said the device is not thesis changing for ISRG

·     PINC -5%; short call at Spruce Point Management, saying they outline the near-term risks facing the company and how and earnings and multiple collapse would result in 55-75% downside risk

·     TDOC -4%; after AMZN announced the launch of Amazon Care, a virtual and in-person care offering that will initially be a pilot program provided to employees in the Seattle, WA area

·     WOR -6%; earnings came in below expectations while net sales were down 13% YoY to $855.9M, primarily driven by lower direct volume and average direct selling prices in Steel Processing

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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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