Mid-Morning Look: October 10, 2019

Auto PostDaily Market Report

Mid-Morning Look

Thursday, October 10, 2019

Index

Up/Down

%

Last

 

DJ Industrials

171.06

0.71%

26,929

S&P 500

15.92

0.61%

2,884

Nasdaq

31.20

0.45%

8,879

Russell 2000

10.38

0.74%

1,500

 

 

Optimism is high heading into key trade talks between high level trade representatives today and tomorrow for China and the U.S., as Vice Premier Liu He and the rest of the high-level Chinese team arrived at the office of U.S. Trade Representative Robert Lighthizer at around 9:00 AM EST in Washington. “Big day of negotiations with China. They want to make a deal, but do I? I meet with the Vice Premier tomorrow at The White House,” Trump tweeted Thursday. Stocks are moving higher, adding to yesterday’s gains with topics likely to be discussed during talks such as: purchase of agricultural products, IP rights, Huawei, recent blacklist and visa restrictions on Chinese products and officials (citing their role in abuse of Muslim minorities) and upcoming tariff hikes (to kick in on Oct 15th). In economic data, US consumer prices were unchanged in September, their weakest reading in eight months, giving the Federal Reserve room to lower rates (follows soft PPI data this week). Taking a backseat early is the ongoing fighting/attacks with Turkey and allies vs. Kurds. Oil prices higher, gold sinks along with treasury prices as yields spike. Trade sensitive sectors leading market gains early.

 

Dallas Federal Reserve Bank President Robert Kaplan said today he was watching the U.S. yield curve carefully for signs the Fed may need to cut interest rates further, reiterating his view that waiting to do so until consumer spending weakens would be “a mistake.” At the same time, he said, “it is my intention to take some time to carefully monitor economic developments” now that the Fed has cut rates twice this year. Reducing borrowing costs too much, he warned, could cause imbalances and excesses, and if trade tensions that have slowed global growth and U.S. manufacturing ease, the downside risks to the U.S. economy would also be reduced.

 

Treasuries, Currencies and Commodities

·     In currency markets, the US dollar rose to fresh 1-week highs against the safe haven Japanese yen, topping out around 107.92, while the British pound and the euro are stronger against a weaker dollar on expectations of another interest rate cut by the Federal Reserve and on market jitters ahead of U.S.-China trade talks; the Turkish lira was steady against the dollar after Turkey launched operation in northern Syria, after falling yesterday

·     Commodity prices are mixed ahead of key trade talks between the U.S. and China as well as comments on rates this morning from the Fed’s Kaplan, who sunk gold prices after saying rate cuts should be restrained. Oil prices getting a bounce early. Treasury markets fall further as the yield on the 10-year rises above 1.63% (1-week high).

 

Economic Data

·     Weekly Jobless Claims fell to 210K in latest week, below the 220K est. while prior week claims revised to 220K from 219K; continuing claims rose to 1.684Mfrom 1.655M prior and compared to the 1.653M estimate; the 4-week moving average rose to 213,750 from 212,750 prior week

·     Consumer Price Index (CPI) MoM for September were unchanged, below the 0.1% rise estimate (tame but not as sharp a miss as PPI was earlier this week), while CPI core (ex: food & energy MoM) for September rose 0.1% vs. est. 0.2%. CPI core YoY was in-line at 2.4%

 

 

Macro

Up/Down

Last

 

WTI Crude

0.71

53.30

Brent

0.63

58.95

Gold

-13.30

1,499.50

EUR/USD

0.0046

1.1018

JPY/USD

0.42

107.90

10-Year Note

0.049

1.633%

 

 

Sector Movers Today

·     Hardware movers; AAPL trades to record highs/upgraded to buy from neutral at Longbow as expects iPhone production to beat estimates on higher sales of iPhone 11, which comprises about 50% of new model production; Goldman Sachs with several rating changes as upgrade PSTG to buy but downgraded shares of CSCO, NTAP and HPQ as they turn cautious on enterprise Tech spending, particularly large enterprise exposed names as weaker business confidence fueled by ongoing US-China trade uncertainty is weighing on enterprise spending

·     Semiconductors; SWKS and QRVO both outperform in semi space after Cowen upgraded both saying investor expectations are very low on the apple supply chain, but the 5G cycle next year should bring ~40% uplift in RF content and that Huawei revenues have been largely de-risked from sell-side numbers while networking infrastructure spend on 5G and consumer electronics incorporating WiFi 6 is finally happening in C2020 after 12 months of delay.

·     Healthcare services and providers; UNH was downgraded to hold at Jefferies noting political risk has weighed on the MCOs since 12/18 and while there is a low probability of these political risks coming to fruition, we expect MCO valuations to remain depressed until the political env’t stabilizes/also notes ANTM has been growing in commercial and other data points to UNH having the most risk of membership loss to ANTM; MD said it entered into a definitive agreement with Frazier Healthcare Partners, where MD will receive cash consideration of ~$250M at closing, as well as economic consideration of up to $50M contingent upon short and long-term performance

·     Transports; the Baltic Dry Index jumped 2.99% to 1,929 points to mark the fifth up day in a row for the shipping rates measure. Panamax rates were up 2.6% and Capesize rates rose 4.1% to easily offset a 0.5% dip with Handysize rates; airlines active on earnings as DAL EPS beats by 6c and reports unit revenue was up 2.5% in Q3 off healthy leisure and corporate demand, while operating cost per available seat mile fell off 2.1%/sees Q4 EPS of $1.20 to $1.50 vs. $1.51; JBLU September traffic rose 3.4% YoY on a capacity increase of 2.5%; Goldman Sachs lowered 3Q earnings estimates across the transport space amidst pressures from lower volumes

·     Metals & Materials; in steel sector, U.S. Steel (X) guided Q3 EPS loss (20c-26c), better than the expected loss est of (33c) and guides Adj Ebitda $134M-$144M vs. est. $109.1M; in copper, UBS upgraded shares of FCX to buy from hold and raise tgt to $13 after resetting their copper price and production expectations, saying shares oversold, while also upgraded GMBXF to buy; ATI upgraded to buy at Goldman Sachs as see an attractive entry-point following underperformance which was driven by idiosyncratic (supply chain issues) and external factors (such as 737 MAX)

 

Stock GAINERS

·     AAPL +1%; trading at all-time record high after Longbow upgraded to buy as expects iPhone production to beat estimates on higher sales of iPhone 11

·     BBBY +23%; after announced its new CEO last night, former TGT Chief Merchant Mark Tritton, with prior experience as EVP/President of JWN as well

·     FCX +5%; UBS upgraded shares to buy from hold and raise tgt to $13 after resetting their copper price and production expectations, saying shares oversold

·     PXD +3%; upgraded at Mizuho with a $191 price target saying the company has shifted its focus towards sustainable free cash flow growth and has made major progress this year on cost cuts

·     RARX +100%; to be acquired by UCB for $48 per share in cash, which represents a transaction value of approximately $2.1B, net of Ra Pharma cash https://on.mktw.net/33g42JJ

·     SWKS +4%; upgraded along with QRVO (up 3%) at Cowen to outperform and raise tgt to $95 from $80 saying content continues to ramp this iPhone cycle, and higher radio frequency content in a 5G-enabled phone presents unit upside potential

 

Stock LAGGARDS

·     ADTN -22%; as guides Q3 adjusted EPS loss of (6c) on sales about $114M, below the 3c profit and $140.2M estimate as shipments to a Tier 1 customer in Latin America and the continued slowdown in the spending at an international Tier 1 customer

·     DAL -3%; dragging airlines , transports lower after mixed results as Q3 beat but Q4 guidance falls short of views ($1.20-$1.50 vs. est. $1.51)

·     FSCT -34%; lowers Q3 revenue in the range of $90.6M-$91.6M from $98.8M-$101.8M prior and below consensus of $100.52M and Q3 GAAP operating loss to be in the range of $18.2-$17.8M

·     HEXO -22%; guides Q4 revs $14.5M-$16.5M, while withdraws FY20 outlook saying Q4 revenue is below our expectation and guidance, primarily due to lower than expected product sell through

·     IEA -21%; after saying discussing possible investment from Ares Management Corp, Oaktree Capital Management, not a merger or a go-private deal

·     KRA -20%; now expects full year 2019 Adjusted EBITDA to be 10-15% below the lower end of its previous guidance range of $370 to $390 million/says Q3 sales in its polymer business were hurt by continued deterioration in market demand in China and Asia due to tariffs and trade tensions

·     PCG -29%; after losing exclusive control on bankruptcy reorganization plan as U.S. judge Dennis Montali, overseeing the bankruptcy of PG&E, ends co’s exclusive right to file a reorganization plan, allowing company noteholders to file their plans (downgraded to sell and $5 tgt at Citi)

·     PHG -8%; on lower guidance, warning it will miss its 2019 profit margin target due to increasing headwinds from tariffs causing poor results at its connected care unit

_________________________________________________________________

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.

Live Trading

Open an Account

Paper Trading

Register