Mid-Morning Look: December 03, 2019

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Mid-Morning Look

Tuesday, December 03, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-410.36

1.48%

27,372

S&P 500

-34.42

1.11%

3,079

Nasdaq

-96.51

1.13%

8,471

Russell 2000

-12.09

0.75%

1,595

 

 

U.S. equities pressured, falling for a third straight session after President Trump signaled that he may wait another year to strike a deal with China, prompting concerns of a further trade war delay. Trump said to reporters this morning that he has “no deadline” for reaching a trade accord with China. “In some ways, I like the idea of waiting until after the election for the China deal,” the president said, following a meeting with the NATO Secretary-General in London. The White House also proposed overnight tariffs against $2.4 billion of French imports in response to the European nation’s new digital-services tax, which it said unfairly targets U.S. tech companies such as Apple and Alphabet’s Google. The threat to impose levies on French products came a day after the U.S. said they would revive tariffs on steel and aluminum imports from Brazil and Argentina. Also hitting stocks a Fox news report that the U.S. is still going ahead with December 15th China tariffs (nothing confirmed yet – but expectations have been for the U.S. to delay the hikes). Fox report said “the Dec 15th tariffs on basically the rest of what China imports into the US are still going forward as of today. I was told the caveat is if Phase One trade deal gets on paper or something else positive happens President could choose not to impose tariffs.”

 

With all the negative tariff and trade talk this morning, the S&P 500 index dropped below the 3,100 level for the first time since November 22nd as trade fears enough to weigh on markets, specifically trade sensitive sectors/tariffs such as semiconductors, consumer products and metals. Defensive/safe haven assets rally with gold, Treasury prices all rising. Small caps sliding as the Russell 2000 falls over 1%, back below 1,600 level; Transports underperform down 200 points (nearly 2%) as approaches 10,500 level (breaking below 50-day MA 10,599 – with 100 day MA little lower at 10,475 and 200-day MA 10,459) . Meanwhile, defensive stocks leading markets higher with utilities, REITs and towers all among the top gainers in the S&P 500 index early.

 

Treasuries, Currencies and Commodities

·     In currency markets, little movement in the dollar vs. euro after the greenback slid vs. most rival currencies yesterday on weak economic data (no major data today in the U.S.); commodity prices mixed as oil prices erase overnight gains to turn lower after President Trump says he has “no deadline” to conclude a trade deal with China, and that “in some ways I like the idea of waiting until after the election” of November 2020; Treasury market’s rally as the 10-year yield drops over 9 bps points to 1.72% lows following the mass sell-off in risk assets (stocks, oil) and into defensive asset classes such as bonds and gold (which is up around 1%).

 

 

Macro

Up/Down

Last

 

WTI Crude

-0.24

55.72

Brent

-0.31

60.61

Gold

16.10

1,485.40

EUR/USD

-0.0001

1.1078

JPY/USD

-0.31

108.67

10-Year Note

-0.094

1.724%

 

 

Sector Movers Today

·     Metals & Materials; CLF agreed to acquire AKS in an all-stock deal valued at ~$1.1B where AKS shareholders will receive 0.40 shares of CLF common stock for each outstanding AKS share valuing AKS at $3.36 per share https://on.mktw.net/2Ll1gMO ; GLNCY slides after forecasts modest decline in copper production over the 2019-2022 period and also sees largely flat production profile over the next three years; VALE lowered its Q1 2020 production outlook for iron ore to 68M-73M metric tons from prior guidance 70M-75M mt; industrial metals pressured early, paring recent gains on the Trump comment about trade; gold miners (AEM, NEM, GOLD, AU among others) outperformed given the early bounce in gold prices

·     Semiconductors; chip stocks plunged (INTC, AMD, NVDA, QCOM, SWKS, AVGO) after U.S. President Donald Trump says a trade deal with China might have to wait until after the U.S. presidential election in November 2020; NXPI and MRVL announce receiving all necessary regulatory approvals for the acquisition of Marvell’s wireless connectivity portfolio

·     Retailers; LE shares jumped after the company raised its fiscal 2019 profit outlook and posted higher third-quarter earnings while narrowed its full-year revenue guidance; GES issued long-term financial targets saying for 2025, said it expects sales to increase about $250 million compared with 2020 and sees gross margin increasing 4% points in 2025 compared with 2020; Adobe Analystics said U.S. shoppers spent $9.4 billion online by the end of Cyber Monday, an increase of 19.7% YoY, making it the largest online shopping day of all time in the U.S

·     Consumer Staples; ELF shares fell as priced 3.4M share secondary at $15.90 while Marathon Partners urged the company to consider all of its strategic options, including a possible sale of the company (Marathon owns a 7.8% stake) and said in a letter to the board that it believes the company is worth about $22-$27 a share to strategic buyers; ABEV downgraded to underweight at Barclay’s as they see several challenges for ABEV, particularly in its core business (Beer Brazil) that they believe are likely to get worse before they can get better; SAM upgraded to buy and $440 tgt at UBS on continuing +DD topline and earnings growth in F20/21E, upside to 2020 shipment and depletion guidance, enduring outlook for the Hard Seltzer category; PM said for current fiscal year, said it now expects to report earnings of at least $4.55 a share, up from its previous guidance of $4.53 a share (had lowered guidance in November from at least $4.73)

·     Auto sector; monthly auto sales for November release today for some with TM reports November sales up 9.2% to 207,857 units on a volume basis and up 5% on a daily selling rate basis versus November 2018; Mazda reported total November sales of 24,374 vehicles, an increase of 18% YoY; HMC Nov US auto sales up 11% vs. down -9.5% YoY; in Transportation technology/auto; APTV was upgraded to overweight at Piper saying growth profile has inarguably sheltered the company from weakening auto production; Piper raised its tgt on TSLA to $423 in conjunction with broader effort to focus more directly on disrupters in the transportation sector while prefers LYFT (overweight rated) to UBER (neutral rated)

 

Stock GAINERS

·     AKS +2%; as CLF agreed to acquire AKS in an all-stock deal valued at ~$1.1B where AKS shareholders will receive 0.40 shares of CLF common stock for each outstanding AKS share valuing AKS at $3.36 per share https://on.mktw.net/2Ll1gMO

·     AXSM +12%; says its AXS-12 Phase II trial met the primary endpoint and significantly reduced the number of cataplexy attacks as compared to placebo in patients with narcolepsy

·     BOLD +104%; after agreeing to be acquired by Astellas Pharma for $60 per share in cash, representing a total equity value of ~$3B in gene therapy sector https://reut.rs/2Lg8qSm (shares of BLUE, NTLA, EDIT, CRSP among movers in gene therapy on news)

·     DRIO +62%; shares surge as launches its digital diabetes management system through WMT’s online distribution channel

·     LE +15%; after the company raised its fiscal 2019 profit outlook and posted higher third-quarter earnings while narrowed its full-year revenue guidance

·     QURE +15%; initiated buy and $98 tgt at Goldman Sachs as positive on lead program Ph3 AMT-061 in hemophilia B based on Ph2b 36-week proof-of-concept data; separately, Cowen initiated at outperform also positive on class gene therapy for Hemophilia B

·     VRAY +29%; announced that it has entered into strategic collaborations with both Elekta (EKTAF) and MDT as part of a planned equity financing to advance the knowledge and use of MR-guided radiation therapy/Elekta committed to invest capital for up to a 9.9% minority interest

 

Stock LAGGARDS

·     ALDX -26%; mixed results from its late-stage “Renew” study in patients with dry eye disease (study hit its primary endpoint of improving ocular dryness, but co-primary endpoint did not reach statistical significance)

·     ASLN -50%; after priced its public offering of 5,124,527 American Depositary Shares (ADSs) at $2.50 per ADS, for expected gross proceeds of ~$12.8M

·     CARA -27%; after mixed data as unveiled data from the Phase II trial of oral Korsuva in chronic kidney disease patients with moderate-to-severe pruritus saying trial met its primary endpoint but in secondary endpoint didn’t achieve statistical significance

·     ELF -7%; as priced 3.4M share secondary at $15.90 while Marathon Partners urged the company to consider all of its strategic options, including a possible sale

·     GILD -1%; after Donald Trump and Sec Azar are launching a new program to provide an HIV prevention drug for free to people who need the protection but have no insurance to pay for it

·     NFLX -1%; downgraded to neutral from buy (in transfer of coverage) at Citigroup and cut tgt to $325 from $410 saying current consensus analyst estimates don’t reflect the long-term relationship between cash outlays on content and net subscriber additions

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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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