Mid-Morning Look: December 04, 2019

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Mid-Morning Look

Wednesday, December 04, 2019

Index

Up/Down

%

Last

 

DJ Industrials

180.96

0.66%

27,683

S&P 500

21.56

0.70%

3,114

Nasdaq

48.90

0.57%

8,568

Russell 2000

14.20

0.89%

1,616

 

 

U.S. equities in rally mode as the S&P 500 erases all of yesterday’s decline, now above Monday’s closing level given renewed trade optimism between the U.S.-China on reports overnight (from Bloomberg) they are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal despite tensions over Hong Kong and Xinjiang. Oil prices jumping on the trade news, after U.S. crude inventories were reported to have fallen and before the OPEC+ meeting later this week. A generally weak round of economic data this today (and week) failing to dent sentiment thus far as the ISM non-manufacturing data slightly below estimates today (followed weaker ISM manufacturing on Monday) along with a sharply lower reading in private payrolls from ADP ahead of the nonfarm payroll report on Friday. Tech space with nice recovery overall though shares of WDAY, ZS, MRVL, and CRM slip after mixed results and/or guidance overnight. Safe-haven and defensive assets which advanced on Tuesday amid trade concerns (gold, Treasuries, yen) have all retraced gains.

 

Treasuries, Currencies and Commodities

·     In currency markets, the euro rose back near the 1.11 level against the dollar, a one-month high while the British pound has risen to its highest level since May against both the dollar (above 1.31) and euro (52-week highs above 1.18) this morning, notching a second day of strong gains. The dollar rebounds against the safe-haven yen, but overall down vs. most currencies. The Canadian dollar rallied vs. the dollar following the jump in oil prices. Treasury market’s slip after yesterday’s strong gains, with the 10-year yield rising about 5 bps to 1.77% (after falling below 1.7% yesterday), as trade optimism lifts yields and stocks.

·     Commodity prices mixed as defensive gold pares slides, paring recent gains as riskier assets rally today on renewed trade optimism with China while oil prices benefit most from trade headlines that the U.S. and China were moving closer to a trade deal and before OPEC+ decides on its output-cut policy later this week. Also weekly inventory data came in bullish from both EIA/API.

 

Economic Data

·     ADP Employment showed 67K jobs were added for November, well below the 135K estimate while last month was slightly downwardly revised to 121K from 125K) – data ahead of nonfarm payroll report on Friday with an estimate of 190K

·     Markit US Services PMI, Nov-F reported at 51.6, in-line with estimates and Markit US Composite PMI, Nov-F reported at 52.0, slightly above prior 51.9 reading

·     ISM Non-Manufacturing for November missed at 53.9, below the est. 54.5 (and vs. prior reading of 54.7); Business activity fell to 51.6 vs 57.0 prior month (the lowest since Jan. 2010) while new orders rose to 57.1 vs 55.6 MoM and employment rose to 55.5 vs 53.7 prior

 

 

Macro

Up/Down

Last

 

WTI Crude

2.11

58.21

Brent

2.09

62.91

Gold

-5.40

1,479.00

EUR/USD

0.0014

1.1098

JPY/USD

0.17

108.80

10-Year Note

0.054

1.77%

 

 

Sector Movers Today

·     Industrial & Machinery; monthly truck orders weak as ACT Research said combined NA Classes 5-8 intake fell 15% M/M and 38% Y/Y during the month on a nominal basis/preliminary North America Class 8 net orders were down 20% M/M to 17,500 units (shares of PCAR, CMI, NAV are leveraged to the data); ETN downgraded to hold from buy at Deutsche Bank citing outperformance over the last 6-month and 3-month period vs. coverage universe

·     Transports; in rails, UNP guides 4Q volume down a little more than 10% versus prior-year Q4 and sees 4Q revenue down similar percent as volumes, although not quite to magnitude after pricing actions; RYAAY said it expects traffic growth for FY21 to be 156M guests, down from a prior expectation for 157M guests; said it had to revise its 2020 schedule based on receiving just 10 Boeing MAX aircraft, instead of the 20 planes it expected. Ryanair is also closing two bases

·     Semiconductors; Philly semi index (SOX) surges nearly 2% early, rebounding post yesterday decline; MRVL reported Q3 revenues/EPS of $662M/$1.07, respectively, and in line with estimates while Q4 guidance was above estimates as it includes revenues from Avera and Aquantia, which were not in estimates/ex the revenues from Avera/Acquantia, Marvell revenues would have come in below consensus estimates; MCHP narrowed both its EPS and sales view for Q3 and increasing the midpoint driven by order strength extending into November

 

Stock GAINERS

·     EXPE +7%; as CEO and CFO to resign effective immediately in mgmt shake-up, while announces a 20M share buyback program;

·     HQY +8%; rose on beat and raise quarter as Q3 results were well-above expectations (contained a two-month contribution from the recent WageWorks acquisition) – Wells Fargo noted HSA administration platform HQY reported an October quarter beat with revenue of $157.1M

·     MCHP +5%; narrowed both its EPS and sales view for Q3 and increasing the midpoint driven by order strength extending into November

·     PTGX +59%; erasing all of its 47% decline yesterday after analysts BTIG said think the sell-off in PTGX shares may be overdone following the release of preliminary data on its PTG-300 as well as several insider purchases as per filings (CEO, CFO, Directors)

·     RAPT +13%; announced a license and collaboration agreement with Hanmi Pharmaceutical for FLX475 in Asia where RAPT will receive $10 million in an upfront payment and near-term milestone payment

·     WWD +4%; upgraded to buy at Jefferies and up tgt to $135 from $108 as think Aerospace profitability (~75% of earnings) could surprise to the upside as margins climb

·     ZBH +2%; upgraded to strong buy at Raymond James and raise tgt to $170 saying opportunities to reduce obsolete inventory charges and inventory over the next several years increase conviction

 

Stock LAGGARDS

·     BNED -19%; shares plunged following a sharp miss in Q2 earnings and revenue while announced the Board approved the engagement of a financial advisor to assist with the evaluation of a range of potential strategic opportunities

·     GIII -11%; as apparel sales fall short as tariffs weigh while cuts FY20 EPS view to $3.06-$3.16 from $3.15-$3.25 and lowers FY20 revenue guidance to $3.2B from $3.3B

·     INST -9%; announced to be acquired in cash deal of $47.60 by Thoma Bravo, valued at about $2B, but was below last night closing price of $52.96

·     MRVL -3%; downgraded at BMO Capital after earnings following in-line EPS/revs for Q3 but Q4 revenues would have come in below consensus estimates ex the revenues from Avera/Acquantia acquisition which firm said was not in estimates

·     WDAY -3%; beat on most key metrics, but billings growth decelerated and came in below Street estimates/provided guidance for Q4 and Q1FY20 revenue and operating margins (below consensus)

·     ZS -5%; reported Q1 results that beat expectations and raised its full-year adjusted profit view, although the midpoint of the higher forecast was below expectations/Q1 billings growth strong at +37%, 5% above Cowen and 9% above Street views

 

Syndicate:

·     Cannae Holdings (CNNE) 6.5M share Spot Secondary priced at $33.00

·     Arrowhead (ARWR) 4M share Secondary priced at $58.00

·     Kodiak Sciences (KOD) 6M share Secondary priced at $46.00

·     Relmada Therapeutics (RLMD) 3.333M share Spot Secondary priced at $30.00

·     ViewRay (VRAY) 41.55M share Secondary priced at $3.13

·     Revance (RVNC) 6.5M share Spot Secondary priced at $17.00

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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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