TradeTheNews.com Weekly
Market Update: Market Weigh Signs of Slower Growth and Brexit Uncertainties
Fri, 16 Nov 2018 16:25 PM EST
Headwinds persisted this week as a wide swath of headlines whipsawed the major
US averages. Stocks opened the Veterans Day Monday under pressure led by the
NASDAQ after a key corporate outlook downgrade weighed on Apple shares and the
rest of the handset/chip space. The cautions growth narrative was subsequently
echoed by other corporate forecasts by managements within that sector, as well
as others, later in the week. Tuesday saw sentiment improve when White House
adviser Kudlow confirmed a report that US China trade talks have resumed in
earnest ahead of the upcoming G20 meeting. WTI crude futures continued fall as
many pointed to global growth concerns and potential supply demand imbalances.
Traders noted the exacerbated decline in crude prices came alongside as surge
in natural gas prices which had many noting of a potential pairs trade gone
wrong resulting in forced unwinding. For the week, the S&P lost 1.6%, the
DJIA dropped 2.2%, and the Nasdaq fell 2.2%.
Slowing global growth remained an overriding factor as economic data out of
Europe, particularly Germany, continued to disappoint. The signals of softening
came amid arduous Brexit negotiations that saw PM May and the EU finally come
to terms on a draft separation agreement. It remains anything but clear though,
if the PM can cajole enough of her Conservative party members to support the
deal ahead of a key European summit later this month. Separately, EU and
Italian officials continued to trade barbs in the press over fiscal policy
resulting in higher borrowing rates there. Fixed income risk barometers began
to flash as high yield bond prices slumped, US Treasury yields fell, and the
3-month LIBOR-EURIBOR spread widened to levels not seen since 1999, before the
dot com bubble. The benchmark 10-year yield closed below the 50-day moving
average for the first time since Labor Day. In the latter part of the week, we
heard from a cadre of Fed officials highlighted by Fed Chairman Powell and Vice
Chair Clarida. Each acknowledged that the Fed must pay attention to slowing
global growth signals going forward, but also indicated rates remain below
‘neutral’ and to this point nothing has altered the thinking that they need to
gradually rise to that neutral level. The Greenback backed away from its
strongest levels in more than a year late in the week as Treasury yields moved
lower.
For the week's corporate news, on Monday, Lumentum shares fell precipitously
after the company slashed its outlook, noting a large customer (presumably
Apple) asked to materially reduce shipments. The news hit Apple shares along
with its other suppliers, and on Tuesday, Qorvo followed suit, cutting guidance
on lower recent demand for flagship smartphones. Semiconductor firms were also
under pressure this week, after Nvidia cut its outlook on rising inventories
and semi equipment maker Applied Materials forecast a soft Q1. KB Home added to
woes in the homebuilder sector by guiding a weaker than anticipated Q4, which
weighed on Home Depot and Lowes. In the retail space, Macy’s and Walmart
dropped despite beating and raising earnings, and Williams Sonoma fell after
reporting in line with expectations. On the M&A front, AthenaHealth
confirmed a deal to be acquired by Veritas Capital for $135/share in cash, SAP
announced the acquisition of Qualtrics for $8B just days ahead of its IPO, and
Johnson Controls divested its power solutions business to Brookfield for $13.2B
in cash and stock. Shares of Acadia Healthcare fell as much as 20% on Friday on
a report that its LBO process has stalled. PG&E fell sharply this week on
liability concerns relating to the disastrous 'Camp' wildfire consuming wide
swaths of Northern California, but shares bounced off their lows on commentary
from state regulators indicating they don't want to force the utility to go
bankrupt.
SUN 11/11
XM To be acquired by SAP for $8B cash
MON 11/12
BBVA Recent strength being attributed to Mexico's govt vows no change in
banking laws
LITE Cuts Q2 $1.15-1.34 v $1.67e, Rev $335-355M v $423Me (prior $1.60-1.75, Rev
$405-430M), Op margin 23-25% (prior 28-30%) (update)
(US) EPA official: EPA to set new regulations to significantly cut nitrogen
oxide emissions from heavy duty trucks
AAL.UK De Beers reportedly to cut low end diamond prices by as much as 10% -
press
(US) Commerce Dept reportedly circulating a draft report on auto tariffs; Pres
Trump to hold meeting Tues with trade advisers to discuss the report - press
(CN) On Friday (Nov 9th), US Treasury Sec Mnuchin and China Vice Premier Liu He
resumed talks and spoke by phone; the conversation did not lead to any
'breakthrough' - US financial press
(CN) China Vice Premier Liu He to visit the US to pave the way for the Xi-Trump
meeting; the Chinese official is expected to visit the US 'shortly' for talks -
Hong Kong Press
TUES 11/13
BAYN.DE Reports Q3 Adj €2.89B v €3.88B y/y, adj EBITDA €2.20B v €2.20B y/y, Rev
€9.91B v €8.03B y/y
VOD.UK Reports H1 adj EPS 3.56c v 6.32c y/y, adj EBIT €2.31B v €2.46B y/y, Rev
€21.8B v €23.1B y/y
*(UK) SEPT AVERAGE WEEKLY EARNINGS 3M/Y: 3.0% V 3.0%E; WEEKLY EARNINGS (EX
BONUS) 3M/Y: 3.2% V 3.1%E
*(UK) OCT JOBLESS CLAIMS CHANGE: +20.2K V +23.2K PRIOR; CLAIMANT COUNT RATE:
2.7% V 2.6% PRIOR
*(DE) GERMANY NOV ZEW CURRENT SITUATION: 58.2 V 65.0E; EXPECTATIONS SURVEY:
-22.0 V -26.0E
HD Reports Q3 $2.51 v $2.27e, Rev $26.3B v $26.2Be
HD Hurricane related sales negatively impacted US comps by 80bps in Sep and
120bps in Oct - earnings call
(UK) Five pivotal senior ministers reportedly back UK Prime Min May's draft
Brexit proposal - Sun's Newton Dunn
JCI Confirms to divest Power Solutions business to Brookfield Business Partners
& CDPQ for $13.2B in cash and stock
(IT) Italy Govt publishes letter to the EU: Asks EU for flexibility for
extraordinary events, cites spending for floods and infrastructure after Genoa;
Confident to reach growth targets
(US) US planning to hold off on implementing auto tariffs for now after Trump
meeting
WEDS 11/14
*(DE) GERMANY Q3 PRELIMINARY GDP Q/Q: -0.2% V -0.1%E; GDP Y/Y: 1.1% V 1.3%E
(1st quarterly contraction since Q2 2014)
(EU) Euro Zone Q3 Preliminary GDP Q/Q: 0.2% v 0.2%e; Y/Y: % v 1.7%e
(DE) German Bundesbank: Real estate prices may be 15-30% overvalued, some loan
collateral values may be overestimated
700.HK Reports Q2 (CNY) Net 23.3B v 18.4Be, Rev 80.6B v 80.4Be
M Reports Q3 $0.27 v $0.13e, Rev $5.40B v $5.38Be
(UK) One govt minister says two ministers, Mordaunt and McVey, will resign the
cabinet - UK's Telegraph
(US) House Ways and Means Trade Subcommittee Ranking Member Pascrell (D-NJ):
the new USMCA trade deal can't pass as is
(US) Association of American Railroads weekly rail traffic report for week
ending Nov 14th: 547.2K, +1.4% y/y
(UK) UK PM May will not deliver statement to media on Wednesday evening - UK
police minister
(UK) BBC's Kuenssberg: "Senior Tory tells me Brexiteer anger so high that
seems likely there will be a call for no confidence vote tomorrow"
(UK) PM May reportedly has secured Cabinet support for Brexit deal, at least
for now - UK's Telegraph
(CN) China govt reportedly has sent written response including concessions to
US regarding trade reforms - press
(US) Fed Chair Powell: challenges include how much further to hike and at what
pace; pretty good reason economy stays on healthy track; reiterates all
meetings are live
THURS 11/15
*(ID) INDONESIA CENTRAL BANK (BI) RAISES REVERSE REPO RATE BY 25BPS TO 6.00%;
NOT EXPECTED
*(PH) PHILIPPINES CENTRAL BANK (BSP) RAISES OVERNIGHT BORROWING RATE BY 25BPS
TO 4.75%; AS EXPECTED
*(UK) BREXIT MIN RAAB RESIGNS; cannot support indefinite backstop arrangement
KBH Guides Q4 Housing Rev $1.31-1.34B v $1.43Be, Gross margin 18.3-18.6%, Op
income margin 9.3-9.5% - annual investor presentation
*(UK) OCT RETAIL SALES (EX-AUTO/FUEL) M/M: -0.4% V +0.2%E; Y/Y: 2.7% V 3.4%E
WMT Reports Q3 $1.08 v $1.02e, Rev $124.9B v $124.8Be
*(US) NOV EMPIRE MANUFACTURING: 23.3 V 20.0E
*(US) NOV PHILADELPHIA FED BUSINESS OUTLOOK: 12.9 V 20.0E
FDA issues statement from commissioner on proposed new steps to protect youth
by preventing access to flavored tobacco products and banning menthol in
cigarettes
*(US) DOE CRUDE: +10.3M V +2ME; GASOLINE: -1.4M V -1.5ME; DISTILLATE: -3.6M V
-2ME (biggest rise in crude since Feb 2017)
(US) Atlanta Fed cuts Q4 GDP forecast to 2.8% from 2.9% prior
(CN) US Commerce Sec Ross: still expects eventual China trade deal, but not by
Jan - press
(CN) Commerce Sec Ross: US still plans China tariff boost to 25% in January -
press
AMAT Reports Q4 $0.97 v $0.96e, Rev $4.01B v $4.00Be
NVDA Reports Q3 $1.84 v $1.91e, Rev $3.18B v $3.24Be; Raises Quarterly dividend
6.7% to $0.16 from $0.15 (indicated yield 0.32%)
FRI 11/16
IMB.UK Issues statement on FDA announcement: notes the menthol cigarette ban
proposal would require a multi-year process
*(EU) EURO ZONE OCT FINAL CPI Y/Y: 2.2% V 2.2%E; CPI CORE Y/Y: 1.1% V 1.1%E
(US) Fed Vice Chair Clarida (moderate, voter): no clear signal to take from
stock market volatility; have to pay attention to slowing global growth
*(US) OCT INDUSTRIAL PRODUCTION: 0.1% V 0.2%E; CAPACITY UTILIZATION: 78.4% V
78.2%E
(CN) US President Trump: May not have to impose additional tariffs on China;
China wants to make a deal on trade, but proposal not acceptable yet (FOLLOW
UP: CNBC's Javers: "White House officials tell me that the president was
simply expressing optimism about ongoing negotiations with the Chinese when he
said the US may not have to impose additional tariffs. I’m told we should not
read into that that there is a deal imminent. All eyes still on G20.")
