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US Morning Briefing Aug 15th 2019

Walmart report transcends volatile pre-market session

The S&P 500 futures trade 15 points, or 0.5%, above fair value in a volatile pre-market session. Futures were pulled lower after China threatened to retaliate against the upcoming 10% tariff rate on Chinese imports, but solid results and guidance from Walmart (WMT 112.71, +6.51, +6.1%) has lifted futures back into positive territory. 

The market is presumably trying to find its footing after a sharp 3% sell-off yesterday that was attributed to recessionary fears. China added to those worries this morning, but it didn’t provide any specific details related to countermeasures. Instead, Wal-Mart has given the market some reassurance that consumer spending remains resilient, which has outweighed the disappointing guidance from Cisco Systems (CSCO 46.38, -4.23, -8.4%).

A wide range of economic data will be released today, which will feature Retail Sales for July (Briefing.com consensus 0.3%) at 8:30 a.m. ET.

The weekly Initial Claims (Briefing.com consensus 215,000) and Continuing Claims report, the Empire State Manufacturing Index for August (Briefing.com consensus 1.1), the Philadelphia Fed Index for August (Briefing.com consensus 10.0), and the preliminary Q2 readings for Productivity (Briefing.com consensus 1.3%) and Unit Labor Costs (Briefing.com consensus 1.6%) will also be released at 8:30 a.m. ET.

In addition, Industrial Production (Briefing.com consensus 0.1%) and Capacity Utilization (Briefing.com consensus 77.8%) for July will be released at 9:15 a.m. ET, followed by Business Inventories for June (Briefing.com consensus 0.1%) at 10:00 a.m. ET and Net Long-Term TIC Flows for June at 4:00 p.m. ET. 

The U.S. Treasury market continues to see increased demand, driving yields even lower across the curve. Currently, the 2-yr yield down five basis points to 1.53% and the 10-yr yield down four basis points to 1.54%. The U.S. Dollar Index is down 0.1% to 97.88. WTI crude is down 1.1% to $54.61/bbl. 

In U.S. Corporate news:

  • Cisco Systems (CSCO 46.38, -4.23): -8.4% after guiding Q1 EPS and revenue below consensus. Its earnings results came in better than expected. 
  • Walmart (WMT 112.71, +6.51): +6.1% after beating earnings and comparable sales estimates and raising its full-year EPS guidance. 
  • General Electric (GE 8.68, -0.33): -3.7% after Bernie Madoff whistleblower Harry Markopolos issued a critical report on GE’s accounting.
  • Tapestry (TPR 23.51, -1.49): -6.0% after missing revenue estimates and issuing disappointing guidance. 

Reviewing overnight developments:

  • Equity indices in the Asia-Pacific region ended Thursday on a mixed note. Japan’s Nikkei -1.2%, Hong Kong’s Hang Seng +0.8%, China’s Shanghai Composite +0.3%, India’s Sensex CLOSED, South Korea’s Kospi CLOSED, Australia’s ASX All Ordinaries -2.8%.
    • In economic data:
      • China’s July House Prices +9.7% yr/yr (last 10.3%)
      • Japan’s June Industrial Production -3.3% m/m (expected -3.6%; last -3.6%) and Capacity Utilization -2.6% m/m (expected 0.2%; last 1.7%)
      • Australia’s July Employment Change 41,100 (expected 14,000; last 500) and Full Employment Change 34,500 (last 21,100). July Participation Rate 66.1% (expected 66.0%; last 66.0%) and July Unemployment Rate 5.2%, as expected (last 5.2%)
    • In news:
      • The People’s Bank of China fixed the yuan at a slightly higher level for the second day in a row.
      • South China Morning Post quoted a Chinese government adviser as saying that protest in Hong Kong do not warrant direct intervention yet due to a high risk of damaging international relations.
      • Australia reported better than expected employment figures for July, but expectations for more rate cuts remain in place.
  • Major European indices trade lower across the board while Italy’s MIB is closed for Assumption Day. STOXX Europe 600 -1.0%, Germany’s DAX -1.3%, U.K.’s FTSE 100 -1.4%, France’s CAC 40 -0.9%, Italy’s FTSE MIB CLOSED, Spain’s IBEX 35 -0.9%.
    • In economic data:
      • U.K.’s July Retail Sales +0.2% m/m (expected -0.2%; last 0.9%); +3.3% yr/yr (expected 2.6%; last 3.8%). July Core Retail Sales +0.2% m/m (expected -0.2%; last 0.8%); +2.9% yr/yr (expected 2.3%; last 3.6%)
      • Swiss July PPI -0.1% m/m (expected -0.2%; last -0.5%); -1.7% yr/yr (expected -1.5%; last -1.4%)
    • In news:
      • In the U.K., Labour’s Jeremy Corbyn is reportedly trying to rally other parties to support a no-confidence motion against Prime Minister Boris Johnson.
      • Shipper Maersk reported better than expected results for Q2. Shares of Deutsche Bank are on the verge of falling to a fresh record low in Frankfurt.

U.S. equity futures:

  • S&P 500 Futures +15 @ 2856
  • DJIA Futures +128 @ 25583
  • Nasdaq Futures +36 @ 7524

Overseas: 

  • Europe: DAX -1.3%, FTSE -1.4%, CAC -0.9%
  • Asia: Nikkei -1.2%, Hang Seng +0.8%, Shanghai +0.3%

Commodities: 

  • Crude Oil -0.80 @ 54.43
  • Nat Gas +0.020 @ 2.163
  • Gold -1.80 @ 1526.00
  • Silver -0.08 @ 17.20
  • Copper -0.01 @ 2.58

U.S. Summary:

  • Earnings/Guidance:
    • Agilent (A) beats by $0.04, beats on revs; guides Q4 EPS below consensus, revs in-line; raises FY19 EPS above consensus, revs in-line
    • Alibaba (BABA) beats by RMB2.09, beats on revs
    • CACI Intl (CACI) misses by $0.21, reports revs in-line; reaffirms FY20 EPS and revs guidance
    • Canadian Solar (CSIQ) beats by $0.42, beats on revs; reaffirms FY19 revs guidance; Q2 shipments above guidance; raises FY19 shipment guidance
    • Cisco Systems (CSCO) beats by $0.01, reports revs in-line; guides Q1 EPS below consensus, revs below consensus
    • J. C. Penney (JCP) beats by $0.13, misses on revs; sees FY20 comp sales (7.0%) – (8.0%)
    • NetApp (NTAP) beats by $0.07, reports revs in-line; guides OctQ EPS above consensus, revs in-line; reaffirms FY20 revs guidance; maintains dividend
    • Tapestry (TPR) reports EPS in-line, misses on revs; guides Q1 EPS below consensus, revs below consensus; guides FY20 EPS below consensus, revs in-line
    • Vipshop (VIPS) beats by RMB0.52, reports revs in-line; guides Q3 revs in-line
    • Wal-Mart (WMT) beats by $0.05, reports slightly ahead of estimates; Q2 comps of +2.8% beat estimates; raises FY20 EPS guidance
  • General News:
    • China has threatened retaliation against US for $300 bln tariff tranche and says tariffs “seriously violated the consensus between the heads of state of the two countries”
    • Alibaba (BABA) co-founder Joseph Tsai is close to purchasing the remaining stake in Brooklyn Nets, according to Reuters
    • FAA could soon recommend that pilots do not need Boeing (BA) 737 Max 8 simulator training, according to Bloomberg; Boeing aims to delay ultra-long 777x, according to Reuters
    • Capital One (COF) hacker also compromised 30 other targets, according to The Wall Street Journal
    • E*TRADE (ETFC) announces COO Mike Pizzi will assume CEO role effective immediately
    • General Electric (GE) dropping in early trade as Bernie Madoff whistleblower Harry Markopolos issues critical report on GE’s accounting, according to The Wall Street Journal
  • M&A:
    • Accenture (ACN) to acquire Analytics8; terms not disclosed
    • Pivotal Software (PVTL) confirms discussions with VMware (VMW) for possible combination; VMW in talks to acquire for $15.00 per share
  • Syndicate:
    • ACM Research (ACMR) prices underwritten public offering of 1,785,715 shares of its Class A common stock at a public offering price of $14.00 per share
    • Deciphera Pharmaceuticals (DCPH) prices underwritten public offering of 10,810,810 shares of its common stock at a price to the public of $37.00 per share
    • Wayfair (W) prices $825 million aggregate principal amount of 1.00% convertible senior notes due 2026 in a private offering
  • IPOs:
    • Priced to trade:
      • CrossFirst Bankshares (Nasdaq: CFB): Kansas corporation and registered bank holding company with total assets of $4.5 bln. Prices 7.011 mln share IPO at $14.50 per share, below the expected $15-17 per share range
    • Expected This Week
      • 9F (NYSE: JFU): Leading digital financial account platform integrating and personalizing financial services in China [Planning to offer 8.9 mln ADS between $7.50-9.50]
      • WiMi Hologram Cloud (Nasdaq: WIMI): Provider of augmented reality-based holographic services and products [Planning to offer 4 mln shares between $7.50-9.50]

Gapping Up/Down

  • Gapping up: PVTL +65.7%, SPTN +14.7%, A +8.2%, VIPS +7.8%, NTAP +2.8%, PRSP +2.8%, RPAY +1.9%, JE +1.6%, STNE +1.3%, SGMS +1.2%
  • Gapping down: CGC -13.6%, CSCO -9.5%, AEG -6.8%, CACI -5.4%, VMW -3.7%, ACB -3.3%, TLRY -2.7%, DELL -2.5%, NBEV -2%, CRON -1.6%, GFI -1.4%, AMZN -1.3%, OGI -1.1%, QGEN-0.8%, BRK.B -0.6%, LOW -0.6%

Analyst Research:

  • Upgrades:
    • Elanco Animal Health (ELAN) upgraded to Neutral from Sell at UBS; tgt lowered to $30
    • Essex Property (ESS) upgraded to Buy from Neutral at BTIG Research; tgt $335
    • Levi Strauss (LEVI) upgraded to Buy from Neutral at BofA/Merrill; tgt lowered to $20
    • The Children’s Place (PLCE) upgraded to Buy from Hold at Deutsche Bank; tgt $103
  • Downgrades:
    • Autodesk (ADSK) downgraded to Hold from Buy at Deutsche Bank; tgt lowered to $165
    • Evergy (EVRG) downgraded to Market Perform from Outperform at Wells Fargo
    • Host Hotels (HST) downgraded to Neutral from Buy at BTIG Research
    • NetApp (NTAP) downgraded to Hold from Buy at Summit Insights
    • Paychex (PAYX) downgraded to Underweight from Equal-Weight at Morgan Stanley; tgt lowered to $74
    • Pebblebrook Hotel Trust (PEB) downgraded to Neutral from Buy at BTIG Research
    • Sonic Automotive (SAH) downgraded to Neutral from Buy at BofA/Merrill Lynch; tgt raised to $29
  • Others:
    • Caterpillar (CAT) initiated with Underweight at Stephens
    • Seaspan (SSW) initiated with a Market Perform at BMO Capital Markets; tgt $10.50
    • Slack (WORK) initiated with Market Perform at Bernstein

Upcoming Events:

  • Econ Data:
    • 08:30 ET: Initial Claims for week ending Aug. 10 (Briefing.com consensus 215K; Prior 209K)
    • 08:30 ET: Continuing Claims for week ending Aug. 3 (Prior 1684K)
    • 08:30 ET: Retail Sales for July (Briefing.com consensus 0.3%; Prior 0.4%)
    • 08:30 ET: Retail Sales, ex-Auto, for July (Briefing.com consensus 0.3%; Prior 0.4%)
    • 08:30 ET: Empire State Manufacturing for August (Briefing.com consensus 1.1; Prior 4.3)
    • 08:30 ET: Philadelphia Fed Index for August (Briefing.com consensus 10.0; Prior 21.8)
    • 08:30 ET: Q2 Productivity – Prelim (Briefing.com consensus 1.3%; Prior 3.4%)
    • 08:30 ET: Q2 Unit Labor Costs – Prelim (Briefing.com consensus 1.6%; Prior -1.6%)
    • 09:15 ET: Industrial Production for July (Briefing.com consensus 0.1%; Prior 0.0%)
    • 09:15 ET: Capacity Utilization for July (Briefing.com consensus 77.8%; Prior 77.9%)
    • 10:00 ET: Business Inventories for June (Briefing.com consensus 0.1%; Prior 0.3%)
    • 10:30 ET: EIA Natural Gas Inventories for week ending Aug. 10 (Prior +55 bcf)
    • 16:00 ET: Net Long-Term TIC Flows for June (Prior $3.5B)
  • Earnings:
    • Monday (August 12)
      • After-Hours: BE, TME, VFF
    • Tuesday (August 13)
      • Pre-Market: AAP, AVYA, BEST, CVET, EAT, ELAN, GDS, IIVI, JD, PSN, RUBY
      • After-Hours: ADPT, BILI, CDK, GO, HUYA, MYGN, PSNL, TLRY, YY
    • Wednesday (August 14)
      • Pre-Market: AIT, CAE, ERJ, GOOS, LK, M, PFGC
      • After-Hours: A, CACI, CGC, CSCO, HOLI, NTAP, PRSP, SPTN, VIPS
    • Thursday (August 15)
      • Pre-Market: BABA, BGG, CSIQ, JCP, TPR, WMT
      • After-Hours: AMAT, CRMT, GLOB, NVDA, PAGS, VIAV, ZTO
    • Friday (August 16)
      • Pre-Market: DE, QD
      • After-Hours: None of note

Asia & Europe detail:

Asia: Nikkei -1.2%, Hang Seng +0.8%, Shanghai +0.3%

Equity indices in the Asia-Pacific region ended Thursday on a mixed note. The People’s Bank of China fixed the yuan at a slightly higher level for the second day in a row. South China Morning Post quoted a Chinese government adviser as saying that protest in Hong Kong does not warrant direct intervention yet due to a high risk of damaging international relations. Australia reported better than expected employment figures for July, but expectations for more rate cuts remain in place.

  • In economic data:
    • China’s July House Prices +9.7% yr/yr (last 10.3%)
    • Japan’s June Industrial Production -3.3% m/m (expected -3.6%; last -3.6%) and Capacity Utilization -2.6% m/m (expected 0.2%; last 1.7%)
    • Australia’s July Employment Change 41,100 (expected 14,000; last 500) and Full Employment Change 34,500 (last 21,100). July Participation Rate 66.1% (expected 66.0%; last 66.0%) and July Unemployment Rate 5.2%, as expected (last 5.2%)

—Equity Markets—

  • Japan’s Nikkei: -1.2%
  • Hong Kong’s Hang Seng: +0.8%
  • China’s Shanghai Composite: +0.3%
  • India’s Sensex: CLOSED
  • South Korea’s Kospi: CLOSED
  • Australia’s ASX All Ordinaries: -2.8%

—FX—

  • USD/JPY: UNCH at 105.77
  • USD/CNH: +0.1% to 7.0622
  • USD/INR: UNCH at 71.30

Europe: DAX -1.3%, FTSE -1.4%, CAC -0.9%

Major European indices trade lower across the board while Italy’s MIB is closed for Assumption Day. In the U.K., Labour’s Jeremy Corbyn is reportedly trying to rally other parties to support a no-confidence motion against Prime Minister Boris Johnson. Shipper Maersk reported better than expected results for Q2. Shares of Deutsche Bank are on the verge of falling to a fresh record low in Frankfurt.

  • In economic data:
    • U.K.’s July Retail Sales +0.2% m/m (expected -0.2%; last 0.9%); +3.3% yr/yr (expected 2.6%; last 3.8%). July Core Retail Sales +0.2% m/m (expected -0.2%; last 0.8%); +2.9% yr/yr (expected 2.3%; last 3.6%)
    • Swiss July PPI -0.1% m/m (expected -0.2%; last -0.5%); -1.7% yr/yr (expected -1.5%; last -1.4%)

—Equity Markets—

  • STOXX Europe 600: -1.0%
  • Germany’s DAX: -1.3%
  • U.K.’s FTSE 100: -1.4%
  • France’s CAC 40: -0.9%
  • Italy’s FTSE MIB: CLOSED
  • Spain’s IBEX 35: -0.9%

—FX—

  • EUR/USD: +0.2% to 1.1157
  • GBP/USD: +0.4% to 1.2111
  • USD/CHF: UNCH at 0.9732
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