Wed. 9/18/19=DJIA +36 NASDAQ -8 Oil -$1.37
U.S. 10yr=1.76% (-0.05%)
The FED Underwhelms the Market.
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Daily Wrap: The market was very quiet today while it waited for the latest Fed announcement. Then, all hell broke loose. The market got what it wanted, a quarter point rate cut, but wanted to hear that another rate was coming. The market can be ridiculous at time. It just got a hot cookie out of the oven and was immediately concerned about the next one before enjoying the it just got.
The market feels that Fed Funds Rates should be below the current rate on the U.S. Treasury. The ten-year is currently trading at around 1.75% and Fed Funds Rates are at 2.00%. In other words, the FED is behind the curve. It does not seem to be too concerned about this, however. It would also seem that barring some economic jolt to the downside between now and the next meeting, they have very little inclination to cut rates again.
I read into their statement that they do not want the market expecting a rate cut the next time around. Risk-on stocks sold off today after two very solid days in a row. The bond market rallied today. President Trump was obviously not happy with the underwhelming action of the Fed today.
Here was the mood of the market as we began a new trading day.
Futures steady with FOMC in limelight
• The Fed is expected to trim interest rates today for the second time in 2019 (and since the financial crisis), but the question is whether Jerome Powell will give markets what they want to hear regarding plans for future cuts.
• While economic data in the U.S. has been stronger than expected, the central bank is attempting to buy an insurance policy against slowing growth due to fallout from the U.S.-China trade war, Brexit and geopolitical tensions.
• Mid-cycle adjustment or second step in an easing cycle? Traders are holding their breath ahead of the statement from Powell, and accompanying dot plot, with U.S. stock index futures hugging the flatline.
Global markets steady ahead of Fed meeting
• Japan -0.18%.
• Hong Kong -0.13%.
• China +0.25%.
• India +0.31%.
• London +0.21%.
• Paris +0.11%.
• Frankfurt +0.14%.
The situation in Saudi Arabia was not as bad as originally expected.
Saudi energy minister says oil output to return to normal by end-September
• U.S. WTI October crude oil (NYSEARCA:USO) settled -5.7% to $59.34/bbl, near its lows of the day following news that Saudi energy minister bin Salman said oil production capabilities were fully restored and that oil output will return to pre-attack levels by the end of this month.
• Half of the oil production loss from the attack has been restored, bin Salman says, adding that production capacity would reach 10M bbl/day by the end of September and 12M bbl/day by the end of November.
• "Geopolitical events have a historic tendency of exaggerated initial impact in markets, with a smaller economic and market impact emerging over a short period of time," says Citigroup chief investment strategist Steven Wieting. "The degree of any escalation with Iran is the more critical issue for longer-lasting supply risks."
Bad omen for the economy or is it just a FedEx problem?
FedEx EPS misses by $0.11, revenue in-line
• FedEx (NYSE:FDX): Q1 Non-GAAP EPS of $3.05 misses by $0.11; GAAP EPS of $2.84 misses by $0.09.
• Revenue of $17.05B in-line (flat Y/Y).
• Shares -4.7%.
Another good report on the U.S. economy.
Housing starts blast through estimates
• August Housing Starts: +12.3% M/M to 1.364M vs. 1.251M expected, 1.215M prior (revised from 1.241M).
• Building permits 1.419M vs. 1.300M expected and 1.317M prior (revised from 1.336M)
• The big gain in starts came alongside a major drop in interest rates this summer, with the 10-year yield moving from about 2.5% in May to under 1.5% at the end of August.
It is not China.
Japan remains biggest holder of U.S. government debt in July
• Japan stays the biggest foreign holder of U.S. Treasury securities with $1.13T at the end of July 2019, up from $1.12T at the end of June.
• China, which until June was the largest foreign holder of U.S. government debt, held $1.11T of U.S. Treasury securities at July end, little changed from June and May.
• United Kingdom's holdings of U.S. government debt slipped to $334.7B from $341.1B in June.
A lot of business out there for planemakers.
Boeing forecasts China will need 8K-plus new planes by 2038
• Boeing (BA +0.4%) predicts China will soon become the world's largest aviation market and need 8,090 new planes over the next 20 years, worth nearly $1.3T based on current list prices.
• Associated services to maintain fleets will be even larger at $1.6T, meaning nearly $3T worth of business could be up for grabs.
• Broken down, Boeing projects China will need 5,960 new single-aisle airplanes through 2038, representing 74% of total new deliveries, while China's widebody fleet will need 1,780 new planes, tripling the country's current widebody fleet size.
• Globally, Boeing forecasts $6.8T worth of airplane sales by 2038 with another $9.1T in services.
Another blow for Juul.
India bans e-cigarettes
• India announces a ban on the production, import and distribution electronic cigarettes.
• "The decision was made keeping in mind the impact that e-cigarettes have on the youth of today," states Finance Minister Nirmala Sitharaman.
• The ban will be issued through an executive order and is reported to include up to a three-year jail term for offenders.
• Juul (NYSE:MO) and Philip Morris International (NYSE:PM) both hoped to launch electronic cigarettes businesses in the nation.
• The decision by India could have a cascading effect in other parts of Asia amid reports of vaping epidemics.
Juul sales halted on Chinese websites
• Juul's (JUUL) sales have been halted on JD.com and Tmall, just days after the products were launched.
• "We look forward to continued dialogue with stakeholders so that we can make our products available again," said Victoria Davis, a Juul spokeswoman.
• It's official! New York has also become the second state to ban flavored e-cigarettes after its governor called for emergency action in response to concerns about a vaping epidemic.
Homebuilders are one of the leading sectors in the market right now.
Beazer Homes July-August sales up 12.5%
• Beazer Homes USA (NYSE:BZH) sales for the first two months of its fiscal Q4 rose 12.5% Y/Y.
• Sales per community per month rose to 3.0 from 2.7 in the year-ago period.
• Beazer sees fiscal Q4 backlog conversion ratio to be similar to Q4 2018.
• BZH rises 0.4% in premarket trading.
• The company will report full Q4 2019 results in November.
• Previously: Beazer Homes EPS beats by $0.21, beats on revenue (Aug. 1)
Apple hits one-trillion in market cap once again this morning.
Apple iPhone 11 pre-orders show strength
• Pre-orders for Apple's (NASDAQ:AAPL) iPhone 11 are strong in Taiwan thanks to the device pricing and local promotional campaigns, according to Digitimes sources.
• Demand for the iPhone 11 Pro 256GB and iPhone Pro Max accounted for 70% of pre-orders with the remainder going to the iPhone 11.
• But printed circuit board (PCB) makers in the iPhone supply chain say order visibility into this year's lineup won't clear up until early next month.
• Related: Last week, bearish Rosenblatt analyst Jun Zhang said the iPhone 11 would likely have weak pre-orders in the U.S. and China.
Heavy profit-taking in ROKU today as more and more streaming services are announced by competitors.
Roku target boosted on international potential
• Guggenheim raises its Roku (NASDAQ:ROKU) target from $119 to $170 and maintains a Buy rating. The company has an Outperform average Sell Side rating.
• Analyst Michael Morris cites the international growth potential for the streaming video platform. Morris sees the international expansion as "under-appreciated" with the potential to "drive significant economic growth and create value."
• ROKU shares are down 0.3% pre-market to $150.10.
I expect it too.
Cowen expects more outperformance from Lululemon
• Cowen walks away from a meeting with Lululemon (LULU +0.9%) management confident in its Outperform rating on the retailer.
• The bra business and loyalty program are seen as two strong catalysts for Lululemon.
• "Our confidence in the product cycle, emerging opportunities and management's vision for the brand continues to rise. Raising 2020 price target to $235, 35x FY21E EPS. The brand and community based model underpins a return on capital structure that is higher than any business in N. American retail," notes analyst John Kernan.
• Cowen's price target of $235 is above the 52-week high of $204.44 and consensus sell-side PT of $209.33.
A slight disappointment from Adobe.
Adobe -3.6% on downside Q4 view
• Adobe (NASDAQ:ADBE) -3.6% reports Q3 beats with downside Q4 guidance.
• Revenue breakdown: Digital Media, $1.96B (+22% Y/Y), which includes $1.65B in Creative and $307M in Document Cloud; Digital Experience, $821M (+34%).
• Operating income was up 25% Y/Y to $1.15B (consensus: $1.11B).
• R&D expenses were up 23% to $489.8M.
• Q4 outlook has revenue of about $2.97B (consensus: $3.02B) with Digital Media +20% Y/Y and Digital Experience up 23%. The Q4 EPS view of $2.25 came in under the $2.30 estimate.
• Earnings call is scheduled for 5 PM ET with a webcast here.
BMO cuts Adobe target after earnings
• BMO lowers its Adobe (NASDAQ:ADBE) target from $315 to $310 after yesterday's earnings report.
• The firm cites the lowered FY19 Digital Experience guidance and downside Q4 outlook.
• BMO maintains an Outperform rating and praises ADBE's solid billings growth in the quarter.
• Adobe shares are down 2.8% pre-market to $276.73. The company has an Outperform average Sell Side rating.
I featured DexCom on my show today.
New operating chief at DexCom
• DexCom (NASDAQ:DXCM) adds the role of Chief Operating Officer to CFO Quentin Blackford's responsibilities. He will oversee the company's global supply chain, manufacturing and expansion into new markets.
• to expand rollout in 2020.