Tuesday 9/3/19=DJIA -284 NASDAQ -89
We Wake Up to Seemingly all Bad News Today.
Daily Wrap: The end is coming in Hong Kong. The tariffs on Chinese goods took effect on Sunday. China is suing the U.S. through the WTO. Lastly, Hurricane Dorian is looming offshore in Florida.
Trading: I bought one new ETF in my Best Funds Now Portfolio today. I did not do any other trading.
We woke up to almost all bad news today.
- Stocks in Asia were mixed overnight as the latest round of U.S.-China tariffs took effect over the weekend, though the Shanghai Composite advanced 1.3% on better-than-expected manufacturing activity.
- China's State Council also announced more measures to support its economy, saying it attached "great importance" to the development of sectors such as infrastructure, high-tech, and the transformation of traditional industries.
- Amid the latest round of tariffs, U.S. stock index futures fell as much as 1% as investors worried about slowing global growth, but last stood down 0.4%.
- U.S. markets will reopen on Tuesday following the Labor Day holiday.
- Trade war gloom is pointing to a 200-point decline for the DJIA at the open as China lodged a tariff case against the U.S. at the WTO, a day after the world's two largest economies imposed new duties on each other's goods.
- Chinese and U.S. officials are also struggling to agree on scheduling for a planned meeting this month, sources told Bloomberg.
- In Europe, the British pound hit its lowest level in 34 years against the dollar after Boris Johnson warned lawmakers not to thwart his plans for quitting the EU with or without a deal on Oct. 31.
- China has lodged a case with the World Trade Organization over 15% U.S. tariffs that went in effect on Sunday on a variety of goods like footwear, smartwatches and flat-panel TVs.
- The latest tariffs actions violated the consensus reached by leaders of China and the U.S. in a meeting in Osaka, according the Chinese commerce ministry.
But here is what Trump had to say.
- President Trump says the U.S. is "doing very well in our negotiations with China," without giving any details.
- U.S. stock average futures still point to a lower open, with Nasdaq futures down 0.6%, S&P 500 down 0.7%, and Dow futures down 210 points, or 0.8%.
- His tweets that continues to contend that his tariffs' effect on China is incentive for China to reach a deal.
- "While I'm sure they (China) would love to be dealing with a new administration so they could continue their practice of 'ripoff USA' ($600B/year), 16 months PLUS is a long time to be hemorrhaging jobs and companies on a long-shot," he adds.
- These comments follow reports that Chinese and U.S. officials are struggling to agree on scheduling for a planned meeting this month and China submission of a complaint against the U.S. to the World Trade Organization.
Dorian headed up the coast. I am in a mandatory evacuation zone in Mt. Pleasant S.C.
- Hurricane Dorian has been downgraded to a Category 3 storm as it remained stationary over the Bahamas, prolonging the island's battering and killing at least five people.
- The storm is forecast to approach dangerously close to Florida late Tuesday through Wednesday, and then turn north, skirting the coast and coming perilously near Georgia and South Carolina Wednesday night and Thursday.
- UBS analysts have updated their model to reflect a wider potential industry insured loss range of $5B-$40B and raised their base case to $25B from $15B, with solvency capital at risk
Utility stocks continue to do well.
- On its current path, Hurricane Dorian is a $40B-$50B storm, according to Chuck Watson, a disaster modeler with Enki Research, and if Dorian hits Fort Lauderdale and meanders up through Orlando, then it becomes "realistically a $200B event."
- NextEra Energy (NYSE:NEE) subsidiary Florida Power & Light says it has nearly 16K workers ready to respond to power outages and downed power lines and is reaching out to utilities in other states to secure additional crews and equipment.
- FP&L has two nuclear plants on south Florida's Atlantic Coast, the 1,770 MW Turkey Point plant in Homestead and the 2,213 MW St. Lucie plant in Jensen Beach.
- Duke Energy (NYSE:DUK) also has a large presence in Florida, serving 1.8M customers and owning and operating 19 natural gas, solar and coal plants; FP&L serves ~5M customers.
- Among other stocks that could be affected by Dorian, climate risk consulting company Four Twenty Seven identifies Norwegian Cruise Line (NYSE:NCLH), Royal Caribbean Cruises (NYSE:RCL) and Carnival (NYSE:CCL) as having high relative exposure to the region.
- Shares of Home Depot (NYSE:HD) and Lowe's (NYSE:LOW) have benefited in the wake of previous hurricanes as homeowners made purchases to repair damage.
- Freight companies including USA Truck (NASDAQ:USAK), XPO Logistics (NYSE:XPO), Old Dominion Freight (NASDAQ:ODFL) and JB Hunt Transport (NASDAQ:JBHT) may gain on bets they will see rising demand from businesses shipping in materials for rebuilding efforts.
- Regional property insurers with exposure to Florida include United Insurance (NASDAQ:UIHC), HCI Group (NYSE:HCI), Heritage Insurance (NYSE:HRTG), Fednat Holding (NASDAQ:FNHC) and Universal Insurance Holdings (NYSE:UVE).
- Finally, Walt Disney World Resort (NYSE:DIS) says it is operating normally for now but will cancel certain activities due to the upcoming storm.
More bad news from Europe.
- The eurozone's manufacturing recession continued for a seventh month in August, adding pressure on the ECB, which meets on Sept. 12, to add stimulus.
- IHS Markit's Purchasing Managers' Index came in at 47.0, far below the 50-point mark that separates growth from contraction.
- "Prices are falling as companies offer discounts in the face of disappointingly weak demand," said Chris Williamson, chief business economist at IHS. "Payroll numbers are being culled at one of the steepest rates seen over the past six years as companies increasingly seek to cut costs in the uncertain trading environment."
- Euro -0.2% to $1.0970.
Brexit Showdown coming.
- The pound fell 0.7% below $1.20 overnight, hitting its lowest level since October 2016 flash crash, as U.K. lawmakers return from their summer recess on Tuesday afternoon.
- A cross-party group of lawmakers is expected to apply for an emergency debate and seize control of the Brexit agenda of the House of Commons, in a first effort to stop a no-deal Brexit on October 31.
- If parliament votes in favor of the opposition's amendment and allows it to go ahead, Boris Johnson will call a snap general election for October 14.
Chaos in Argentina.
- The spiraling economic crisis in Argentina has prompted the central bank to slap currency controls on businesses after the peso lost more than a quarter of its value since primary elections last month.
- Exporters will face limits of five days to repatriate foreign currency, while institutions will need authorization of the bank to buy dollars in the forex market, except in the case of foreign trade.
- The decision reverses one of the first big achievements of President Macri who removed strict capital controls after taking power in December 2015. The restrictions had prompted the MSCI index to strip Argentina of its status as an emerging market, demoting it to a frontier market.
Not a good indicator for the global economy.
- Iron ore prices just concluded their biggest one-month drop in nearly eight years, reacting to China's faltering steel sector and improving supplies.
- The price fell 27% to $85.85/metric ton by the end of August, the most since October 2011, triggered by global trade tensions after Pres. Trump threatened to impose new tariffs on Chinese goods, some of which went into effect on Sept. 1, although prices have edged up to $91/mt in recent days.
- Both of The primary forces that drove a surge in iron ore prices at the start of 2019 have eased, as Chinese steel production fell in June and July, albeit from record rates, and supplies of iron ore have picked up, particularly from Brazil.
- Global miners are lower in pre-market trade: RIO -1.9%, BHP -1.1%, VALE -1%.
- Meanwhile, BMO Capital upgrades Rio Tinto to Utperfrom from Market Perform, saying the stock is now pricing in an iron price below current levels and trading at an "unwarranted discount" to BHP.
COMPANIES IN TROUBLE
- Harry Markopolos' fraud report on GE (NYSE:GE) fails to make a compelling argument despite headwinds in the company's "messy" long-term care insurance business, according to Deutsche Bank, which maintained its Hold rating on GE.
- "Our aim was to complete an analysis of this broadside, but we find some of its arguments to be weak while others are plainly incorrect," writes analyst Nicole DeBlase. "We find ourselves in the unenviable position of having to defend the reserve adequacy of a business about whose future claim projections we have very deep concerns."
- American Airlines (NASDAQ:AAL) is extending cancellations of Boeing (NYSE:BA) 737 MAX flights through Dec. 3, but remains confident that the aircraft will be cleared to fly again for the Christmas travel season.
- It move follows a similar step by United Airlines, which on Friday said it would take the planes out of its schedule until Dec. 19, while Southwest Airlines - the largest 737 Max customer in the U.S. - has removed the planes from its schedules until early January.
- Regulators haven't said when they expect the planes to take to the skies, but even after they sign off, airline executives have said it will take more than a month for them to make Boeing’s software changes and to train their pilots.
Good news for a few biotechs.
- The Medicines Company (NASDAQ:MDCO) is up 17% premarket on light volume in response to its announcement of positive results from a Phase 3 clinical trial, ORION-11, evaluating inclisiran, administered twice per year, for lowering "bad" cholesterol (LDL-C) in patients with athersclerotic cardiovascular disease (ACSVD) with elevated LDL-C despite maximum dose LDL-C-lowering treatment. The data were presented at the ESC Congress in Paris.
- The study met all primary and secondary endpoints with a favorable safety profile. Placebo-adjusted LDC-C reduction was 54% at day 510 (p<0.0001).
- The rates of fatal and non-fatal myocardial infarctions (heart attacks) and fatal and non-fatal strokes were higher in the inclisiran cohort (2.7% and 1.0.%, respectively) compared to placebo (1.2% and 0.2%, respectively).
- On the safety front, the proportions of patients experiencing at least one serious treatment-emergent adverse event were similar between the inclisiran arm (22.5%) and control arm (22.3%).
- The data will be submitted for publication. Topline data from ORION-9 and ORION-10 should be available later this month. Marketing applications will be filed in the U.S. in Q4 and in Europe in Q1 2020.
- Inclisiran is an investigational GalNAc-conjugated RNAi therapeutic targeting PCSK9, a protein regulator of LDL receptor metabolism. In contrast to PCSK9 inhibitors (like Amgen's Repatha and Regeneron and Sanofi's Praluent), PCSK9si works by turning off PCSK9 synthesis in the liver. MDCO is collaborating with Alnylam Pharmaceuticals (NASDAQ:ALNY) on its development under a 2013 agreement.
- Boehringer Ingelheim plans to initiate Phase 2 development of the GLP-1/glucagon dual agonist BI 456906, which was in-licensed from Zealand Pharma (NASDAQ:ZEAL).
- The dual agonist BI 456906 is a part of Boehringer Ingelheim’s pipeline portfolio in the obesity and diabetes disease areas.
- The Phase 2 trial for BI 456906 is expected to be initiated in late 2019 and will trigger a €20M milestone payment to Zealand Pharma out of total outstanding potential milestone payments of €365M and high single to low double digit royalties on future sales.
- ZEAL shares are up 10% premarket.
LRCX is looking better and better. It is currently a Best Stock Now, but I do not have a position in it.
- Evercore analyst C.J. Muse upgrades Lam Research (NASDAQ:LRCX) from In-Line to Outperform and lifts the target from $195 to $250.
- Muse says Lam is "too high quality, too cheap, and too primed for a snapback to ignore."
- The upgrade was part of a broader semi equipment call that also included KLA-Tencor.
- Lam Research shares are mostly flat pre-market at $210.56. The company has an Outperform average Sell Side rating.
Square gets to new bulls.
- Square (NYSE:SQ) gains 1.3% in premarket trading after MoffettNathanson and SunTrust analysts boosted their ratings to buy from neutral.
- Square's stock decline in recent weeks triggered MoffettNathanson's upgrade as the company's Caviar sale and larger-than-expected scale of Cash App brightened its outlook, analyst Lisa Ellis writes.
- In the past six months, Square has declined 24% vs. information technology median performance of -1.1% during that same period.
- She notes other buy-rated stocks may largely "grind higher", though they lack catalysts; those include Visa (NYSE:V), Mastercard (NYSE:MA), Fidelity National Information Services (NYSE:FIS), Fiserv (NASDAQ:FISV), Automatic Data Processing (NASDAQ:ADP), and Accenture (NYSE:ACN).
- SunTrust's Andrew Jeffrey sees Square investing to address "complex" retail and restaurants, a move that should improve its "capabilities for large, inventory-intensive retailers.
- Sees sale of Caviar in first step in re-positioning.
- Quant rating for Square is Neutral; before these actions, Sell-Side average rating was Hold (9 Buy, 6 Outperform, 18 Hold, 1 Underperform, 3 Sell).
China loves Costco.
- Costco (NASDAQ:COST) plans to open a second store in Shanghai after seeing huge traffic at its first store opening in the city.
- The retailer hopes to start the construction as soon as possible.
- Costco CEO Richard Galanti says the company is optimistic about the future of the brand in China.
- Shares of Costco are down 0.68% premarket to $292.75 vs. the 52-week trading range of $189.51 to $299.95.
Amazon Stock had a good day. I agree with RBC.
- RBC analyst Mark Mahaney raises his Amazon (NASDAQ:AMZN) price target from $2,250 to $2,600.
- Mahaney cites the expected growth acceleration from the one-day shipping offer.
- Amazon shares are down 0.5% pre-market to $1,768. AMZN has a Buy average Sell Side rating.
I remain an Adobe bull also.
- Stephens’ analyst James Rutherford writes that “price tests of this magnitude are only conducted if Adobe (ADBE +0.8%) is serious about possibly raising the price permanently.”
- The analyst is referring to Adobe testing a 30% price increase for individual and business Acrobat packages.
- Rutherford sees risks in the tests since "customers may become upset when they see they bought at the higher price needlessly."
- Stephens maintains an Overweight rating and $327 target on Adobe. The company has an Outperform average Sell Side rating.
I like Dollar Tree too.
- Bank of America Merrill Lynch reiterates a Buy rating on Dollar Tree (DLTR +3.2%) following the firm's Q2 earnings update.
- The analyst team points to the Family Dollar turnaround efforts and visibility for accelerating FDO comparable sales growth. FY20 EPS of $5.07 is anticipated vs. DLTR's upped guidance range of $4.90 to $5.11 and $5.15 consensus.
- The sell-side consensus on Dollar Tree is Outperform, while the Quant Rating sits at Neutral.