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Global stocks are dropping in early morning trading on rumors that China is looking to cool the rally in Chinese stocks

Mar 08, 2019

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Market data as of 7am EST

 

US Stocks

  • US stocks index futures are edging down in pre-market trading with front-month Dow Jones minis –0.22%, S&P 500 minis –0.14% and Nasdaq 100 minis –0.16% 
  • If the current trend holds today, this week will have been the worst week for global stocks since December 
  • Change in Non-Farm Payrolls for February is set to be released at 8:30am this morning.  Market forecasts are for +180k after +304k in January. 
  • Citic Securities, the largest Chinese brokerage in China, recommends its clients sell People’s Insurance Company of China, one of the top performing A-shares stocks in the Shanghai Composite.  Traders are concluding this downgrade was authorized by government officials and that officials in Beijing would like to cool the current rally in Chinese stocks. 
  • While the current bull market is the longest on record, adding nearly USD$20 trillion in value, the annualized return for the S&P 500 including dividends still trails 11 of the 12 bull market advances since the Great Depression.  The current bull market is only one of 2 major market rallies not to average an annualized return of 20%.  The other is the October 1990 – March 2000 bull market. 
  • Deutsche Bank is out arguing that investor worries about a rise in US corporate borrowing is unwarranted.  Net debt (Total debt minus cash on the balance sheet) is near highs reached in 2008, 2001 and the 1990s...it peaked at 37.2% of GDP in 2Q of CY2018.  However, according to Deutsche Bank’s research, leverage ratios like assets/equity or debt/equity are not high. 
  • The VIX is  moving down this morning and is currently at 14.37 after closing at 16.59 yesterday
  • Eli Lilly (LLY) March 15 OTM Calls & Puts and SPY March 8 & March 15 OTM Calls & Puts are some of the most heavily traded options in the US pre-market this morning. 
  • US 10-Year Treasury Bonds are flat with yields little changed 0 basis points to 2.6393%
  • The US Treasury 2s-10s Spread has widened 0.63 basis points to 0.17%
  • WTI Crude is currently up 0.78% to USD$56.66/bbl with the Brent-WTI spread down USD$-2.26 to USD$7.91/bbl
  • Gold is currently up 0.61% to USD$1293.41/oz

Stocks Trending in the News

 

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Global Consumer Stocks Trending in the News

  • American Eagle’s (AEO) weak first quarter guidance is a temporary situation that will revert by the second quarter, according to Telsey Advisory.  American Eagle’s spending in the first quarter will deliver better EPS for the remainder of 2019.  Telsey highlights a number of positives for the stock that far outweighs the temporary weakness expected in the first quarter, including continued strength in denim and the Aerie brand.  American Eagle is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Attractive” in our US Consumer Discretionary Global Top Stock Ideas.
  • Berry Group (BERY) has agreed to acquire RPC Group Plc (LSE:RPC) for 3.34 billion pounds (USD$4.4 billion) which will create one of the largest plastic packaging companies in the world.  Berry Group beat out a rival bid from Apollo Management (APO).  Berry Group was a holding of Apollo in the past only to be a competitor for acquisition targets now.  Berry Group is rated “Top Buy” in our US Large-Cap Global Top Stock Ideas.  RPC Group is rated “Attractive” in our United Kingdom All-Cap Global Top Stock Ideas.  Apollo Management is rated “Neutral” in our US SMID-Cap Global Top Stock Ideas.
  • Big Lots (BIG) reported fourth quarter adjusted EPS of USD$2.68, beating consensus of USD$2.30.  Fourth quarter revenue of USD$1.6 billion came in line with USD$1.6 billion consensus.  Same store sales growth of 3.1% came well above 1% consensus.  Big Lots gave first quarter EPS guidance of USD0.65-0.75, below present consensus of USD$0.95.  Big Lots is rated “Attractive” in our US Large-Cap Global Top Stock Ideas and “Top Buy” in our US Consumer Discretionary Global Top Stock Ideas.
  • Kroger’s (KR) lackluster fourth quarter results have weighed on the stock with analysts highlighting its turnaround initiative is not going so smoothly.  Kroger is in the midst of a program that is overhauling how it uses shelf space in its stores.  Kroger is also working to build out its delivery service at the same time so disruptions to its results are not such a surprise to many.  Kroger is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Attractive” in our US Consumer Discretionary Global Top Stock Ideas.
  • Tesla (TSLA) has secured up to USD$521 million in a syndicated loan for its new Chinese factory.  Tesla CEO Elon Musk previously said Telsa would need about USD$500 million to open its factory in China and this announcement should be sufficient to build the car and battery manufacturing facilities planned.  Tesla broke ground on the factory on January 7th and plans to start production before the year-end.  Tesla is rated “Top Short” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Consumer Discretionary Global Top Stock Ideas.

Global Information Technology & Communication Services Stocks Trending in the News

  • Alibaba (BABA) and Ant Financial, one of its units, will create a joint steering committee, according to a report in Bloomberg.  The committee will be headed by Alibaba and will be tasked with finding joint ventures for the 2 to work together on.  The committee will also ensure both companies long-term interests are aligned.  The committee will hold executives accountable in the event that is not the case.  Alibaba is rated “Top Buy” in our China All-Cap Global Top Stock Ideas. 
  • Xerox (XRX) said its board has approved a reorganization of its corporate structure into a holding company.  The change will allow Xerox greater strategic, operational and financial flexibility. Holders of Xerox will receive an equal number of shares in the holding company with the change being implemented mid-2019.  Xerox is rated “Attractive” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Information Technology Global Top Stock Ideas.

Global Financials Stocks Trending in the News

  • Deutsche Bank (DB:DBK)  and Commerzbank (DB:CBK) have intensified their merger talks, according to a report in Bloomberg.  The report says the talks are still informal at this point and the boards have not given the mandate to start the process, yet.  The Finance Ministry has previously indicated its desire to see the two banks merge for the benefit of its small and mid-sized clients that are the backbone of the German economy, the report adds.  Deutsche Bank is rated “Unattractive” in our European Large-Cap Global Top Stock Ideas.  Commerzbank is rated “Unattractive” in our European Large-Cap Global Top Stock Ideas.
  • Futu Holding (FHL), an online Chinese broker backed by Tencent (TCEHY, SEHK: 700), completed its IPO raising USD$90 million.  Futu priced its IPO at USD$12, the top of the range it mentioned during pre-pricing meetings.  Futu helps Chinese investors trade overseas and is the fourth largest broker in Honk Kong.  Tencent is rated “Neutral” in our China All-Cap Global Top Stock Ideas.  Futu Holdings is not rated in our Global Top Stock Ideas.

Global Industrials Stocks Trending in the News

  • American Airlines (AAL) was forced to pull 14 of its 304 Boeing (BA) 737-800s after it discovered a third-party contractor has not properly secured overhead bins. American Airlines said the contractor’s work “was not up to our standards”.  American highlighted that there was no effect on flight safety as it had to cancel 40 flights because of the pulled jets.  American Airlines is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Industrials Global Top Stock Ideas. 
  • FedEx (FDX) had its price target cut to USD$210 from USD$225 at Citi ahead of reporting results on March 19th.  FedEx has seen “one of the rockiest periods in memory” according to Citi while maintaining its buy rating.  Citi is looking for clarity on progress on the integration of TNT that it acquired.  FedEx is rated “Unattractive” in our US Large-Cap Global Top Stock Ideas and “Top Buy” in our US Industrials Global Top Stock Ideas.
  • Navistar (NAV) reported first quarter 2019 adjusted EPS of USD$0.11, beating consensus of USD$2.30.  First quarter 2019 revenue of USD$2.43 billion beating USD$2.18 billion consensus.  Navistar gave full year revenue guidance of USD$10.75-11.25 billion while above present consensus of USD$10.74.  Navistar is rated “Attractive” in our US SMID-Cap Global Top Stock Ideas and “Attractive” in our US Industrials Global Top Stock Ideas.

 

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International Stocks Recap

  • The Euro Stoxx 600 is currently down -0.77%, the FTSE 100 is down -0.94%, the DAX is down -0.64%, and the CAC 40 is down -0.42%
  • Utilities (-0.04%), Real Estate (+1.61%), and Telecommunications (+0.6%) stocks are the top performers in the Euro Stoxx 600 today
  • Basic Resources (-1.96%), Automobiles & Parts (-1.9%), and Banks (-1.25%) stocks are the worst performers in the Euro Stoxx 600 today
  • Investor sentiment for European stocks is negative with the advance/decline ratio for the Euro Stoxx 600 currently at 0.28x
  • 70 stocks in the Euro Stoxx 600 are at 4-week highs while 41 stocks are at 4-week lows
  • 40 stocks in the Euro Stoxx 600 are overbought while 9 stocks are oversold according to the 16-day RSI Measure
  • The Nikkei 225 finished down --2.01%, the Hang Seng ended down -1.91%, the Hang Seng China Enterprise declined -2.65%, and the CSI 300 was -3.97%
  • Investor sentiment for Japanese stocks finished negative with the advance/decline ratio for the Nikkei 225 closing at 0.02x
  • 17 stocks in the Nikkei 225 hit 4-week highs while 31 stocks reached 4-week lows
  • 8 stocks in the Nikkei 225 closed overbought while 2 stocks closed oversold according to the 16-day RSI Measure
  • Investor sentiment for Hong Kong stocks finished negative with the advance/decline ratio for the Hang Seng closing at 0.14x
  • 1 stock in the Hang Seng hit 4-week highs while 2 stocks reached 4-week lows
  • 1 stock in the Hang Seng closed overbought while 0 stocks closed oversold according to the 16-day RSI Measure

 

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