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Morning Brief

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Stocks off early morning highs following news that a Trump-XI meeting has been delayed to April

Mar 14, 2019

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Market data as of 7am EST

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US Stocks Market Preview Ahead of the Open 

  • According to news reports, a meeting between US President Donald Trump and Chinese President Xi Jinping has been pushed back to the end of April.  There was hope that both leaders would meet in March following a trip to Europe by Chinese President Xi.   
  • US stocks index futures are declining, well off early morning highs, with front month Dow Jones minis –0.18%, S&P 500 minis –0.13% and Nasdaq 100 minis –0.02% 
  • Despite yesterday’s rally in the S&P 500, the benchmark US index failed to break above 2,815 which is a technical resistance level that formed since October 2018.  The S&P 500 has rallied 20% since hitting lows in December 2018 but the 2,815 appears to be a level where worries about decelerating global growth overwhelm any enthusiasm for US large-cap stocks 
  • Following the 2008 housing market collapse, US homeowners are finally seeing the equity in their houses surpassing mortgage debt.  The trend started in 2011 with home equity values nearly doubling since hitting a lot in 1Q of CY2011. 
  • JP Morgan argues that greater institutional coverage of small-cap stocks will help drive higher valuations and lower volatility.  Higher coverage should lead to higher liquidity. 
  • The VIX is little changed this morning and is currently at 13.6 after closing at 13.41 yesterday
  • Eli Lilly (LLY) March 15 OTM Calls, General Electric (GE) March 15 OTM Puts, iShares MSCI Emerging Markets ETF (EEM) March 15 OTM Calls, and SPDR S&P Oil & Gas Exploration & Production ETF (XOP) June 2019/September19 OTM Puts are some of the most actively traded options contracts in US pre-market trading this morning. 
  • US 10-Year Treasury Bonds are lower with yields up 0.9 basis points to 2.6303%
  • The US Treasury 2s-10s Spread has widened 0.9 basis points to 0.17%
  • WTI Crude is currently up 2.44% to USD$58.26/bbl with the Brent-WTI spread down USD$-2.54 to USD$8.82/bbl
  • Gold is currently down -0.82% to USD$1298.38/oz
  • We published 2 blog posts on the rising price of oil and how to play it:

 

Stocks Trending in the News

 

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Global Consumer Stocks Trending in the News

  • Casino (ENXTPA:CO) announced it has increased its asset disposal plan to at least 2.5 billion euros by the first quarter of 2020.  Casino completed it original 1.5 billion euro plan ahead of schedule and said it received additional indications of interest that led it to increase the size of the plan. Casino guided it looks to open 300 premium and convenience stores by 2021 and increase e-commerce sales to 30% of sales in 2021 up from 18% today.  Casino is rated “Unattractive” in our European SMID-Cap Global Top Stock Ideas.
  • Dollar General (DG) reported fourth quarter EPS of USD$1.84 just a touch below USD$1.88 consensus.  Dollar General reported same store sales growth of 4% beating consensus of 2.6%.  Its quarterly dividend was hiked to 31 cents per share from 29 cents.  Dollar General gave fiscal 2019 EPS guidance of USD$6.30-6.50, below consensus of USD$6.65.  Dollar General is rated “Top Buy” in our US Large-Cap Global Top Stock Ideas and “Top Buy” in our US Consumer Discretionary Global Top Stock Ideas.
  • Volkswagen (XTRA:VOW3) increased its electric vehicle (EV) sales guidance by 50%.  On March 12th Volkswagen said it will launch 70 EV models and produce 22 million vehicles by 2028, up from 50 models and 15 million vehicles from its previous guidance.  For comparison, Volkswagen sold 80,000 EVs in 2018.  Volkswagen is rated “Neutral” in our European Large-Cap Global Top Stock Ideas.

Global Information Technology & Communication Services Stocks Trending in the News

  • Apple (AAPL) was rated buy at Cowen in its initiation report on the stock.  Apple’s growth in services should propel it higher, with that unit being described as “an annuity.”   While acknowledging there exist challenges around its mature iPhone business Cowen sees many opportunities to grow revenue with value-added services.  Apple is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Information Technology Global Top Stock Ideas.
  • AT&T’s (T) is hiking the price of its TV service for the second time since January.  AT&T told a judge that prices would fall if it were allowed to buy Time Warner during an antitrust case last year.  But here were are with prices rising again, with many critics complaining that regulators are not protecting customers.  AT&T is rated “Unattractive” in our US Large-Cap Global Top Stock Ideas and “Top Buy” in our US Information Technology Global Top Stock Ideas.
  • Facebook (FB) suffered large-scale outages for its Facebook and Instagram networks yesterday, with users unable to use the site for up to 11 hours in various regions of the world. Sporadic outages still appear to be happening but mostly the site seems to be back to normal.  Facebook has already mentioned the possibility of refunding advertisers whose advertisement that were paid for were never broadcast.  It is very unusual for such a mature site to be down so long.  Facebook is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Attractive” in our US Information Technology Global Top Stock Ideas.
  • Microsoft (MSFT) announced it is working with Oxford Biomedica Plc (LSE:OXB) on developing better ways to repair genes in those with life-threatening diseases.  Microsoft will contribute its Azure cloud and machine learning software to help Oxford increase the productivity and purity of the viruses it uses in the repair of malformed genes.  The initial collaboration is for 2 years with the option to extend it.  Microsoft is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Top Buy” in our US Information Technology Global Top Stock Ideas.  Oxford Biomedica Plc is not rated in our Global Top Stock Ideas.

Global Financials Stocks Trending in the News

  • Brookfield Asset Management Inc. (TSX: BAM.A) has agreed to purchase a majority stake in Oaktree Capital Group LLC (OAK), a combination that will rival Blackstone Group LP (OAK) as the world’s largest alternative asset manager. Brookfield will pay USD$4.7bn for a ~62% stake in Oaktree Capital Group. Combined, the firms will have roughly USD$475bn of assets under management that generates about USD$2.5bn of fee-related revenue. Brookfield Asset Management is rated “Unattractive” in our Canada All-Cap Global Top Stock Ideas. Oaktree Capital Group is rated “Attractive” in our US SMID-Cap Global Top Stock Ideas.  Blackstone Group LP is rated “Unattractive” in our US SMID-Cap Global Top Stock Ideas.
  • Commerzbank’s (DB:CBK) potential merger with Deutsche Bank (DB:DBK) is opposed by the top employee representative at Commerzbank.  The deputy chairman of the board at Commerzbank made the comment about how the workers’ council at the bank is opposed to any merger.  Earlier in the week labor leaders at Deutsche Bank expressed the same opposition to any merger with Commerzbank.   Commerzbank is rated “Unattractive” in our European Large-Cap Global Top Stock Ideas.  Deutsche Bank is rated “Unattractive” in our European Large-Cap Global Top Stock Ideas.

Global Industrials Stocks Trending in the News

  • Boeing (BA) has seen all of its 737 Mac aircraft around the world grounded.  It has USD$600 billion in a backlog of orders for the model and buyers are already suggesting they may cancel and opt for Airbus (AIR) models instead.  There have not been any cancelations yet, though a number of buyers have expressed the potential for canceling.    Boeing is rated “Attractive” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Industrials Global Top Stock Ideas.
  • Embraer (ERJ) reported fourth quarter revenue of USD$1.67 billion, matching consensus; with ebitda of USD$1.8.1 million.  Embraer reaffirmed 2019 guidance and said 2019 will be a year of operational break-even.  Embraer added that Boeing’s (BA) problems with the 737 Max will not affect Embaer’s JV with Boeing.  Embaer is rated “Unattractive” in our Brazil All-Cap Global Top Stock Ideas.  Boeing is rated “Attractive” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Industrials Global Top Stock Ideas.
  • General Electric (GE) said it will burn through USD$2 billion in cash over the coming year as it works to turnaround the company.  CEO Larry Culp said the “Challenges are complex but clear” and highlighted that performance in 2020 and 2021 will be noticeably better than 2019.  GE has seen USD$170 billion in market cap evaporate since its problems started.  General Electric is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Unattractive” in our US Industrials Global Top Stock Ideas.

 

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International Stocks Recap

  • The Nikkei 225 finished down --0.02%, the Hang Seng ended up +0.15%, the Hang Seng China Enterprise up +0.36%, and the CSI 300 was -0.69%
  • Investor sentiment for Japanese stocks finished negative with the advance/decline ratio for the Nikkei 225 closing at 0.8x
  • 16 stocks in the Nikkei 225 hit 4-week highs while 25 stocks reached 4-week lows
  • 3 stocks in the Nikkei 225 closed overbought while 4 stocks closed oversold according to the 16-day RSI Measure
  • Investor sentiment for Hong Kong stocks finished neutral with the advance/decline ratio for the Hang Seng closing at 1x
  • 4 stocks in the Hang Seng hit 4-week highs while 1 stock reached 4-week lows
  • 2 stocks in the Hang Seng closed overbought while 0 stocks closed oversold according to the 16-day RSI Measure
  • Japan 2-Year Government Bonds are higher with yields down -0.8 basis points to -0.162%
  • Japan 10-Year Government Bonds are lower with yields up 0.1 basis points to -0.041%
  • JGBs 2s-10s Spread has widened 0.9 basis points to 0.12%
  • China RMB 2-Year Government Bonds are higher with yields down -0.1 basis points to 2.659%
  • China RMB 10-Year Government Bonds are lower with yields up 0.5 basis points to 3.152%
  • China Government RMB 2s-10s Spread has widened 0.6 basis points to 0.49%

 

*Data in Price Return and Updated Real-Time (with a delay), Source: StockDio

 

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