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What inverted yield curve? Global stocks rising today as Wall Street plays down recession fears

Mar 26, 2019

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Market data as of 7am EST

 

US Stocks Preview Ahead of the Open

  • Global stocks are rising as Wall Street banks play down fears of a coming recession in the wake of the US yield curve inversion last Friday
  • US stocks index futures are rising today, with front-month Dow Jones minis +0.56%, S&P 500 minis +0.51% and Nasdaq 100 minis +0.51%
  • Goldman Sachs is telling clients, together with a number of other Wall Street banks, that the inversion of the US yield curve seen on Friday, while usually an indication of a coming recession, is not reason to worry this time
  • The United States will announce March data for the Richmond Fed Manufacturing Index at 10:00 AM today. Economists expect a reading of 10.0, lower than 16.0 reported for the prior period.  
  • The United States will announce February Housing Starts at 8:30 AM today. Economists expect 1,210k to be reported compared to 1,310k reported for the prior period.  
  • The S&P 500 is on pace for its best quarter in 7 years!  Since hitting a low on December 24th, the S&P 500 is up 19% in comparison to +11% for the MSCI World ex US index. 
  • The 50-day moving average for the S&P 500 is moving towards its 200-day moving average, which would be a technical bullish signal.  A break above the 200-day moving average by the 50-day moving average is called a “Golden Cross” and is viewed s aa major “buy” signal by technical analysts. 
  • According to Credit Suisse, while net long/short exposures for hedge funds on its prime broker platform are near the lowest levels since 2017, they are seeing an uptick in the number of net shorts.  The recent deceleration in the rally in US stocks, combined high dispersion levels (and lower correlations) support greater payoffs from shorting stocks. 
  • Brexit hardliner Jacob Rees-Mogg signaled he is willing to back PM Theresa May, setting a battle in Parliament between May and pro-European members; there will additional votes today on how to proceed
  • US-China trade talks continue with little news of progress so far
  • The VIX is little changed this morning and is currently at 16.48 after closing at 16.33 yesterday
  • iShares High Yield Bond ETF (HYG) May 2019 OTM Puts, Bank of America (BAC) March 29 Calls and iShares Russell 2000 ETF (IWM) April 18 & May 2019 OTM Puts are the most actively traded options contracts in US pre-market trading this morning. 
  • US 10-Year Treasury Bonds are lower with yields up 4.06 basis points to 2.4389%
  • The US Treasury 2s-10s Spread has narrowed 0.48 basis points to 0.15%
  • WTI Crude is currently down -0.29% to USD$58.77/bbl with the Brent-WTI spread up USD$1.06 to USD$8.34/bbl
  • Oil bulls argue that the S&P 500 needs to hold above the technical resistance level of 2,800 for crude oil prices to hold above USD$60/bbl.  
  • Gold is currently down -0.51% to USD$1315.15/oz

Stocks Trending in the News

 

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Global Consumer Stocks Trending in the News

  • Avon (AVP) could be worth a takeout price of USD$3.80-4.70 if a deal were to close with Natura (NATU3) of Brazil, according to DA Davidson.  Natura has confirmed it is in preliminary discussions with Avon.  DA Davison comments that with its leveraged balance sheet of over USD$2 billion of debt, or 4.3x debt to ebitda, a deal for Natura would be challenging and would need to include the use of shares.  Natura is rated “Top Buy” in our Brazil All-Cap Global Top Stock Ideas.  Avon is not rated in our Global Top Stock Ideas.
  • Bed, Bath & Beyond (BBBY) is about to see a proxy fight from three activist hedge funds that want to replace the entire 12-person board of the company.  Legion Partners, Macellum Advisors and Ancora Advisors claim management at Bed, Bath and Beyond has not adapted to the changing tastes and habits of shoppers and the company needs a change.  The three funds control over 5% of the company and are working together to force change.  Bed, Bath and Beyond is rated “Unattractive” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Consumer Discretionary Global Top Stock Ideas.
  • McCormick (MKC) reported first quarter 2019 adjusted EPS of USD$1.12 beating consensus of USD$1.04.  McCormick reported first quarter 2019 revenue of USD$1.23 billion matching consensus of USD$1.24 billion.  McCormick gave full year sales growth guidance of 1-3% and EPS guidance of USD5.17-5.27.  McCormick is rated “Attractive” in our US Large-Cap Global Top Stock Ideas and “Attractive” in our US Consumer Staples Global Top Stock Ideas.
  • McDonald’s (MCD) announced the acquisition of Dynamic Yield Ltd., an Israeli digital start-up, for USD$300 million. Dynamic Yield developed an in-store ordering system that changes real-time depending on factors such as weather, to suggest items to customers.  McDonald’s will start to use the system on its drive-thru.  It is McDonald’s first acquisition in a few years and the largest in over 20 years.  McDonald ’s is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Top Buy” in our US Consumer Discretionary Global Top Stock Ideas.
  • News Corp (NWSA) is joining Apple's (AAPL) new news service, eight years after attempting to launch a version of its WSJ on the then-new iPad.  The effort eight years ago was a complete failure, but News Corp is much more confident of success this time.  “It’s going to get our journalism in the hand of millions of Americans who otherwise might not have access to it,” said Journal publisher William Lewis.  News Corp is rated “Unattractive” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Consumer Discretionary Global Top Stock Ideas.  Apple is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Information Technology Global Top Stock Ideas.
  • Nike (NKE) was the victim of extortion by Michael Avenatti, the California lawyer, who was arrested today on those charges Avenatti told Nike he would cancel a press conference that was to be critical of the company if it paid an unidentified client of his USD$1.5 million.  Additionally, he demanded up to USD$25 million to conduct an internal investigation of Nike.  Avenatti was charged in both New York and California in connection with the case.  Nike has not released a comment.  Nike is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Top Buy” in our US Consumer Discretionary Global Top Stock Ideas.

Global Information Technology and Communication Services Stocks Trending in the News

  • Apple (AAPL) launched its much anticipated streaming service and a number of other initiatives.  Apple will offer Apple TV+, a subscription service with original content and other pay services; Apple News, a subscription service allowing access to 300+ magazines and Apple Arcade, a subscription service giving access to 100+ exclusive video games.  For the first time Apple’s Apple TV app will work on many platforms, not just its own.  Apple also launched the Apple Card, a credit card, with Goldman Sachs (GS).  Apple is seeking to expand beyond hardware and deeper into services with the softening of sales of its flagship iPhone.  Apple gave a price of $9.99 for its news service but did not give pricing for the other services announced, raising a few eyebrows.  Apple is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Information Technology Global Top Stock Ideas.
  • Merck KGaA (DB:MRK) has formally made a tender offer for Vesum Material (VSM), looking for it to step away from the offer from Entergris  (ENTG).  Merck had tried to negotiate with management of Versum but was rebuffed multiple times.  Merck then decided to go directly to shareholders with a formal tender offer.  Merck is offering USD$48 per share, touting its cash offer as superior to the all share offer from Entegris.  Merck KGaA is rated “Neutral” in our European Large-Cap Global Top Stock Ideas. Entegris is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Attractive” in our US Information Technology Global Top Stock Ideas.  Versum is rated “Neutral” 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

  • Citigroup (C) was fined 133 million yen (USD$1.2 million) by Japan’s security regulator for manipulating prices of Japanese debt.  The regulator said Citigroup placed bids for bond futures contracts at the Osaka Exchange for fake orders, a process known as spoofing.  This follows Citigroup’s well-known problems in Hong Kong.  Citigroup is rated “Neutral” in our US Large-Cap Global Top Stock Ideas.

Global Industrials Stocks Trending in the News

  • Airbus (ENXTPA:AIR) secured a USD$35 billion aircraft order from China for 300 jets.  China will buy 290 A320 and 10 A350 airliners from Airbus, dealing a huge blow to Boeing (BA) .  The order placed is twice the size of what French President Macron pitched to China in 2018.  Boeing continues to struggle with its 737 Max being grounded and this announcement hit Boeing a tough time.  Airbus is rated “Neutral” in our European Large-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.

Global Health Care Stocks Trending in the News

  • AbbVie (ABBV) was downgraded at Argus Research to hold from buy.   Argus downgrades AbbVie mainly due to concern over its flagship Humira drug and its expectation for declining sales.  Overseas are especially vulnerable given the biosimilars entering the market.  Argus says of Humira, it no longer appears “invulnerable in the face of competition from biosimilars.”  AbbVie is rated “Attractive” in our US Large-Cap Global Top Stock Ideas.

Global Commodities & Energy Stocks Trending in the News

  • Royal Dutch Shell (ENXTAM:RDSA) and Energy Transfer (ET) announced plans to convert an LNG import facility in Louisiana to an export terminal.  Both companies see a bright future for shale gas exports with the US now the largest producer of oil and gas in the world.  Both companies are seeking to sell their gas outside the US where prices are considerably higher.  Royal Dutch Shell is rated “Top Buy” in our European Large-Cap Global Top Stock Ideas and “Top Buy” in our United Kingdom All-Cap Global Top Stock Ideas.  Energy Transfer is rated “Top Short” in our US Large-Cap Global Top Stock Ideas.
  • Vale (VALE) has a very consequential week ahead, with the Tuesday release of production data, the first report since its dam disaster.  Vale traditionally gives full-year production guidance at that time and investors are keen to see of the tradition is maintained.  Wednesday fourth quarter results are set to be released followed by its conference call with investors on Thursday.   With iron ore prices 11% higher since the disaster, the market is very interested to hear from Vale before building expectations for the rest of 2019.  Vale is rated “Neutral” in our Brazil All-Cap Global Top Stock Ideas.

 

 

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International Stock Markets Recap

  • The Euro Stoxx 600 is currently up +0.43%, the FTSE 100 is higher by +0.25%, the DAX has risen +0.14%, and the CAC 40 is up +0.6%
  • Utilities (+0.22%), Banks (+0.08%), and Basic Resources (+0.23%) stocks are the top performers in the Euro Stoxx 600 today
  • Retail (+0.76%), Health Care (+0.79%), and Construction & Materials (-0.17%) stocks are the worst performers in the Euro Stoxx 600 today
  • Investor sentiment for European stocks is positive with the advance/decline ratio for the Euro Stoxx 600 currently at 2.05x
  • 21 stocks in the Euro Stoxx 600 are at 4-week highs while 158 stocks are at 4-week lows
  • 25 stocks in the Euro Stoxx 600 are overbought while 18 stocks are oversold according to the 16-day RSI Measure
  • The Nikkei 225 finished up +2.15%, the Hang Seng ended up +0.15%, the Hang Seng China Enterprise up 0%, and the CSI 300 was -1.13%
  • Investor sentiment for Japanese stocks finished positive with the advance/decline ratio for the Nikkei 225 closing at 44x
  • 0 stocks in the Nikkei 225 hit 4-week highs while 85 stocks reached 4-week lows
  • 3 stocks in the Nikkei 225 closed overbought while 11 stocks closed oversold according to the 16-day RSI Measure
  • Investor sentiment for Hong Kong stocks finished positive with the advance/decline ratio for the Hang Seng closing at 1.94x
  • 0 stocks in the Hang Seng hit 4-week highs while 11 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

 

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

Source: S&P Capital IQ

 

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