China tells US "It's your fault!" demanding it change "wrong practices" as global markets risk-off intensifies
May 23, 2019
Market data as of 7am EST
US Stocks Preview Ahead of the Open
- Global stocks are selling off this morning as the risk-off moves grow in tandem with trade tensions, front-month Dow Jones minis are -0.87%, S&P 500 minis -0.88% and Nasdaq 100 minis -1.21%
- China is blaming the US for the breakdown in trade talks, saying the US must change its "wrong practices" before talks can resume
- China's communist party newspaper published 2 commentaries critical of the US approach to the trade negotiations
- Analyst earnings sentiment remains low, despite a strong 1Q. While negative revisions for expected S&P 500 earnings have paused, we haven’t seen a real bounce back. Going into the 2H of the year, an improvement in sentiment could support US stocks longer-term as market enthusiasm, as measured by Analyst expectations, continues to remain muted.
- Despite the growth in buybacks, the relative impact on earnings growth has been limited. In other words, earnings growth has been driven by improving financial health, not financial engineering.
- Initial Jobless Claims for the week ending May 18th will be published today with consensus expecting 215,000
- Markit Services PMI for May is due today with consensus expecting 53.5, up from 53 in April
- Markit Manufacturing PMI for May is due today with consensus expecting 52.7, up from 52.6 in April
- India's Prime Minister Modi has won a majority of votes in the national election and he has declared victory
- We discussed a number of themes in blog posts, read more:
- The VIX is moving up this morning and is currently at 16.31 after closing at 14.75 yesterday
- iShares MSCI Emerging Markets ETF (EEM) July 16 OTM Puts, SPDR S&P 500 ETF Trust (SPY) May 24 OTM Calls and iShares iBoxx $ High Yield Corporate Bond ETF (HYG) August 16 OTM Puts are the most actively traded options in today's pre-market
- US 10-Year Treasury Bonds are higher with yields down -3 basis points to 2.352%
- The US Treasury 2s-10s Spread has widened 0.32 basis points to 0.16%
- WTI Crude is currently down -2.81% to USD$61.22/bbl with the Brent-WTI spread up USD$1.43 to USD$8.64/bbl
- Gold is currently up 0.3% to USD$1277.11/oz
Stocks Trending in the News
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Global Consumer Stocks Trending in the News
- Amazon (AMZN) is working on a wearable device that can read your emotions, Bloomberg is reporting. Amazon is developing the wearable together with Lab126 which is the development group behind its Fire phone and Echo speakers. The wearable is designed to work with an app and uses your voice to read emotions. The project is code named Dylan and it is not clear if it will ever become commercially viable. Amazon is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Top Buy” in our US Consumer Discretionary Global Top Stock Ideas.
- Avon Products (AVP) came to a final agreement with Brazil’s Natura (NATU3) that will see it acquired in a deal valued at more that $2 billion. Natura will own about 76% of the resultant company with Avon shareholders owning the rest. A formal announcement is expected during Wednesday’s trading session. Natura previously acquired The Body Shoppe chain. Natura is rated “Attractive” in our Brazil All-Cap Global Top Stock Ideas. Avon is not rated in our Global Top Stock Ideas
- Best Buy (BBY) reported first quarter earnings and same store sales that beat consensus. Best Buy reported first quarter same stores sales growth of 1.1%, beating 0.9%. First quarter adjusted EPS of $1.02 beat consensus of 87 cents. Revenue in the first quarter was $9.14 billion matching consensus. Best Buy provided second quarter EPS guidance of $0.95 to $1.00 on revenue of $9.5 billion to $ 9.6 billion. Best Buy is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Top Buy” in our US Consumer Discretionary Global Top Stock Ideas.
- L Brands (LB) reported first quarter earnings that beat consensus. L Brands reported first quarter EPS of 14 cents, beating consensus of $0. Net sales of $2.63 billion beat consensus of $2.56 billion. Flat sales growth in the first quarter beat an expected drop of 1.2%. L Brands provided EPS guidance for the second quarter of 15-20 cents and for the year of $2.30 to $2.60. L Brands is rated “Top Short” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Consumer Discretionary Global Top Stock Ideas.
- Target (TGT) was upgraded to overweight from neutral by JP Morgan. Target saw its price target hiked to $100 from $81. In the upgrade report, JP Morgan notes the shares are undervalued, saying Target deserves a best in class valuation. Target has been delivering strong performance and JP Morgan expects that to continue. Target is rated “Neutral” in our US Large-Cap Global Top Stock Ideas and “Top Buy” in our US Consumer Discretionary Global Top Stock Ideas.
- Vivendi (ENXTPA:VIV) has been trying to sell a minority stake in its Universal Music Group for some time and is now focused on strategic buyers, Bloomberg reports. The report says private buyers, Vivendi’s initial focus, have balked and the foot-dragging by Vivendi and the rich price being sought for a minority stake. Despite talks and pitches, Vivendi still had no hired any bankers or advisers for the deal, so some question how serious Vivendi is. Vivendi is rated “Unattractive” in our European Large-Cap Global Top Stock Ideas.
Global Information Technology Stocks Trending in the News
- NetApp (NTAP) reported fiscal fourth quarter adjusted EPS that trailed consensus. NetApp reported fiscal fourth quarter EPS of $1.22, trailing consensus of $1.26. NetApp reported fourth quarter revenue of $1.59 billion, also trailing consensus of $1.64 billion. NetApp hiked its quarterly dividend 20% to 48 cents per share. NetApp is rated “Attractive” in our US Large-Cap Global Top Stock Ideas and “Attractive” in our US Information Technology Global Top Stock Ideas
- Qualcomm (QCOM) violated anti-trust law with its business practices, a federal judge has ruled. Qualcomm used its dominant market position to charge excessive licensing fees. “Qualcomm’s practices have strangled competition,” the judge wrote in a ruling that agreed with FTC findings. Qualcomm charges a percentage of the sale price of the phone, a practice the judge found excessive. Qualcomm is rated “Unattractive” in our US Large-Cap Global Top Stock Ideas and “Neutral” in our US Information Technology Global Top Stock Ideas
- Weibo (WB) reported first quarter adjusted EPS that beat consensus. Weibo posted first adjusted quarter EPS of 56 cents, ahead of 53 cents consensus. First quarter revenue came in line with consensus at $399.2 million. Weibo posted first quarter MAUs of 54 million. Weibo provided second quarter revenue guidance of $427 million to $437 million, a rise of 7-10% on a constant currency basis. Weibo is rated “Neutral” in our China All-Cap Global Top Stock Ideas
Global Industrials Stocks Trending in the News
- Boeing’s (BA) 737 Max may not be returning to service as quickly as the industry is expecting. The acting head of the FAA said he cannot predict when the plane will return to service. It was assumed the aircraft would return by summer’s end and Boeing has expressed the same hopes. But the FAA, suffering from a lack of credibility, still needs to convince other global regulators that the plane is air worthy. Boeing is rated “Top Short” in our US Large-Cap Global Top Stock Ideas and “Unattractive” in our US Industrials Global Top Stock Ideas
Global Financial Stocks Trending in the News
- China CITIC Bank (SEHK:998) and Baidu (BIDU) are seeking up to 7 billion yuan in private funding in its first round of funding for its digital bank, aiBank. China CITIC and Baidu launched the online bank in 2015 and are seeking funding to drive growth. aiBank provides personal loans of up to 300,000 yuan with no collateral. China CITIC Bank is rated “Neutral” in our China All-Cap Global Top Stock Ideas.
International Stock Markets Recaps
- The Euro Stoxx 600 is currently down -1.41%, the FTSE 100 is down -1.39%, the DAX is down -1.78%, and the CAC 40 is down -1.69%
- Technology (-2.28%), Insurance (-1.37%), and Basic Resources (-1.74%) stocks are the top performers in the Euro Stoxx 600 today
- Telecommunications (-1.1%), Travel & Leisure (-0.74%), and Health Care (-0.15%) 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 0.05x
- 65 stocks in the Euro Stoxx 600 are at 4-week highs while 92 stocks are at 4-week lows
- 27 stocks in the Euro Stoxx 600 are overbought while 33 stocks are oversold according to the 16-day RSI Measure
- The Nikkei 225 finished down --0.62%, the Hang Seng ended down -1.58%, the Hang Seng China Enterprise declined -1.92%, and the CSI 300 was -1.79%
- Investor sentiment for Japanese stocks finished negative with the advance/decline ratio for the Nikkei 225 closing at 0.56x
- 22 stocks in the Nikkei 225 hit 4-week highs while 11 stocks reached 4-week lows
- 7 stocks in the Nikkei 225 closed overbought while 41 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 0.22x
- 2 stocks in the Hang Seng hit 4-week highs while 13 stocks reached 4-week lows
- 1 stock in the Hang Seng closed overbought while 11 stocks closed oversold according to the 16-day RSI Measure
*Data in Price Return and Updated Real-Time (with a delay), Source: StockDio