Hammerstone’s Early Look
January 6, 2020|
Monday, January 6, 2020
Stocks are on track to start the week lower, this after the S&P snapped its 5-week winning streak last Friday as turmoil in the Middle East between the U.S. and Iran has markets on edge. President Trump threatened to slap sanctions on Iraq “like they’ve never seen before” after a vote to expel U.S. troops, as well as targeting other sites, while Iran said it will no longer abide by uranium enrichment limits. Precious metal prices are extending recent gains to start the year, with spot gold prices rising above $1,567 an ounce, its best levels in 6-years while palladium prices extend its record climbing above $2,000 an ounce. U.S. oil futures rallied to their highest close in more than seven months on Friday, as the U.S. airstrike that killed a top Iran military commander sparked fears of an escalation in the Middle East that could disrupt the flow of crude. February WTI rose +3.1% to $63.05/bbl, off from its $64.09 high but the best settlement for a front-month contract since May 20; for the week, WTI gained 2.2%. In Asian markets, The Nikkei Index fell -451 points (nearly 2%) to 23,204, the Shanghai Index was little changed at 3,083 and the Hang Seng Index dropped -225 points to 28,226. In Europe, the German DAX is lower by -225 points (1.7%) to move just under 13,000, while the FTSE 100 is down about -80 points to 7,540. The action in the Middle East is dominating market attention early.
Market Closing Prices Yesterday
- The S&P 500 Index dropped -23.00 points, or 0.71%, to 3,234.85
- The Dow Jones Industrial Average fell -233.92 points, or 0.81%, to 28,634.88
- The Nasdaq Composite dropped -71.42 points, or 0.79%, to 9,020.77
- The Russell 2000 Index declined -7.60 points, or 0.46% to 1,660.87
Events Calendar for Today
- 9:45 AM EST Markit US Services PMI, Dec-F
- 9:45 AM EST Markit US Composite PMI, Dec-F
- Earnings Before the Open: CALM, CMC
- Earnings After the Close: None
- Iran said Sunday it would no longer abide by any of the limits of its unraveling 2015 nuclear deal with world powers after a U.S. airstrike killed a top Iranian general in Baghdad, ending an accord that blocked Tehran from having enough material to build an atomic weapon.
- Al-Shabab extremists overran a key military base used by U.S. counterterror forces in Kenya before dawn Sunday, killing three American Department of Defense personnel and destroying several U.S. aircraft and vehicles before they were repelled, U.S. and Kenyan authorities said
- The U.S. military may strike more Iranian leaders if the Islamic Republic retaliates for the Trump administration’s killing of Tehran’s most powerful general last week, Secretary of State Mike Pompeo said Sunday
Sector News Breakdown
- Bed Bath & Beyond (BBBY) has signed a deal to sell roughly half its real estate to a private equity firm, including its headquarters, a distribution facility and an undisclosed number of its roughly 1,500 stores, WSJ reports.
- Cal-Maine (CALM) Q2 EPS LOSS (21c) on sales $311.5M vs. est. loss (3c)/$324M; 2Q dozen eggs sold 261.0 million, -0.5% YoY
- Applebee’s parent Dine Brands (DIN) mentioned positively in Barron’s saying shares should be a treat at 11x earnings as they are expected to rise at a high-single digit pace this year and next, which is similar to the outlook for Cheesecake Factory (CAKE) and Darden Restaurants (DRI), but with the former cheaper by 20% and 35%, respectively, relative to earnings
- com (AMZN) mentioned positively in Barron’s saying the e-commerce giant’s stock price looks sensible when compared with free cash flow, which is swelling quickly
- Daimler (DDAIF) and Volvo Cars, owned by China’s Geely, are considering cooperating to cut the costs of developing combustion engines, according to Reuters
- Molson Coors (TAP), the owner Miller and Coors beer brands may be contemplating a sale, according to Evercore ISI analyst late Friday, citing new language in its 8-K filing Thursday
Energy, Materials and Industrials
- Oil prices continued to rise in late Sunday trading, continuing late last weeks’ surge in the wake of last week’s killing of Iranian General Qassem Soleimani in a U.S. drone strike. Increasing Middle East tensions. The U.S. Defense Department warned over the weekend that there was a heightened risk of retaliatory Iranian attacks against Saudi oil facilities.
- Boeing Co (BA) and the Federal Aviation Administration (FAA) confirmed on Sunday they are reviewing a wiring issue that could potentially cause a short circuit on the grounded 737 MAX, according to Reuters
- Patterson-UTI (PTEN) reported that for the month of December 2019, the company had an average of 122 drilling rigs operating. For the three months ended December 31, 2019, the company had an average of 123 drilling rigs operating
- B. Hunt (JBHT) downgraded to Market Perform from Outperform at Bernstein
- The EPA will begin seeking public input today on new rules (to be proposed early this year) that will significantly decrease emissions of smog-forming nitrogen oxide and other pollutants from heavy-duty trucks. The Truck and Engine Manufacturers Association, which represents the four largest truck makers in North America – Daimler Trucks (DDAIF), Paccar (PCAR), Volvo Trucks (VOLVY) and Navistar (NAV) – is backing the initiative – Seeking Alpha
- Citi (C), Morgan Stanley (MS) and Huntington Bancshares (HBAN) all downgraded to Hold from Buy at Deutsche Bank while upgraded M&T Bank (MTB) to Buy from Hold
- Citi (C) upgraded to Conviction Buy from Buy at Goldman Sachs and State Street (STT) upgraded to buy from neutral while downgraded S. Bancorp (USB) to Sell from Neutral as expects the bank to experience one of the largest reductions in operating leverage in 2020 due to net interest margin pressure, continued loan yield repricing, a deceleration of fee income and further expense growth; also downgraded Virtu Financial (VIRT) to Neutral from Buy
- Elanco Animal Health Incorporated (ELAN) signed an agreement to divest Osurnia, a treatment for otitis externa in dogs, to Dechra Pharmaceuticals for $135M in an all-cash deal
- Epizyme Inc. (EPZM) said it exercised its option to sell $50 million of its common stock to Royalty Pharma.
- China’s National Medical Products Administration has approved AstraZeneca’s (AZN) Lokelma for the treatment of adults with hyperkalemia (elevated levels of potassium in the blood).
- Merck (MRK) announced an exclusive worldwide research collaboration and license agreement with Taiho Pharmaceutical Co, Ltd.
- MyoKardia (MYOK) files to sell $200M in common stock
Technology, Media & Telecom
- Samsung Electronics’ new smartphones (Galaxy S11) will be unveiled Feb. 11 in San Francisco, the South Korean tech giant announced Sunday. The date was accidentally leaked during a promotional video Saturday.
- Alphabet (GOOGL) upgraded to Buy from Hold at Pivotal Research
- Citigroup, Mizuho Financial and Bank of America have agreed to provide Xerox (XRX) with up to $24B in financing for its takeover offer for HP Inc. (HPQ), sources told the WSJ.
- Salesforce (CRM) upgraded to Top Pick from Outperform at RBC Capital while the firm downgraded ServiceNow (NOW) to Outperform from Top Pick
- Ambarella (AMBA), Lumentum (LITE), and ON Semiconductor (ON) announced a joint 3D sensing platform for the development of intelligent access control systems and smart video security products
- Fujifilm unit Fuji Xerox says it will end its technology agreement with Xerox (XRX) on the expiration date of March 31, 2021, allowing Fuji Xerox to expand its business worldwide
- Anixter International (AXE) announced that WESCO International (WCC) submitted a revised proposal to acquire the company for nominal consideration of $97.00 per share in cash and stock, consisting of $63.00 cash, plus a fixed exchange ratio of 0.2397 shares of WESCO common stock, plus $19.89 in face amount of a newly created class of WESCO perpetual preferred stock. Anixter recently agreed to an amendment and restatement of its merger agreement with Clayton, Dubilier & Rice to $93.50 per share in cash, from $86.00 per share
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