Daily morning chai briefing

  • Most of the global equity markets are extending the early week rally. The Office of the US Trade Representative stated that the US and China held a call to review the Phase One trade deal and confirmed progress and showed commitment to ensure success. The vote of confidence has helped to solidify sentiment. S&P Futures are trading about 12 points higher to around the 3340 area. This is toward the upper end of the range that saw a high of 3448.75 and a low of 3426.75. 
  • In Asia, China closed 0.4% lower, while Japan posted a six-month high. The Shanghai sputtered despite the reports of the productive call between the US and China. The Hang Seng also edged lower. The Nikkei climbed well over 1% with leadership coming from exports after the yen softened overnight. Heavyweights such as SoftBank, Panasonic and Honda paced the way with gains of over 2%.
  • In Europe, the major bourses are echoing the tone of the US futures. Economic data out of Germany has helped to support stocks this morning. First, second quarter GDP was revised to -9.7%, up from the prior reading of -10.1%. That was followed up by better than expected IFO surveys. Mining stocks are under slight pressure with gold and silver losing ground. This has kept the FTSE from keeping pace with the DAX and CAC. 

Market Updates

  • S&P Futures vs Fair Value: +12.0
  • 10 yr Note: 0.685%
  • USD/JPY: 106.30   +0.32
  • EUR/USD: 1.1839  +0.0052
  • Europe: FTSE +0.2%  DAX +0.6%  CAC +0.7%
  • Asia: Hang Seng -0.3%, Shanghai -0.4%, Nikkei +1.4%
  • Gold (1933.20 -6.00) Silver (26.57 -0.04) Crude (42.58 -0.04)



 Big changes are coming to the Dow Jones Industrial Average due to Apple's (NASDAQ:AAPL) 4-for-1 stock split, which will significantly reduce the benchmark's exposure to the information technology sector. Exxon Mobil (NYSE:XOM), Pfizer (NYSE:PFE) and Raytheon (NYSE:RTX) will be swapped out for Salesforce.com (NYSE:CRM), Amgen (NASDAQ:AMGN) and Honeywell (NYSE:HON), marking the biggest reshuffle in seven years. The moves are effective before the open next Monday, while the divisor used to calculate the blue-chip index from the constituents will be changed before then, preventing any distortions. Soaring about 55% from its March 23 low, the Dow now sits 4% below its all-time high of 29,568.57 notched on February 12.

Changing how the Fed views inflation

Chairman Jerome Powell is set to signal a significant policy shift this week during a "virtual Jackson Hole conference," including perhaps the Fed's biggest steps ever to goose inflation back up to a healthy level. "Average inflation" targeting means the central bank will allow inflation to run higher than the usual 2% healthy target for a period of time (if it's spent a considerable time below that level). The goal could brand Powell's tenure at the Fed as the opposite of Paul Volcker's - whose sharp rate hikes in the '80s built a recession but tamped down price pressures.


Researchers at the University of Hong Kong say they have proved the "first case" of reinfection of COVID-19, marking the first such documented case in the world. The virus strains contracted by a 33-year-old man in April (while living in Hong Kong) and August (after he returned from Spain) were "clearly different," meaning he was not a "persistent carrier" of the virus from his prior infection. "The finding does not mean taking vaccines will be useless," said Dr. Kai-Wang To, one of the leading authors of the paper. "Immunity induced by vaccination can be different from those induced by natural infection. [We] will need to wait for the results of the vaccine trials to see how effective vaccines are."


 

Trending

One-third of Americans use TikTok

As TikTok and its Chinese parent company ByteDance (BDNCE) sued the Trump administration yesterday over an upcoming ban, the fast-growing video app revealed specific U.S. and global growth milestones for the first time. TikTok has about 100M monthly active users in the U.S. (up nearly 800% from Jan. 2018), notching a figure that would exceed the MAUs of long-established social networks like Twitter (NYSE:TWTR), Pinterest (NYSE:PINS) and Snapchat (NYSE:SNAP), according to research firm Statista. Given the growth rate, TikTok also would not be far behind Facebook-owned (NASDAQ:FB) Instagram, which had 121M MAUs as of last year.



Gapping up
In reaction to earnings/guidance:

  • SJM +4%, MDT +2.8%, SXI +2.7%, HAIN +2.5%, BMO +1.1%, ATHM +1%

Other news:

  • OVID +24.8% (Ovid Therapeutics and Takeda (TAK) announced positive topline results from the Phase 2 ELEKTRA study of soticlestat in children with Dravet syndrome or Lennox-Gastaut syndrome)
  • MREO +9% (initiates Phase 1b/2 placebo-controlled clinical trial to evaluate the safety and efficacy of alvelestat in hospitalized, adult patients with moderate to severe COVID-19 respiratory disease)
  • ALT +8.9% (announced additional results from the preclinical studies of its single-dose intranasal COVID-19 vaccine candidate, AdCOVID)
  • CAAS +8.2% (approved a share repurchase program of up to $5 million of its outstanding common shares periodically over the next 12 months)
  • AMGN +4.2% (will join Dow 30 Index on Aug 31)
  • HON +3.7% (will join Dow 30 Index on Aug 31)
  • ALSN +3.3% (begins Vehicle Environmental Test services at Indianapolis facility)
  • CRM +2.8% (will join Dow 30 Index on Aug 31)
  • AGTC +1.9% (announced that preclinical data on transgene that is being evaluated in its Phase 1/2 clinical trial)
  • STRO +1.5% (achieved a clinical supply milestone under its collaboration and license agreement with the healthcare division of Merck KGaA)
  • PZZA +1.2% (preliminary estimated comparable sales information for the August fiscal period)

Analyst comments:

  • GPS +5.3% (upgraded to Buy from Neutral at Citigroup)
  • MERC +4% (upgraded to Sector Outperform from Neutral at CIBC)
  • CROX +2.9% (upgraded to Buy from Neutral at B. Riley FBR)
  • LB +2.6% (upgraded to Buy from Neutral at MKM Partners)
  • ARGX +1.6% (initiated with an Outperform at Raymond James)
  • SBUX +1.4% (upgraded to Buy from Hold at Stifel)
  • XLRN +1.4% (initiated with a Strong Buy at Raymond James)
  • ACAD +1.2% (initiated with an Outperform at Raymond James)
  • NXPI +0.7% (initiated with an Overweight at Wells Fargo)
  • NIO +0.5% (upgraded to Neutral from Sell at UBS)



Gapping down
In reaction to earnings/guidance:

  • POR -9.7%, PLCE -6.4%, BBY -2.9%, PANW -2.4% (also to acquire The Crypsis Group)

Other news:

  • VNET -2.8% (launches 17 mln ADS follow-on offering)
  • RTX -1.8% (will be removed from Dow 30 Index on Aug 31)
  • XOM -1.3% (will be removed from Dow 30 Index on Aug 31)
  • PFE -1.2% (will be removed from Dow 30 Index on Aug 31)
  • AHH -0.5% (provides August rent collection update)

Analyst comments:

  • GLPG -3.3% (downgraded to Hold from Buy at Jefferies)
  • NPTN -2.8% (downgraded to Underperform from Mkt Perform at Raymond James)
  • NTR -0.8% (downgraded to Neutral from Overweight at Atlantic Equities)
  • ODFL -0.6% (downgraded to Sell from Hold at Stifel)





Today's Economic Calendar

8:55 Redbook Chain Store Sales
9:00 S&P Corelogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:00 Consumer Confidence
10:00 New Home Sales
10:00 Richmond Fed Mfg.
1:00 PM Results of $50B, 2-Year Note Auction
3:25 PM Fed's Daly Speech


Upgrades

  • Starbucks (SBUX) upgraded by Stifel from Hold to Buy
  • Gap (GPS) upgraded by Citi from Neutral to Buy
  • Carlsberg (CABGY) upgraded by UBS from Sell to Buy
  • Svenska Handelsbanken (SVNLY) upgraded by Kepler Cheuvreux from Hold to Buy
  • Embracer Group (THQQF) upgraded by SEB Equities from Hold to Buy
  • Crocs (CROX) upgraded by B. Riley FBR from Neutral to Buy
  • Assicurazioni Generali (ARZGF) upgraded by BofA from Neutral to Buy
  • Tingyi (TCYMY) upgraded by Mizuho from Neutral to Buy
  • L Brands (LB) upgraded by MKM Partners from Neutral to Buy
  • NIO Inc. (NIO) upgraded by UBS from Sell to Neutral
  • Fortescue Metals (FSUGY) upgraded by Citi from Sell to Neutral
  • Sawai Pharmaceutical (SWPIF) upgraded by Citi from Neutral to Buy
  • Trend Micro (TMICY) upgraded by Citi from Sell to Neutral

downgrades

  • AAC Technologies (AACAY) downgraded by Citi from Neutral to Sell
  • Old Dominion (ODFL) downgraded by Stifel from Hold to Sell
  • Galapagos (GLPG) downgraded by Jefferies from Buy to Hold
  • Momenta (MNTA) downgraded by H.C. Wainwright from Buy to Neutral
  • Portland General Electric (POR) downgraded by BofA from Buy to Neutral
  • Otsuka (OTSKY) downgraded by Citi from Buy to Neutral
  • Construction Partners (ROAD) downgraded by Stephens from Overweight to Equal Weight
  • NeoPhotonics (NPTN) downgraded by Raymond James from Market Perform to Underperform
  • Nutrien (NTR) downgraded by Atlantic Equities from Overweight to Neutra



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