Wednesday, October 26, 2016 On Tap

SNAPSHOT

7:00 a.m. 10/21 MBA Weekly Mortgage Applications Survey Composite Idx (previous 512.9), W/W% (previous +0.6%), Purchase Idx-SA (previous 223.1), W/W% (previous +3.0%), Refinance Idx (previous 2172.5), W/W% (previous -0.8%)

U.S. stock futures drop; dollar struggles to rise; 10-year Treasury yield 1.757%; Nymex $49.23; gold $1274.35

8:30 a.m. Sep Advance Economic Indicators Report 9:45 a.m. Oct US Flash Services PMI (previous 51.9) 10:00 a.m. Sep New Residential Sales New Home Sales (expected 600K), New Home Sales, M/M% (expected 1.5%), New Home Sales Months Supply (previous 4.6) 10:30 a.m. 10/21 EIA Weekly Petroleum Status Report Crude Oil Stocks (Bbl) (previous 468.711M), Net Chg (Bbl) (previous -5.247M), Gasoline Stocks (Bbl) (previous 227.967M), Net Chg (Bbl) (previous +2.469M), Distillate Stocks (Bbl) (previous 155.732M), Net Chg (Bbl) (previous -1.24M), Refinery Usage (previous 85.0%), Total Prod Supplied (Bbl/day) (previous 19.716M), Net Chg (Bbl/day) (previous -1.022M)

Recent Analyst Ratings Actions Baker Hughes Raised to Overweight From Equalweight by Stephens B/E Aerospace Cut to Peer Perform From Outperform by Wolfe Research

Watch for: Flash services PMI; Mortgage survey and new residential sales; EIA petroleum status report; earnings from Boeing, Coca-Cola, Comcast, Hilton Worldwide, Southwest Airlines and Tesla

OPENING CALL Wall Street was set for a day in the red on Wednesday, with Apple posting one of the biggest premarket losses after its quarterly earnings. A continued drop in oil prices also weighed, and investors waited for another round of results from big names. Futures for the Dow Jones slid 0.5%, while those for the S&P 500 fell 0.5%. Futures for the Nasdaq-100 index lost 0.6%. The indexes were weighed down by a 3.3% premarket slide for Apple after the iPhone maker late Wednesday posted quarterly earnings that slightly beat expectations and revenue that was just shy of forecasts. Investors also may have been disappointed that the tech giant’s projections for the current quarter weren’t more bullish, analysts said. The market weakness on Wednesday comes after a downbeat day on Tuesday when worries about a string of lackluster earnings and a drop in consumer sentiment sent the S&P 500 0.3% lower and the Dow average down 0.3%. Earnings were also a major theme on Wednesday, with two Dow component, CocaCola and Boeing, slated to report before the open. Hilton Worldwide Holdings, Comcast, Southwest Airlines and Mondelez International were also on the earnings docket ahead of the bell. Tesla Motors and Texas Instruments are due to report after the market close. The September trade data for goods come out at 8:30 a.m. Eastern Time, followed by the flash reading of the services purchasing managers index for October at 9:45 a.m. At 10 a.m., new homes for September are due, expected to fall back to 600,000 from 609,000 in August, according to economists polled by MarketWatch.

EQUITIES Apple posted its first annual revenue decline in 15 years, but projected a return to growth in the current quarter behind strong sales of its new iPhone 7.

Wednesday, October 26, 2016 Boise Cascade Cut to Neutral From Buy by Goldman Sachs Coeur Mining Initiated at Buy by Canaccord Genuity Cognex Initiated at Equal-Weight by Stephens & Co. Coherent Initiated at Buy by Northcoast Research Continental Cut to Equalweight From Overweight by Morgan Stanley Dipexium Pharmaceuticals Cut to Hold From Buy by Feltl & Co. FuelCell Cut to Neutral From Buy by Roth Capital General Motors Cut to Hold From Buy by Craig-Hallum Hecla Mining Initiated at Hold by Canaccord Genuity Host Hotels & Resorts Cut to Neutral From Buy by Nomura Hyatt Hotels Cut to Neutral From Buy by Nomura KeyCorp Raised to Buy From Hold by Rafferty LMI Aerospace Initiated at Hold by Drexel Hamilton

Apple has grown to be the most valuable company in the world over the past decade on the tremendous success of the iPhone. But that formula proved less effective in the past year amid lukewarm sales of the iPhone 6S models and slowing growth in smartphone sales world-wide, especially in China, Apple’s biggest growth market in recent years. For its fiscal fourth quarter, ended Sept. 24, Apple reported its third consecutive decline in revenue and profit. Net income fell 19% to $9 billion, or $1.67 a share, from $11.1 billion, or $1.96 a share, in the same period a year earlier. Analysts polled by Thomson Reuters had expected earnings of $1.65 a share. Google Fiber chief Craig Barratt stepped down on Tuesday amid a shift in strategy for Alphabet’s internet service that includes laying off 9% of its workforce and trimming service plans for 11 U.S. metro areas, according to a person familiar with the matter. Google Fiber has spent hundreds of millions dollars digging up streets and laying fiber-optic cables to offer web connections roughly 30 times faster than the U.S. average. The service has reached eight metro areas since its launch in 2012. Alphabet is making changes after initial rollouts proved pricier and slower than expected. The company is now exploring using wireless technology to connect homes and businesses, hoping it can save money and accelerate expansion. In July, Alphabet bought internet provider Webpass, which uses wireless technology to connect more than 800 apartment buildings in five metro areas. Slack Technologies, a business messaging provider, is the latest company to partner with International Business Machines to add artificial intelligence to its service. Slack plans to improve Slackbot, its customer-service bot, using IBM’s Watson, a collection of artificial-intelligence software delivered as cloud-computing services, the two companies said on Wednesday. The messaging company will use Watson Conversation, an IBM service that processes natural language, to enhance the accuracy and efficiency of the bot, which helps Slack users troubleshoot problems. These and other enhancements will be available to users early next year, Slack said.

Nutanix Initiated at Outperform by Baird

FOREX

Nvidia Is Maintained at Buy by B. Riley

The dollar was struggling to go upside against the yen during Asia trade Wednesday, amid a lack of fresh trading cues to drive the U.S. currency higher.

Party City Holdco Initiated at Neutral by Goldman Sachs T-Mobile US Is Maintained at Buy by Goldman Sachs Under Armour Cut to Hold From Buy by Stifel Nicolaus

“We’ve been seeing the dollar well supported at its Y103-level, but struggling on its upside above Y104.50,” said Daisaku Ueno, chief foreign exchange strategist at Mitsubishi UFJ Morgan Stanley. Investors have found there are no incentives to drive the dollar ahead of the U.S. presidential election, but they also feel a lack of yen-moving factors. The euro was moving higgher against the dollar after European Central Bank chief Mario Draghi’s comments that the central bank doesn’t want rates to stay negative for a protracted period.

Wednesday, October 26, 2016 The pound gained slightly despite lingering fears about a hard Brexit. “With the terms and conditions of the U.K.’s future trade links still unclear it is too early to rule out further downside risks in sterling,” said Geoffrey Yu, head of UBS Wealth Management’s U.K. investment office. Mr. Yu believes that sterling could fall to as low as $1.10 temporarily over the next year. At 5.50am ET, USD/JPY was at 104.13-14, EUR/USD was at $1.0921-24 and GBP/USD was at $1.2206-08.

BONDS The yield on the benchmark 10-year U.S. Treasury note was 1.757% in European trading, compared with 1.758% Tuesday. Fed fund futures priced in a probability of 78.5% that the Fed would raise interest rates by its December meeting, according to data from CME Group. The odds were 74% Monday and 69% on Friday. The two-year note’s yield traded above 1% after the Fed raised interest rates in December 2015 for the first time since 2006. Traders say the two-year yield is likely to rise more from here if the Fed pulls the trigger in December. Justin Lederer at Cantor Fitzgerald said he doesn’t expect a big rise given the Fed’s signal of a very slow path in raising rates in coming years. Many investors don’t expect a sharp rise in the 10-year Treasury yield partly due to the prospect of a slowly-moving Fed. The 10-year note’s yield has risen from 1.605% set at the end of September, but it remains below 2.273%, the level it traded at the end of 2015.

COMMODITIES Oil prices were depressed Wednesday, with crude hitting a three-week low amid expectations for rising U.S. crude inventories and shaky prospects for a production cut deal by the Organization of the Petroleum Exporting Countries. Brent crude, the global oil benchmark, fell 1.4% to $50.08 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 1.5% at $49.23 a barrel. The rally in oil prices which began late last month after OPEC members stated an intention to cut production has run out of steam due to increasing doubts of the organization’s ability to reach a consensus. The latest hurdle to any deal came from Iraq, OPEC’s second largest producer after Saudi Arabia, saying it needs the oil income to fund its ongoing war against Islamic State. “It is increasingly evident that Iraq’s ambitions are not in line with OPEC’s preliminary accord to reduce output,” brokerage PVM said.

Wednesday, October 26, 2016 The outlook for excess oil supplies which have plagued the market for two years finally being absorbed was clouded by expectations that U.S. crude stocks are rising. Analysts surveyed by the Wall Street Journal estimate a 2.1-million barrel build in U.S. crude stocks, with weekly official data due to be published later today. Spot gold was down 0.03% at $1,274.35 a troy ounce in European trade, just under a three-week high.

Other Top Stories Of The Day Toyota Recalls 5.8 Million Vehicles With Faulty Takata Air Bags Toyota is recalling vehicles around the world equipped with air bags that lack a drying agent, making them prone to exploding.

Santander Profit Beats Forecasts Banco Santander said third-quarter net profit inched higher, as the Spanish lender’s business in Brazil benefited from a brightening outlook for the local economy and currency while the slump in the pound knocked returns from its U.K. unit lower.

GM Brings IBM’s Watson Into its Vehicles General Motors Co. is enlisting digital smarts from International Business Machines Corp.’s Watson in an effort to leapfrog other tech companies inside the car.

Today In Canada Earnings scheduled Barrick Gold (ABX) third-quarter results Suncor Energy (SU) third-quarter results

Economic Indicators (all times ET) Canada Mortgage and Housing Corp. releases housing-market outlook and 4Q market assessment at noon

Wednesday, October 26, 2016 Stocks to watch West Fraser Timber (WFT.T) shares climbed Tuesday after a strong third-quarter earnings report

Calendar items (all times ET) none