Commodities: At American Eagle, Costs Outpace Sales Growth — Market Talk

0848 ET – American Eagle Outfitters reported higher-than-expected comparable sales in the most recent quarter, signaling positive momentum ahead of the critical holiday season. However, while total sales grew 2.1%, costs of sales rose by 4% and contracting gross margin caused adjusted EPS to come up a penny short of expectations. The company said increased promotional activity and higher shipping costs associated with a shift toward online shopping hurt caused gross margin to fall to 39% from 40.2%. Shares rise 6.2% to $17.19 during premarket trading, extending the 6.2% gain logged so far this year. ([email protected]; @moisenoise)

0845 ET – Brown-Forman’s fiscal 2Q earnings underscore a wider trend that consumers are leaning more toward hard liquor. Kentucky-based alcohol-distributor’s Woodford Reserve and Herradura brands performed the best in the first six months of the fiscal year, bringing in 21% and 19% in underlying net sales growth respectively. In 2016, the company sold its Tuaca and Southern Comfort brands to turn its attention to Woodford Reserve and Jack Daniel’s. Sales at Brown-Forman for 2Q were up 11% and the company’s earnings beat estimates. Shares were up 2.5% in premarket trading. ([email protected]; @AllisonPrang)

0836 ET – Labor costs dropped for the second consecutive quarter in the summer of 2017, signaling wage increases aren’t keeping pace with rising productivity. Unit labor costs declined at a 0.2% annual rate in 2017’s third quarter, while productivity increased at a 3% rate, the largest such increase in three years. Still, hourly compensation itself was up 2.7% from the previous quarter, but that wasn’t enough to make up for the ramped up productivity. Today’s productivity and costs report is yet another sign of mysteriously sluggish wage growth occurring despite forces that could typically drive pay higher — rising productivity, a tight labor market and bountiful consumer spending and business profits. ([email protected])

0832 ET – T-Mobile will begin a share buyback program to the tune of $1.5B through the end of 2018, following through on hints from executives who said that was more likely than a new dividend. That, on top of an undisclosed number of common stock purchases by parent Deutsche Telekom, could help lift shares that came under pressure after the US carrier called off talks to merge with rival Sprint, a deal that could have saved both companies billions more each year. ([email protected]; @drewfitzgerald)

0826 ET – US benchmark oil prices trade 1.3% lower at a two-week low under $57/bbl after trade group API reported a big rise in US inventories of fuels like gasoline and diesel. The data late Tuesday actually showed a bullish, 5.5M-bbl drop in crude oil inventories, but investors focused more on the bearish, 14M-bbl rise in gasoline and distillate inventories combined, as it may hint at dissipating demand into the winter months. The official weekly data on US inventories will be released at 10:30am ET by the EIA. Beyond the inventories numbers, investors will also watch the report’s numbers on US crude oil production and exports. ([email protected])

0747 ET – Enterprise Products Partners plans to convert one of its natural-gas liquids pipelines to supply crude oil instead, as it responds to a natural gas glut coming from the Permian Basin. Enterprise says it expects to complete the conversion in 2020 to deliver oil from the Permian to the Texas Gulf Coast. The conversion helps Enterprise, which already has three gas pipelines in operation and one under construction. The gas glut has weighed on regional prices and is threatening to force oil and gas producers to make drastic decisions. ([email protected]; @BowKnowsBiz)

0740 ET – California’s Insurance Department is seeking to suspend or revoke Wells Fargo’s license for selling insurance, the state said late Tuesday. An internal investigation by Wells Fargo in April cited improper sales practices not just in banking but insurance products, and the state said it had found nearly 1,500 unauthorized policies issued to California consumers between 2008 and 2016. Mostly, it was renters’ coverage from American Modern Insurance Group. There also were term-life policies, mostly from Great-West Financial. In some instances, employees told consumers to provide personal information to receive a price quote, but employees later applied for the insurance for the customers, with premiums paid from their accounts. American Modern quit its sales program with Wells in 2012 after getting customer complaints, the state said. ([email protected])

0733 ET – US stock futures follow global markets lower as indexes in Hong Kong and Japan post their biggest daily point declines in over a year. Technology shares continue to pull back from the big gains posted so far this year dragging down the Nasdaq composite and pulling down the S&P 500 to its first three-day losing streak since August. ADP releases it private payrolls report at 8:15am ET, helping set the stage for Friday’s November jobs report. Economists are looking for an addition of 175,000 jobs. Treasurys tick higher, with the 10-year yield at 2.34%, while oil prices fall over 1%. S&P futures fall 3.25 points. ([email protected])

0242 ET – With data this morning showing that German manufacturing orders rose unexpectedly in October, bund traders’ attention will likely now turn to the U.S. ADP employment report due at 1315 GMT. ING strategists say that the ADP release should provide a clue as to whether the Dutch bank’s economists are right to anticipate a non-farm payroll figure of 200,000 or higher on Friday. Yields on 10-year German government bonds are quoted 2 basis points down to 0.30% early Wednesday, according to Tradeweb. Yields drop when bond prices rise. ([email protected]; @tasosvos)

0206 ET – Ahead of today’s noted selloff in Asia, Greg McKenna called Dow and S&P technicals “truly awful” following the past 2 days’ trading. “So much so I’m almost ready to…do the unthinkable in 2017 and sell stocks.” The chief market strategist at CFD and forex provider AxiTrader said why isn’t easy to answer “as the tax plan looks like it is actually going to become law. But the price action suggests this could be an interesting convergence in time between a ‘buy the rumor, sell the (almost) fact’-type trade and an approaching year-end which has traders, investors and hedge funds worried about protecting the profits” generated since Trump’s win. McKenna said charts suggest a 500-700 point drop in the Dow could come. But on the high end that’s just 3%. ([email protected]; @kevinkingsbury)

0221 ET – It was a tale of two stock markets in China today amid wide, noted selling in much of Asia. Shanghai stocks fell, with the composite index dropping below 3300, while the beaten-down market in Shenzhen bounced. The composite there rose 0.7% and the ChiNext jumped 1.5% as small caps gained. Hitting Shanghai amid the overseas selling was looming liquidity tightening, says Qian Qimin at Shenyin Wanguo Securities. ([email protected])

0206 ET – Ahead of today’s noted selloff in Asia, Greg McKenna called Dow and S&P technicals “truly awful” following the past 2 days’ trading. “So much so I’m almost ready to…do the unthinkable in 2017 and sell stocks.” The chief market strategist at CFD and forex provider AxiTrader said why isn’t easy to answer “as the tax plan looks like it is actually going to become law. But the price action suggests this could be an interesting convergence in time between a ‘buy the rumor, sell the (almost) fact’-type trade and an approaching year-end which has traders, investors and hedge funds worried about protecting the profits” generated since Trump’s win. McKenna said charts suggest a 500-700 point drop in the Dow could come. But on the high end that’s just 3%. ([email protected]; @kevinkingsbury)

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