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Morning Quant Ride Mar 19, 2018

Mar 19, 2018

Traders’ Corner

March 12-16 Weekly Recap

US equities were broadly lower in last week’s trading as the S&P 500 declined 1.2%, and the Russell 2000 fell 0.7%.Materials were the biggest underperformer in the S&P, falling 3.2%, largely due to poorly performing steel and chemical equities. Financials, despite a lift to banking stocks from a reform of the Dodd-Frank Act, finished down 2.4%. In the S&P 500, the financial sector provided the 2nd worst returns for the week.  A continued rotation into utilities is evidenced by a 2.0% gain in utility stocks, and it was the only sector to post positive returns for the week.As with large-cap stocks, Russell 2000 utilities were the best performer, providing a 2.0% return. Technology, which finished flat, posted the next best return in the Russell 2000. Healthcare was a strong underperformer and declined 2.0%.European equities fared a little better with the MSCI Europe index finishing flat. Consumer discretionary stocks finished up 0.9%, followed by financials which rose 0.4%. Consumer staples and television services were the weakest performers. Both sectors finished 1.1% lower.Despite being down last week, on a MTD basis the S&P 500 and Russell 2000 are higher by 1.5% and 5.0%, respectively. Both indices are outperforming MSCI-tracked equities in the EU (-0.34% MTD), Japan (-1.89% MTD), Brazil (-1.60% MTD), and overall world markets (+0.91% MTD). The Russell 2000 is also outperforming China equities MTD (5.0% vs 4.13%).

US Week Ahead

Three important economic releases are scheduled for Wednesday: existing home sales for the month of February; the current account balance; and the FOMC rate decision. Initial jobless claims for the past week will be released on Thursday. New home sales will be released on Friday, as well as durable goods orders for the month of February.

US Market Preview

US markets are set to open lower with S&P futures lower by 0.53%, and Nasdaq futures sliding by 0.42%. Declines can be partially attributed to concerning news out of the tech sector. The Facebook (FB) data breach is provoking renewed attention by regulators to Facebook’s business practices. The EU is threatening a tax levy of 3% on digital revenues if steel tariffs are imposed. Shares of Facebook are down 4.1% pre-market. In consumer discretionary, Amazon (AMZN) is 1.3% lower on the heels off of news that a collection of Amazon sellers is forming a “merchants guild” to gain more leverage in negotiations with the company. Tesla is 2.0% lower before the open after a Goldman Sachs warning that 1Q deliveries of the company’s Model S product line may come in below guidance levels.

US options, in the pre-market open, appear to be pricing in a spike in volatility with April 20 ATM straddles on the SPY the most actively traded options spread this morning.  Expect to see implied volatility on Nasdaq index options and QQQ options spike on the open with Facebook currently trading down more than 4%.  Just as a point of reference, Facebook is ~5.5% of the QQQs.

Asian & Australia Equities Recap

Asian equity markets finished the trading session mixed with news Apple may design new micro OLED screens for its iPhones pressuring tech stocks in Japan and Hong Kong.  Japanese equities closed negative with the Nikkei 225 -0.90% and the Topix -0.96%.  Energy stocks were the only sector positive in Tokyo with materials, tech and real estate stocks the largest underperformers.  Notable movers included: Sony -4.23%, Yaskawa Electronics -3.78% and Astellas Pharma +3.65%.  Prime Minister Shinzo Abe remains under scrutiny in the Mortimo Scandal after taking more questions from the upper house of the Japanese Parliament.  The Japanese February Trade Balance was JPY¥3.4bn vs consensus of JPY¥89.1bn.  Exports in February grew 1.8% Y/Y while importat grew 16.5% Y/Y.

Chinese and Hong Kong equity markets were mixed, the Hang Seng +0.04%, Hang Seng China Enterprise index -0.10% and the CSI 300 +0.44%.  Consumer discretionary, telecom and energy stocks were the largest outperformers in Hong Kong with industrials, real estate and tech stocks the largest underperformers.  Notable movers included: China Shenhua Energy -2.99%, Galaxy Entertainment +2.44% and China Merchants Portfolio Holdings +2.32%.  Volume in Hong Kong and Shanghai was below recent trends: volume in Hong Kong 7.90% below its 10-day average, volume in Shanghai 14.79% below its 10-day average.  Yi Gang was appointed the PBOC Deputy Governors and it is expected to work with Vice-Premier Liu He to institute and support market-oriented reforms.  China February new house prices grew +0.2% m/m vs +0.3% in January.  The deceleration in housing prices remains concentrated in larger cities.

Indian equities closed down with the Sensex -1.51% and Nifty 50 -1.59%.  All sectors of the Sensex were negative as investors focused on rearranging fund allocations ahead of a implementation of a tax on equity gains that comes into effect on April 1.

In the Land Down Under, Aussies equities finished positive with the ASX +0.17%.  Energy, real estate and healthcare stocks were the biggest outperformers while tech, financials and consumer were the largest laggards.  Mega-cap materials stocks sold off as iron ore futures closed down more than 4% as news headlines emphasized that iron ore and rebar inventories are near multi-year highs.  Notable movers included: Bellamy’s Austrlaia +5.29%, Tassal Group -4.92%, Syrah Resources -4.16% and Galaxy Resources -3.92%.  News flow in Australia was limited as investors await the FOMC decision this Wednesday.

European Equities Recap

European equities are down across the board with the Euro Stoxx 600  -0.58%.  Regional indices are negative as well with the FTSE 100 -1.29%, CAC 40 -0.71% and the DAX -0.88%.  Real estate, travel & leisure and media stocks are the biggest outperformers this morning; tech, materials and oil & gas stocks are the biggest laggards.  Notable movers include: Total -2.77%, Societe General +1.41%, and Volkswagen -1.52%.  Concerns about a possible trade war, following a misstatement by a US Treasury official regarding trade negotiations with China, appears to be weighing on European exporters.  Volume traded across European exchanges is strong with volume currently 21.48% above its 1-year average.  The EU announced that is has agreed to terms with the UK on a 2-year transition after the UK leaves in the EU in March 2019.  Italian industrial production for January came in well ahead of consensus at +4.0% Y/Y vs. consensus +1.9%.  Italian equities, on a relative basis, are outperforming broad European equity markets today with the FTSE MIB only down 31 bps.Options markets remain relatively quiet with 1-month implied volatilities on European index options in-line with 1-year averages.  Skew remains above fair value, implying the continued demand for OTM Puts.

Latin America

The first preparatory meeting for the G20’s annual meeting, to be held next December in Argentina will take place this week as 22 finance ministers and 17 central bank presidents of the G20 will participate in debates and discuss bilateral agreements today and tomorrow in Buenos Aires. This AM, Venezuela’s situation will be a focus of the major G20 constituents and in the afternoon, the Brazilian minister will hold a session on the future of work and will discuss bilateral issues with Chile’s new Finance Minister – Felipe Larraín and his South African counterpart Nhlanhla Nene. Additionally this week, the Brazilian central bank will meet on Tuesday and is expected to announce a cut in the Selic rate of .25 percentage points to a level of 6.5% - the lowest level in history. This move is expected as Brazil is still in the process of economic recovery. Brazil’s equity market has had a strong start this year as the Ibovespa is up over 11% so far – and analysts are expecting the index to close upwards of 30% on the year or above 110,000 points.

Interest Rates & Commodities

US bonds are slightly lower this morning as the Federal Reserve is set to hold its Monetary Policy meeting later this week. US markets are looking for more transparency into the current Federal Reserve as this will be Jerome Powell’s first FOMC meeting. The 10-Year is trading at 2.86% and the 2-Year is at 2.29% - just below a psychological level of 2.30% which the 2-Year has not traded at since 2008. European bonds are mostly mixed besides the UK, which have sold off this morning as the UK and the EU have agreed on Brexit transition terms however the terms of Ireland remains unsolved. Following this news, the GBP£ has strengthened significantly against all major currency pairs, and most notably is 60bps stronger against the USD, rising above 1.40. Outside the GBP£, the USD$ is stronger against most major currency pairs and is 14bps stronger against the JPY¥ (106.28) as support for PM Abe’s administration has slumped to 33%, from a previous level of 45% due to the land-sale scandal. A major focus on the week for investors will be the two-day G20 meeting that starts later today in Buenos Aires which could reveal further indications of the relationship between US & China in terms of trade.Commodities are mostly lower across the globe as WTI Crude is 37bps lower as concerns from last week about increased supply from the US seem to be carrying into this week. The weekly Baker Hughes rig count added four oil rigs last week to a total of 800 compared to 631 a year ago. Precious metals are mostly trading lower except for Palladium which is up 45bps. Iron Ore was lower as much as 4% overseas as Chinese economic data revealed that new home & existing home prices are falling coupled with high inventories and weaker steel demand.


All major cryptocurrencies are trading higher to start the week after falling significantly over the past week. Twitter announced that they will be following in the footsteps of Facebook & Google, and ban Cryptocurrency Ads. Twitter is responding to the plethora of scams that have occurred on its platform and is signaling it will make a stronger effort to tackle crypto scammers. The positive sentiment in cryptocurrencies worldwide seems to be stemming from the news overnight that MasterCard is receptive to the idea of using central bank-issued national digital currencies in the future. Additionally, Intel is joining the growing list of enterprise firms that see blockchain technology as a use case to re-imagine digital rights management. The firm recently filed a patent for blockchain applications related to digital content. Lastly, more regulation seems be headed towards cryptocurrencies as the SEC confirmed last week that it will begin investigating companies and startups associated with initial coin offerings (ICOs).

We are watching these laggards from Friday's market action:

QuantShot: AbbVie Inc. - 9.65% off its 52wkH, reports earnings on 04/25/2018

AmerisourceBergen Corporation - 9.09% off its 52wkH, reports earnings on 05/07/2018

Comcast Corporation - 18.57% off its 52wkH, reports earnings on 04/25/2018

Huntington Ingalls Industries, Inc. - 8.17% off its 52wkH, reports earnings on 05/09/2018

Time Warner Inc. - 7.33% off its 52wkH, reports earnings on 05/02/2018 

Companies Trending in the News

Rahul Narang, portfolio manager of the Columbia Global Technology Growth Fund, in an interview with Barron's, states that he believes tech stocks continue to offer attractive growth prospects.  He argues for a thematic approach to investing in tech stocks with an emphasis on trends like artificial intelligence, mobile gaming, and autonomous vehicles.  Rahul names ACTIVISION (ATVI), FACEBOOK (FB), TENCENT (TECHY), ALPHABET (GOOGL), AMAZON (AMZN), APPLE (AAPL), MICROSOFT (MSFT) and CISCO (CSCO) as companies that continue to offer attractive potential risk-adjusted returns for investors over the long-term.

The senate repealed a bill that would effectively remove the Dodd-Frank regulations from banks with less than USD$250 billion in assets. Barron's noted that SVB FINANCIAL GROUP (SIVB), ZIONS BANCORP (ZION), STATE STREET (STT), and AMERICAN EXPRESS (AXP) as some of the companies that can benefit from this.Despite the White House's rejection of BROADCOM's (AVGO) bid for QUALCOM (QCOM), the company is still looking for an acquisition target. Wall Street has begun speculating who Broadcom will be targeting. Barron's noted MICRON TECHNOLOGY (MU), XLINIX (XLNX), MICROCHIP TECHNOLOGY (MCHP), MARVELL TECHNOLOGY (MRVL), MAXIM INTEGRATED PRODUCTS (MXIM), and ANALOG DEVICES (ADI) as potential targets.

Andrew Foster, CIO at Seafarer Capital Partners, in an interview with Barron's about volatility in emerging markets, notes that the iShares MSCI Emerging Markets ETF (EEM) tracks a market capitalization weighted global index.  This introduces different types of portfolio risk with over exposure the ETF to Chinese mega-cap tech stocks like TENCENT (TCEHY), ALIBABA (BABA), BAIDU (BIDU), and NASPERS (NPN.SOUTH AFRICA). Instead of simply following a passive market strategy, Foster argues for an emerging markets strategy that emphasizes cash flows and dividends.  He favors stocks like HYUNDAI MOBIS (012330.KR) and INFOSYS (INFY).

Plans to launch ALIBABA's (BABA) mobile payment service, Alipay, in Japan has run into some regulatory issues. Japanese banks have withheld information as there are concerns of potential data leaks into China.

Apple Inc’s (AAPL) suppliers fell after it was rumored that the company is deigning and producing its own device screens for the first time in a manufacturing plant in California.

Fastental Co (FAST) has been given a sell rating by Goldman Sachs due to a tightening gross margin. Price targets have been set at $49.

GGP Inc (GGP) has been upgraded to a buy at Mizuho, with a price target of $24.

Micro Focus (MCRO.LN) shares fell the most they have in 13 years after warning that its y/y revenue decline will be more significant than expected.

MONSANTO (MON) is seeking regulatory approval for dicamba-tolerant genetically modified soybean seeds in China and the EU. The seed has already been approved in Brazil. Monsanto closed up 0.49% on Friday.

NIKE (NKE) a second executive will be stepping down from the company as it continues its review of alleged improper conduct. Vice President and General Manager of Global Categories, Jayme Martin, will be the executive stepping down. Nike closed down 0.72% on Friday.

WALMART (WMT) is closing in on a $7 billion deal with India’s largest e-commerce company, Flipkart. Walmart would be buying roughly one-third of Flipkart Online Services. The talks may wrap up this month. Shares of Walmart rose 1.87% on Friday.

WELLS FARGO (WFC) is under legal scrutiny again. The FBI has been interviewing employees in the firm’s wealth management business. Wells Fargo shares closed down 1.64%.

Twitter Inc (TWTR) will reportedly ban cryptocurrency ads on its platform.

Unilever (ULVR.LN) has been upgraded to neutral from a sell rating at Goldman Sachs, with Goldman noting that Unilever is seen as an “obvious beneficiary” of emerging market growth.

Zoetis Inc (ZTS) has been cut to equal-weight from overweight by Morgan Stanley with a price target of $87. 

Large-Cap Conviction Buy Movers

Winners   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Federated Investors, Inc.   FII   Financials   Asset Management and Custody Banks  






Raymond James Financial, Inc.   RJF   Financials   Investment Banking and Brokerage  






Prestige Brands Holdings, Inc.   PBH   Healthcare   Pharmaceuticals  






Walmart Inc.   WMT   Consumer Staples   Hypermarkets and Super Centers  






Louisiana-Pacific Corporation   LPX   Materials   Forest Products  






Losers   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
LogMeIn, Inc.   LOGM   Information Technology   Internet Software and Services  






DENTSPLY SIRONA Inc.   XRAY   Healthcare   Healthcare Supplies  






AbbVie Inc.   ABBV   Healthcare   Biotechnology  






Harris Corporation   HRS   Industrials   Aerospace and Defense  






National Beverage Corp.   FIZZ   Consumer Staples   Soft Drinks  






Source: S&P Capital IQ                        

Large-Cap Conviction Short Movers

Winners   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
bluebird bio, Inc.   BLUE   Healthcare   Biotechnology  






ARMO BioSciences, Inc.   ARMO   Healthcare   Biotechnology  






Neurocrine Biosciences, Inc.   NBIX   Healthcare   Biotechnology  






Tesaro, Inc.   TSRO   Healthcare   Biotechnology  






Array BioPharma Inc.   ARRY   Healthcare   Biotechnology  






Losers   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Longfin Corp.   LFIN   Financials   Financial Exchanges and Data  






Riot Blockchain, Inc.   RIOT   Healthcare   Biotechnology  






RPC, Inc.   RES   Energy   Oil and Gas Equipment and Services  






Southwestern Energy Company   SWN   Energy   Oil and Gas Exploration and Production  






Altice USA, Inc.   ATUS   Consumer Discretionary   Cable and Satellite  






Source: S&P Capital IQ                        

Upcoming Earnings & Events

Company Name




Earnings Date


Event Type

Darden Restaurants, Inc.






Earnings Release Date

MSC Industrial Direct Co., Inc.  





Estimated Earnings Release Date

Celanese Corporation






Estimated Earnings Release Date

J.B. Hunt Transport Services, Inc.  





Estimated Earnings Release Date

UnitedHealth Group Incorporated






Estimated Earnings Release Date

Comerica Incorporated  





Earnings Release Date

M&T Bank Corporation






Estimated Earnings Release Date

Quest Diagnostics Incorporated  





Estimated Earnings Release Date

BB&T Corporation






Earnings Release Date

AT&T Inc.  





Estimated Earnings Release Date

Caterpillar Inc.






Estimated Earnings Release Date

Gentex Corporation  





Estimated Earnings Release Date

IDEX Corporation






Estimated Earnings Release Date

Kansas City Southern  





Estimated Earnings Release Date

Lockheed Martin Corporation






Estimated Earnings Release Date

Norfolk Southern Corporation






Estimated Earnings Release Date

Line for QuantShots

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