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Morning Quant Ride April 10, 2018

Apr 10, 2018

Traders’ Corner

Statements overnight from Chinese President Xi Jinping, speaking at the Boao Forum for Asia, further eased concerns regarding a mounting Sino-American trade war. President Xi pledged that he is willing to consider measures to increase openness in the Chinese economy. Measures that were mentioned include: decreasing import tariffs for autos; improving the investment environment for international companies; protecting intellectual property of foreign companies; removal of foreign equity caps in banks, insurance companies, and securities firms by the end of the year.

While not specifically targeted towards the US, several key sticking points highlighted by President Trump were addressed in President Xi’s speech. The market viewed this as an accommodation to the US, supported by President Xi’s emphasis on avoiding a “Cold War and zero-sum mentality”. It is interesting to note that while President Xi is making commitments to a more open Chinese economy, sophisticated electronic jamming equipment has been deployed on South China Sea islands and shoals which China has occupied.

Following President Jinping’s speech, US futures are sharply higher. S&P 500 futures are up 1.3%, while Dow Jones Industrial futures have moved 1.4% higher. Nasdaq 100 futures surged 1.6%, with technology the biggest early beneficiary of calming trade rhetoric between China and the US.

After the Congressional Budget Office released projections for the US’ GDP trajectory yesterday, Federal Reserve Bank of Dallas President Robert Kaplan stated that he foresaw two more rate hikes this year, but fewer increases in future years due to slowing economic growth.

Ildefonso Guajardo, Mexico’s Economic Minister, remarked that he believes there is a “very high probability of reaching an agreement [on NAFTA] in principle, an 80% change”. The original goal for an agreement was January, which was then readjusted to the end of March.

A positive PPI report his morning (3% vs 2.8% prior) shows continued strength in the manufacturing economy. Whole Inventories for February are scheduled for release at 10: a.m EST.

US options, pre-market, are implying a drop in risk premiums with the VIX currently at 20.64 after closing at 21.77 yesterday.  July 18 OTM Puts on EEM, July 18 OTM Calls on SPY, April 11 OTM Calls on SPY, April 13 ITM Puts on the SPY and April 13 ITM Puts on the QQQs are the most actively traded options this morning.

Asian & Australia Equities Recap

Asian equity markets rebounded across the board.  Japanese equities closed positive with the Nikkei 225 +0.54% and Topix +0.35%.  Materials, industrials and tech stocks were the best performing groups while consumer staples, utilities and healthcare stocks were the largest decliners.  Notable movers included: Takashimaya -8.60%, Mitsui Mining & Smelting +5.44%, Hitachi Construction +4.65%, FamilyMart -4.45% and Nippon Electric +4.13%.  Market breadth was positive with the Advance/Decline ratio finishing at 2.54.  News headlines focus on instructions given by Prime Minister Shinzo Abe to Bank of Japan (BOJ) Governor Haruhiko Kuroda to use every policy available to achieve 2% inflation.  Japan Real GDP fell 1.5% in February due to a decline in exports to China which declined 18.2%.

Hong Kong and Chinese equities finished their trading sessions positive with the Hang Seng +1.65%, Hang Seng China Enterprise +2.08% and the CSI 300 +1.93%. Sentiment turned positive following President Xi Jinping’s conciliatory remarks regarding trade and measures to increase the openness of the Chinese economy (see above). Consumer and tech stocks were the best performing stocks in Hong Kong while utilities stocks were the only sector that finished negative.  Notable movers in Hong Kong included: AAC Technologies +6.80%, Country Garden +5.95%, Want Want China +5.84%, Ping An Insurance +5.04% and Sands China +4.65%.  Market breadth for the benchmark Hang Seng was overwhelming positive with 40 of the 50 stocks in the index finishing positive.

Indian equities closed positive with the Sensex +.027% and Nifty 50 +0.22%.   15 of the 19 sub-sectors in the Sensex finished positive with materials stocks leading the move upwards; autos were the biggest decliners.  Notable movers include: Axis Bank +5.43%, ICICI Bank +3.01%, Adani Ports & Special Economic Zone +2.75% and Tata Steel +2.58%.  Market breadth was neutral for the Sensex with 16 stocks advancing and 15 stocks declining.

Aussie stocks finished their session positive with the ASX 200 +0.83%.  Materials, telecom and financials stocks were the best performers in the ASX 200 while utilities, consumer discretionary and healthcare stocks were the largest decliners.  Notable movers included: Pilbara Minerals +5.66%, South32 +5.14%, Retail Food Group +5.03%, WiseTech Global +4.85% and Mineral Resources +4.74%.  Market breadth was positive with the Advance/Decline ratio closing at 2.18 on the ASX 200.

1-month implied volatilities for major Asian index options finished under 1 standard deviation below their 1-year averages.  Skew is nearing fair value for most index options besides Hang Seng Index options which remains at the 85th percentile.  April 13 OTM Calls and Puts on the Nikkei 225 were the most actively traded options in Tokyo.  OTM Aprils 27 Calls & Puts on the Hang Seng China Enterprise and April 27 OTM Calls on the Hang Seng were the most actively traded options in Hong Kong.

European Equities Summary

European equities are broadly positively this morning with the Euro Stoxx 600 +0.56%.  Regional indices are up across the board with the FTSE 100 +0.64%, DAX +0.93% and the CAC 40 +0.62%.  Consumer discretionary, materials and healthcare stocks are the best performers this morning while utilities are the only group negative.  Notable movers include: LVMH +4.40%, Bayer +4.25%, Volkswagen +2.40%, and Daimler +1.77%.  Market breadth for the large-cap benchmark Euro Stoxx 50 is neutral with 30 stock advancing and 17 stocks declining.  Volume in Europe is strong with total volume traded for the European Composite 11.83% above its 10-day average.

European Central Bank (ECB) Executive Board Member Benoit Coeure believes the ECB does not need to shift its monetary policy with the recent weakness in Eurozone economic data.  Ewald Nowotny, a member of the ECB Governing Council, suggests the ECB may end asset purchases and may raise the target deposit rate by the end of the year.  Ian McCafferty, a member of the Bank of England (BOE) Monetary Policy Committee, in an interview with Reuters, states that the BOE should not wait to raise interest rates given the risk of rising wage inflation and a continuation of synchronous global growth.

Risk premiums are declining this morning with the VSTOXX currently at 16.7981 after closing at 17.3530 yesterday.  Skew on 1-month Euro Stoxx 50 options is now cheap, trading around the 33rd percentile based on its 1-year average.  In comparison to Euro Stoxx 50 index options, skew for FTSE 100 1-month index options is still expensive, currently at the 85th percentile.  April 20 OTM Calls and Puts on the Euro Stoxx 50 and September 18 OTM Call on the Euro Stoxx 50 Banks are the most actively traded options in Europe.


Major cryptocurrencies are extending losses from yesterday. The big five; Bitcoin USD$6,734.23 -2.05%, Ethereum USD$393.88 -2.92%, Ripple USD$0.4828 -1.95%, Bitcoin Cash USD$633.46 -2.44% and Litecoin USD$113.18 -2.43% are all trading lower. There are some positive movements out of the top 25 cryptocurrencies by market capitalization; Tron +2.54%, Binance coin +1.28%, VeChain +7.48%, Ontology +19.71% and Icon +1.58% are notably higher. Cryptocurrency exchange, Gemini, will be rolling out block trading for bitcoin and ether starting later this week. These block trades won’t appear in the exchange’s order book until they’ve been filled. China’s Hainan province hosted the Boao Forum for Asia yesterday and blockchain developments were a major focus. Li Lihui, the former head of the Bank of China, said that developing a regulatory framework for blockchain use will be one of China’s National Internet Finance Associations (NIFA) top priorities this year. Additionally, in China, the country’s state-owned electricity company, China State Grid Corporation, has filed a patent application to use blockchain technology to advance its plans for an “Internet of Energy”. The patent application is looking to store and track information on a consumer’s electricity usage. Japan’s Financial Services Agency (FSA) released statistics regarding domestic cryptocurrency traders and the data showed that the country has at least 3.5mm individuals trading cryptocurrencies. In Chile, the government has announced that it will use Ethereum’s blockchain to record energy sector statistics in order to augment levels of security, integrity, traceability and confidence in the information available to the public.

Latin American Equities

Latin American equities finished mixed yesterday. Brazil’s Ibovespa was sharply lower, down 178bps, Argentina’s Merval was up 33bps and Mexico’s Mexbol was up 28bps. Brazil will be releasing inflation data from March today. Economists are forecasting 2.72% Y/Y vs. prior month of 2.84% and 0.12% M/M vs. prior month of 0.32%. Brazil has been focused on inflation readings as it is still recovering economically. Inflation readings have been coming in below target and the central bank has continued to cut the country’s Selic rate. Argentina is expected to hold its 7-day repo rate at 27.25% according to 24 of 26 analysts surveyed by Bloomberg; the other two expect a 50bps increase. Lastly, Mexico will release economic data today on international reserves, same-store sales Y/Y and nominal wages.

Rates & Commodities

Bonds across the globe are mixed before Tuesday’s US session. Bonds in Asia-Pacific are mostly lower except for Japanese and Chinese bonds. The JGB 10-Year Yield is at 0.023%, reaching the lowest level since trade war discussions began. Bonds in EMEA are mostly higher despite the risk on appetite from overseas. US bonds are slightly lower this morning as investors seem to have a risk on sentiment following Xi Jinping’s speech last night which showed China’s willingness to compromise with the US and avoid further tension. The 10-Year yield is at 2.792%, higher from yesterday’s close of 2.779% and the US 30-Year Yield is at 3.032% higher from yesterday’s close of 3.013%. The USD$ remains below a 90.0 level, currently at 89.59, lower by 28bps. The USD$ is sharply higher +3.70% against the RUB? again, at 62.88. Further weakness on the Ruble stems today from investors continuing to price in global sanctions on Russia as well as Russia cancelling a bond sale today. The USD$ has advanced against the JPY¥, currently at 107.05, up 27bps following Xi’s speech. Precious metals are mostly muted today with gold, silver and platinum looking for direction. Gold is up 1bps at USD$ 1336.47/ounce, silver up 3bps at USD$ 16.50/ounce palladium up 43bps at USD$936.35 and platinum down 21bps at USD$930.51. WTI Crude oil is trading higher for the second consecutive day, up 126bps at USD$ 64.22. WTI seems to be trading higher off USD$ weakness, trade war tensions easing and reports that Saudi officials are targeting a $80/barrel level to execute their Aramco IPO.

*All returns are price returns**All returns in local currency

Companies Trending in the News

Amazon Inc (AMZN) has announced that it will begin offering delivery from its Whole Foods subsidiary to Amazon Prime members in Southern California. The delivery service is now available in 7 locations.

Alibaba (BABA) subsidiary Ant Financial plans to raise $9 billion of capital through another round of fundraising. If successful, Ant Financials’ valuation would reach $150 billion.

Apple (AAPL) achieved its goal of powering all company facilities through 100% renewable energy. The company’s data centers, offices, and retail stores across 43 countries now run sustainably.

Boeing Co (BA) has reportedly entered a $6.2 billion deal with Indonesia’s Lion Air Group. The deal entails Boeing’s provision of 50 737 MAX 10 aircrafts.

Facebook (FB) CEO Mark Zuckerberg will testify before Congress this morning regarding Facebook’s involvement in the Cambridge Analytica data breach scandal.

Sberbank PJSC (SBER.RM) shares have fallen the most in a decade on fears of the impact of US imposed sanctions onto Russian firms. Shares fell 20.31% yesterday.

Tenneco Inc (TEN) has agreed to purchase car-part making competitor Federal-Mogul LLC for $5.4 billion.

Handelsblatt reported this morning, European time, that Matthias Mueller will be replaced as the CEO of the Volkswagen (VOW.GR) group. His reported successor is Herbert Diess, who is currently CEO of the Volkswagen car division. Dr. Diess joined Volkswagen from BMW in 2015.

Wells Fargo (WFC) is the target of the Consumer Financial Protection Bureau, which is seeking to levy a fine of several hundred million dollars against Wells Fargo. Insurance and mortgage lending malpractice have been cited as the cause for the fines.

Upcoming Earnings & Events

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J.B. Hunt Transport Services, Inc.  





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UnitedHealth Group Incorporated






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Comerica Incorporated  





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M&T Bank Corporation






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Quest Diagnostics Incorporated  





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BB&T Corporation






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AT&T Inc.  





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Caterpillar Inc.






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Gentex Corporation  





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IDEX Corporation






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Kansas City Southern  





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Lockheed Martin Corporation






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Norfolk Southern Corporation






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