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Morning Quant Ride April 11, 2018

Apr 11, 2018

Traders’ Corner

US Market Preview

Yesterday’s positive sentiment from easing Sino-American trade tension has been replaced by concerns over geo-political risk. Addressing the situation in Syria, President Trump’s tweet this morning remarked that “Russia vows to shoot down any an all missiles fired at Syria. Get ready Russia because they will be coming”. Various airlines have reportedly been warned to avoid the area for 72 hours due to possible military action against Syria. Uncertainty has seeped back into the market, as investors weigh the implication of rising pressure between Russia and the US. A risk-off mentality has taken hold before the open.

US futures are sharply lower this morning. S&P 500 futures are down 1.14%, suggesting that most of yesterday’s 1.67% gain is at risk. Dow Jones Industrial futures are 1.16% lower, while Nasdaq 100 futures slid 1.00%.

This morning's March CPI data from the Fed were in-line with estimates with Y/Y CPI at 2.4%, Core-CPI at 2.1%. At 2:00 p.m EST, the FOMC’s meeting minutes for March will be released. Investors will be looking for indications of future rate increases, or changes in fiscal policy. The Treasury Budget will also be released at 2:00 p.m EST.

US options, pre-market, are implying a drop in risk premiums with the VIX currently at 21.33 after closing at 20.44 yesterday.  April 11 ATM Calls and Puts on SPY, April 11 OTM Puts on SPY, April 20 OTM Puts on EEM, and May 18 OTM Puts on XOP are the most actively traded options this morning.

Asian & Australia Equities Recap

Equity markets in Asia were mixed with a new scandal involving Japanese Prime Minister Shinzo Abe weighing on Japanese stocks.  The Nikkei closed down 0.49% following accusations that Prime Minister Abe allowed a friend to open a veterinary school on free land.  News headlines speculate whether the Prime Minister can win the upcoming elections in September with his approval rating at all-time lows.  The Topix finished down 0.38% in sympathy with the large-cap Nikkei 225.  Energy, telecom and industrials stocks were outperformers while healthcare and consumer stocks were the biggest decliners.  Notable movers included: J Front Retailing -9.28%, Terumo -6.45%, JXTG Holdings +4.26%, Kao Corp -4.26% and Tokyu Fudosan -3.96%.   Market breadth for the Nikkei 225 was negative with 93 stocks advancing and 123 stock declining.  Japan Core Machinery Orders for February grew +2.1% M/M vs. Consensus of -.25% and +8.2% M/M in January.

Chinese and Hong Kong equities finished their trading sessions positive with Hang Seng +0.55%, Hang Seng China Enterprise +.01% and CSI 300 +0.28%.  Energy, financials and industrials stocks were the best performing stocks in the Hang Seng while consumer and telecom stocks were the worst performers.  Notable movers included: AIA +4.68%, CNOOC +4.16%, PetroChina +3.75% and Sunny Optical Technology -3.35%.  Market breadth for the Hang Seng was neutral with the Advance/Decline ratio closing at 1.19.  Volume turnover picked up in Hong Kong with total volume traded 26.67% above its 10-day average.  People’s Bank of China (PBOC) Governor Yi Gang highlighted that foreign investors will be encouraged to enter auto finance, trust, financial leasing, consumer finance, and money brokerage sectors.  Limits on foreign ownership of asset and wealth management companies will be removed and the business scope of foreign banks will be expanded.  The Shanghai-Hong Kong daily stock connect north-bound quota will be quadrupled to CNY52bn on May 1.  China CPI grew +2.1% Y/Y in March vs. Consensus of +2.6% Y/Y abd +2.9% Y/Y in February.

Indian equities finished positive with the Sensex +0.18% and the Nifty 50 +0.14%.  Materials and E&Ps stocks were the best performing stocks.  Notable movers included: Tata Consultancy +2.85%, Adani Ports & Special Economic Zone -2.26%, State Bank of India -2.26%, YES Babj -2.26% and Sun Pharmaceutical +2.50%.  Market breadth for the Sensex was neutral with 17 stocks of the 30 stock Sensex advancing; 13 stocks declined.

Aussie equities closed their trading session negative with the ASX 200 -0.48%.  Energy and materials stocks were the best performing stocks while telecom, utilities and consumer staples were the largest decliners.  Notable movers included: Retail Food Group +8.51%, WiseTech Global -5.43%, WorleyParsons +4.91%, Orocobre -4.40% and Pilbara Minerals -4.17%.  Market breadth for the ASX 200 finished neutral with the Advance/Decline ratio closing at 0.77.  During a speech, Reserve Bank of Australia (RBA) Governor Philip Lowe reiterated a positive outlook for the Australian economy and does not expect it will be necessary to raise the RBA’s target interest rate in the near-term.

1-month implied volatilities for major Asian index options finished under 1 standard deviation below their 1-year averages.  Skew picked up and closed north of 70% for all major Asia index options.  April 13 OTM Calls and Puts on the Nikkei 225 were the most actively traded options in Tokyo.  OTM December 20 OTM Puts and April 27 OTM Calls on Hang Seng China Enterprise were the most actively traded options in Hong Kong.

European Equities Summary

European equities are down across the board with the Euro Stoxx 600 -0.74%.   Regional indices are negative with the FTSE 100 -0.16%, DAX -0.96% and the CAC 40 -0.65%.  Telecom, energy and utilities stocks are outperformers this morning while healthcare, industrials and consumer staples are the biggest laggards.  Notable movers include: Deutsche Telekom +3.28%, Fresenius -1.97%, Air Liquide -1.63%, Siemens -1.61% and Airbus -1.59%.  Market breadth for the large-cap Euro Stoxx 50 index is negative with 38 of the 50 stocks in the index declining; only 9 stocks in the Euro Stoxx 50 are advancing this morning.  European Central Bank (ECB) policymaker Ardo Hansson believes the ECB needs to be patient in providing stimulus because inflation will pick-up if the Eurozone economy continues to grow.   France's public sector trade unions are calling for a one-day strike in May in protest to President Emmanuel Macron's reforms of the French Economy.  Italian President Sergio Matteralla is holding another round of talks in an attempt to form a coalition government on Thursday and Friday.  President Mattarella has to name a prime minister in the near future.  Italian equities are down this morning with the FTSE MIB -0.82%.

While European equities are selling off this morning, in the options markets, the risk premiums remain relatively stable.  Currently, the VSTOXX is at 17.3734 after closing at 16.3164 yesterday.  Skew on 1-month Euro Stoxx 50 options is fairly valued on its 1-year average.  In comparison to Euro Stoxx 50 index options, skew DAX 1-month index options is expensive, currently at the 85th percentile.  April 20 OTM Puts on the Euro Stoxx 50 are the most actively traded options in Europe.

Latin American Equities

Latin American equities finished higher yesterday following global investor’s return to risk assets. Brazil’s Ibovespa was up 144bps, Argentina’s Merval was up 119bps and Mexico’s Mexbol is up 50bps. Volatility has subdued in Argentina as its 10D Vol is at 14.70 vs. 30D Vol of 19.98, however, volatility remains elevated in Brazil and Mexico as their 10D Vol’s are at 18.32 and 17.28 vs. 30D Vol of 15.30 & 14.62 respectively. Brazil will release its April IGP-M Inflation 1st preview reading today with a consensus estimate of 0.49% reading vs. 0.6% prior. Additionally, the region will release its Currency Flows Weekly. Mexico will release its Industrial Production Y/Y & M/M as well as its Manufacturing Production reading for February.

Rates & Commodities

Global bonds are mostly higher today as an appetite for risk assets declines as tensions involving the US and Russia over Syria are growing. In his tweets this morning, President Trump issued a warning to Russia over their promise to shoot down all missiles fired at Syria and proposed to “stop the arms race?”. The JGP¥ 10-Year now yields 0.019%, the German 10-Year is below 0.50% again and is now yields 0.492%. US bond yields are lower as well, the US 10-Year yield is at 2.772% from yesterday’s close of 2.792% and the US 30-Year Yield is at 2.994%, below 3.0% again, from yesterday’s close of 3.018%. The USD$ has consolidated below a 90.0 level and is currently at 89.51, lower by 12bps. Notably, the USD$ is stronger against the RUB? +2.66% for the 3rd consecutive day, and stronger against the TRY? by 1.72% following rising tensions in the Middle East. The USD$ is weaker against the JPY¥ by 28bps, currently at 106.28 in the risk-off sentiment.  All metals are higher with gold up 78bps at USD$ 1350.10/ounce, silver up 27bps at USD$ 16.62/ounce, palladium up 107bps at USD$962.10 platinum up 60bps at USD$935.39, aluminum up 290bps at USD$2,201/contract, and copper up 168bps at USD$6,945/contract. WTI Crude oil continues to extend gains, up 79bps at USD$ 66.03. WTI has crossed USD$ 66/barrel for the first time since March 26th.


Major cryptocurrencies are continuing their rally from the lows early Tuesday. All the big five are higher today. The big five are trading at; Bitcoin USD$6,842.13 +1.40%, Ethereum USD$412.47 +4.18%, Ripple USD$0.4908 +1.31%, Bitcoin Cash USD$649.48 +1.66% and Litecoin USD$114.03 +0.42%. Of the top twenty-five by market capitalization, 22 cryptocurrencies are posting positive returns as of midday. Bank of Montreal is the latest Canadian bank to ban its customers from participating in cryptocurrency purchases with their debit and credit cards; TD Bank also has a ban for cryptocurrency activities while RBC allows cryptocurrency transactions in limited circumstances. Yesterday, the European Commission had its Digital Day and 22 countries in the Eurozone signed a European Blockchain Partnership. Australia just passed new a new cryptocurrency regulation protocol called the AUSTRAC. This regulation measure will be like Japan’s FSA approach in that individuals who participate in cryptocurrency activities must register with the organization, and companies will have to meet anti-money laundering and counter-terrorism financing compliance. In Brazil, a master’s degree in cryptocurrencies will be offered by Fundação Getúlio Vargas (FGV), a higher education institution in São Paulo. Lastly, cryptocurrency exchange, Bittrex, is opening the door to signups once again after halting signups a few months back. Bittrex is the 7th most active cryptocurrency exchange currently.

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

Companies Trending in the News

A federal jury has ruled that Apple (AAPL) must pay $502.6 million in penalties to VirnetX due to iPhone patent infringement.

Alphabet (GOOGL) is reportedly in discussion with Nokia (NOK) regarding the purchase of Nokia’s airplane broadband business as Google seeks to expand its service offerings to users during flights.

Struggling Italian airline Alitalia SpA (AZA.IM) has reportedly received acquisition interest from EasyJet Plc (EZJ.LN) and Deutshce Lufthansa AG (LHA.GR).

ASOS Plc (ASOS.LN) shares are 1.8% lower after reporting disappointing sales growth and forecasting higher future capital expenditure.

Bank of America (BAC) reportedly plans to cease lending to firms that produce military-style firearms in the wake of mounting pressure following the school shooting in Parkland, Florida.

Bed Bath & Beyond Inc (BBBY) is scheduled to release 1Q earnings after the close today.

Fastenal (FAST) released earnings this morning, with net income for 1Q 2018 30% higher Y/Y, and 1Q 2018 EPS 30.6% higher.

Facebook Inc (FB) shares, which were up 4.5% following CEO Mark Zuckerberg’s testimony before Congress yesterday, have reversed and are down 0.66% pre-market.

Tesco Plc (TSCO.LN), Britain’s largest grocer, has completed the acquisition of Booker Groupl Plc for $5.7 billion

Twenty-First Century Fox Inc.’s (FOXA) London offices were raided by the EC regarding an antitrust investigation over the company’s sports rights, and distribution of sports content.

Upcoming Earnings & Events

Company Name




Earnings Date


Event Type

Celanese Corporation






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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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