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Morning Quant Ride Mar 26, 2018

Mar 26, 2018

Traders’ Corner

US Market Preview

News of the Sino-American discussions on a possible resolution to the trade conflict reversed sentiment in the market this morning. Over the weekend, US and Chinese trade officials reportedly discussed options for avoiding further escalation of trade tensions. US trade officials are seeking several concessions including reduced tariffs on US automobiles, greater foreign access to the Chinese financial sector, and increased Chinese purchases of US semiconductors.South Korea will be the next country to receive exemption from US steel and aluminium tariffs. In exchange, South Korea is required to double its imports of US made cars, decrease the amount of steel it exports to the US, as well as allowing the US to continue to impose 25% tariffs on pick-up trucks.Following last week’s 5.9% decline in the S&P 500, sentiment to begin this week’s trading is more positive with S&P 500 futures are up 1.48% today. Dow Jones Industrial and Nasdaq futures are mixed with the DJI up 1.69% while the NASDAQ continues its negative trend of last week with futures lower by 0.29% as regulatory uncertainty hangs over the technology sector.There are no major economic releases scheduled for today.Shares of Micron Technologies (MU) are set to open 2.10% higher today, while Advanced Micro Devices (AMD) is edging 0.09% higher. Semiconductor stocks such as Micron, AMD, Lam Research, and Western Digital were the worst performing stocks in the S&P 500 on Friday.

US options, pre-markets, are implying a bullish bias with the VIX currently at 22 after closing at 24.87 on Friday.  ITM April 20 SPY Put spreads are the most actively traded options spread this morning which suggests investors are selling volatility and expecting a positive move for the SPY through April 20.

Asian & Australia Equities Recap

Asian markets rebounded following the comments by US Treasury Secretary Steven Mnuchin that the United States is looking to negotiate with China to avoid a trade war.  Japanese equities closed up on the news with the Nikkei 225 +0.72% and the Topix +0.38%.  Materials, consumer staples and healthcare stocks were the best performing sectors while tech and utilities sectors were the only groups to finish negative.  Notable movers included: Kansai Electric Power -4.05%, Oji Holdings +4.01%, Ricoh Co -3.87% and Tokuyama +3.65%.  Total volume traded in Tokyo picked up, finishing 10.36% above the 10-day average.  News headlines focused on Prime Minister Shinzo Abe’s approval rating slipping to 42% (was ~56% last month) on account of the Moritomo Scandal.

Hong Kong equities finished their trading session positive while mainland Chinese equities closed down: Hang Seng +0.79%, Hang Seng China Enterprise Index -+0.57% and the CSI 300 -0.64%.  Energy, tech and consumer discretionary stocks led the rally in Hong Kong equities while consumer staples, telecom and utilities stocks were the worst performing sectors.  Notable movers included: China Petroleum & Chemical +5.16%, WH Group -4.21%, Sunny Optical Technology +4.15% and Country Garden Holdings +3.60%.  Volume traded in Hong Kong was significant, finishing 21.59% above its 10-day average.  Hong Kong equities rebounded on news that the US government would prefer to negotiate with the CCP about trade issues.  Notably, the US government has asked for a reduction in tariffs on US autos, increased purchases of US semiconductor products by Chinese companies, and greater access to Chinese markets for US financial companies.

Indian equities closed up with the Sensex +1.44% and the Nifty 50 +1.33%.  Financials and tech stocks were the top performing sectors.  Notable movers included: Yes Bank +5.67%, State Bank of India +5.01%, Wipro -3.96% and HDFC Bank +2.91%.

In the Land Down Under, Aussie equities finished negative with the ASX 200 -0.52% with worries about a global trade war weighing on investor sentiment.  Energy and tech stocks were the only positive sectors in the ASX 200; financials, consumer staples and telecom were the worst performing groups.  Notable movers included: Genworth Mortgage Insurance Australia -3.83%, Galaxy Resources -3.66%, Syrah Resources -3.55%, AMP -2.87% and Resolute Mining +2.76%.   The Australian Prime Minister’s office is close to securing support in the Australian Senate for a cut in the corporate tax rate to 25% from 30%.

Following headlines that the US government would like to avoid a trade war with China, implied volatility for options on major Asia and Aussie indices began the process of mean reverting downwards with 1-month implied volatility finishing slightly below 2 standard deviations below 1-year averages.  This compares to Friday morning, when 1-month implied volatilities were well above 2 standard deviations.  Skew continues to be elevated pointing to investor demand for OTM Puts.  March 28 strangles on both the Hang Seng and Hang Seng China Enterprise index were some of the most traded options spreads in Hong Kong.  April 13 OTM Calls on the Nikkei 225 were the most traded options in Tokyo.

European Equities Recap

European equities are broadly up this morning with the Euro Stoxx 600 +0.38%.  Regional indices are up across the board with the FTSE 100 +0.33%, DAX +0.52% and the CAC 40 +0.30%.  Auto & Parts, healthcare and E&Ps are the best performing sectors this morning while personal & household, retail and financials are the biggest laggards.  Notable movers included: BMW +1.90%, Banco Santander +1.81%, Volkswagen +1.74% and Deutsche Bank -0.87%.  Volume traded in Europe is weak this morning with total volume traded for the European Composite 28.60% below its 10-day average.  UK Labor Productivity is expected to lag behind Labor Productivity in the Eurozone: UK Labor productivity growth is expected to be +0.80% vs. +1.10% in the Eurozone.  Italian 5-star head Luigi di Maio praises League leader Mateo Salvini after the two parties, along with Silvio Berlusconi's Forza Italia Party, have formed a center-right alliance with enough seats to govern Italy.  Italian equities are down this morning with the FTSE MIB the only regional European index negative, currently -0.10%.  S&P raises Spain's credit rating to A- from BBB+, and assigned a positive country outlook due to its "overall economic and budgetary performance".  Spanish equities trading up this AM with the IBEX 35 +0.57%.

Implied volatility for European options is moving downwards with the VSTOXX currently at 20.16 after closing above 21 on Friday.  1-month skew remains elevated for major European index options with average skew above the 85th percentile.  The most actively traded options this morning are OTM June 15 Call on the Euro Stoxx 50 Banks sector and April 20 strangles on the Euro Stoxx 50.

Latin American Equities

EM Funds saw inflows of $2bn last week with the LatAm region receiving $866mm. This was the largest week of inflows for LatAm funds since October 2010. Brazil & Mexico each received over $200mm of inflows over the week. Latin American equities proved resilient last week during the global equity market sell-off. Brazil's Ibovespa index was down 1.10%, Mexico's Mexbol -1.14% and Argentina's Merval -3.3% for the week. Volatility in Latin American equities has not seen the same spike that developed markets have: the Ibovespa’s 10D Vol is at 11.24 compared with a 30D Vol of 15.82. The Merval’s 10D Vol is at 17.83 compared with a 27.92 30D Vol and the Mexbol’s 10D & 30D Vol remain are both at ~12.

Rates & Commodities

US Bond are weaker across the curve as yields on all maturities are higher to start the trading week. The 10-Year is at 2.843% in comparison to 2.81% from Friday’s close and the 30-Year is at 3.087% from 3.051% at Friday’s close. Bonds around the globe are weaker as well as yields are higher across EMEA & Asia-Pacific. Investors should keep their eye on the notable move in the LIBOR markets as the 1Y LIBOR has increased ~40bps over the last thirty days. A big focus on the week will be the US treasury auctioning $294bn worth of bills and notes, its largest auction ever of bills & notes. Key events on the day include the Dallas Fed manufacturing index for March, NY Fed President Dudley set to speak at 12:30PM, followed by Cleveland Fed Mester speaking at 4:30 and Vice Chairman for Supervision, Randal Quarles speaking at 7:10PM. Additionally, UK and EU negotiators are due to meet to discuss post-Brexit Irish border issues.The USD$ (89.21) continues to trade weaker as risk assets are rebounding from last week’s global sell-off. Additionally, the USD$ continues to be sold by investors as trade war concerns remain. Notably the $USD is weaker by 46bps against the EUR€ (1.241), down .66% against the GBP£ (1.422) and stronger against the JPY¥ (105.12). However, China’s Vice Premier Liu He and US Treasury Secretary Steven Mnuchin spoke over the weekend and reportedly the US and China can possibly find an agreement to resolve trade tensions. Additionally, the US and South Korea have reached an agreement on the principles of amending their bilateral trade deal. The US has permanently exempted South Korea on its steel tariff initiative in exchange for concessions on the amount of steel exports by South Korea and further access to the South Korean markets by US companies.WTI Crude oil is trading at $65.66/barrel and Brent Crude is trading above $70, at $70.37/barrel for the first time since January. Precious metals are higher on the day as investors may be taking positions as they remain cautious after last week. Gold is slightly higher on the day at 1,348 USD4/ounce, up 6bps, silver is following at 16.62 USD$/ounce and platinum and palladium are also up 20bps & 66bps respectively at 950.78 USD$/ounce and 982.78 USD$/ounce.


Major cryptocurrencies are weaker to start the week with Bitcoin ($8,277) down 2.7%, Ethereum ($499.53) down 3.7%, and Ripple ($.60) down 4.4%. News is light on the day and investors may be taking gains after a strong week last week. Cryptocurrency exchange Huobi reportedly has registered with the Financial Crimes Enforcement Network (FinCEN), ahead of opening its office in the United States. Huobi will be opening a crypto-only exchange for US investors that will be separate from Huobi's existing crypto-to-crypto platform, Huobi Pro. Santander is partnering with Ripple to release an international money transfer app using Ripple’s blockchain xCurrent and RippleNet platforms. The application will be open for Santander’s Spanish, Brazilian, British, and Polish customers this spring. Lastly, Monero is said to be going to war against large cryptocurrency miners. Monero is hopeful that users can mine on its blockchain using consumer-grade laptops. The trend in the cryptocurrency world has been to use super computers. Core developer Riccardo Spagni has said "I will do everything in my power to help the community prevent the proliferation of centralization-inducing ASICs on the monero network”. Spagni believes this is in the best interest of the Monero community as the use of ASIC allows bad actor’s to exist on the blockchain.

After yesterday's market pullback, we are watching the following A-rated laggards:

QuantShot: AbbVie Inc. - 22.56% off its 52wkH, reports earnings on 04/25/2018

QuantShot: Allison Transmission Holdings, Inc. - 18.03% off its 52wkH, reports earnings on 04/25/2018

QuantShot: Coherent, Inc. - 41.63% off its 52wkH, reports earnings on 04/27/2018

QuantShot: Comcast Corporation - 24.61% off its 52wkH, reports earnings on 04/25/2018

Eaton Vance Corp. - 11.71% off its 52wkH, reports earnings on 05/23/2018

Huntsman Corporation - 19.89% off its 52wkH, reports earnings on 04/26/2018

Louisiana-Pacific Corporation - 10.04% off its 52wkH, reports earnings on 05/04/2018

QuantShot: Norfolk Southern Corporation - 15.89% off its 52wkH, reports earnings on 04/20/2018

QuantShot: The J. M. Smucker Company - 11.45% off its 52wkH, reports earnings on 06/07/2018

United Rentals, Inc. - 8.68% off its 52wkH, reports earnings on 04/20/2018

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

Companies Trending in the News

Boeing Company (BA) may be the target of Chinese countermeasures to last weeks imposition of tariffs by the US.

CHINA SOUTHERN AIRLINES (1055 HK), which is Asia’s largest carrier by fleet size, posted record profits for 2017. Net incomes rose by 18 percent last year, and revenue rose by 11 percent.

JD Sports Fashion Place has agreed to buy US retailer FINISH LINE, INC. (FINL) for $558 million, $13.50 per share. Shares of Finish Line are 27.1% higher pre-market.

INTERNATIONAL PAPER’s (IP) $11 billion bid for Irish packing company Smurfit Kappa Group Plc has been rejected. The offer was for 37.54EUR per share, revised higher after a previous offering of 36.46EUR per share was rejected as well.

PFIZER (PFE) has planned to launch over-the-counter sales of its Viagra product in the UK, and the product would be called Viagra Connect. Falling sales of the product line in the UK market have promoted this decision.

UBI BANACA (UBI.IM) has denied reports that is was considering a possible merger with Monte Paschi di Siena.

BERKSHIRE HATHAWAY (BRK.A) has announced that Knauf entities made an offer for the company’s USG CORP (USG) subsidiary earlier this month. The offer was for $42 per share, or a 25% premium of the stock’s current price with a total valuation of $5.9 billion for the company. Shares of USG are up 20.1% pre-market.

Large-Cap Conviction Buy Movers

Winners   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Eagle Materials Inc.   EXP   Materials   Construction Materials  






Lockheed Martin Corporation   LMT   Industrials   Aerospace and Defense  






Huntington Ingalls Industries, Inc.   HII   Industrials   Aerospace and Defense  






Harris Corporation   HRS   Industrials   Aerospace and Defense  






Post Holdings, Inc.   POST   Consumer Staples   Packaged Foods and Meats  






Losers   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Raymond James Financial, Inc.   RJF   Financials   Investment Banking and Brokerage  






Mohawk Industries, Inc.   MHK   Consumer Discretionary   Home Furnishings  






DENTSPLY SIRONA Inc.   XRAY   Healthcare   Healthcare Supplies  






Celanese Corporation   CE   Materials   Specialty Chemicals  






Jacobs Engineering Group Inc.   JEC   Industrials   Construction and Engineering  






Source: S&P Capital IQ                        

Large-Cap Conviction Short Movers

Winners   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
ADT Inc.   ADT   Industrials   Security and Alarm Services  






Square, Inc.   SQ   Information Technology   Data Processing and Outsourced Services  






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






Ionis Pharmaceuticals, Inc.   IONS   Healthcare   Biotechnology  






Nutanix, Inc.   NTNX   Information Technology   Internet Software and Services  






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






bluebird bio, Inc.   BLUE   Healthcare   Biotechnology  






Mattel, Inc.   MAT   Consumer Discretionary   Leisure Products  






Menlo Therapeutics Inc.   MNLO   Healthcare   Pharmaceuticals  






Laredo Petroleum, Inc.   LPI   Energy   Oil and Gas Exploration and Production  






Source: S&P Capital IQ                        

Upcoming Earnings & Events

Company Name




Earnings Date


Event Type

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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