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Morning Quant Ride April 12, 2018

Apr 12, 2018

Traders’ Corner

In President Trump’s tweet this morning regarding Syria, he stated that he “never said when an attack on Syria would take place. Could be very soon or not soon at all”. The market has perceived this as a walking-back of his initially aggressive response to the events in Syria, with investor sentiment turning notably positive. Markets are also expecting corporate tax cuts to help firms generate the highest quarterly profit increase in seven years.

US futures are higher this morning. S&P 500 futures are up 0.51%, while Dow Jones Industrial futures advanced 0.59%. Nasdaq 100 futures moved 0.56% higher, with technology poised for a strong start to the session.

Sino-American trade rhetoric continues with Gao Feng, a China Commerce Ministry spokesman, saying that China would “undoubtedly” retaliate to any further trade actions taken by the US.

OPEC raised the forecast for oil production external to its membership for the fifth straight month. Growth of more than 1.7m b/d have been projected for the year, an increase of 80,000 b/d, and nearly twice the amount forecasted in November. Key drivers for the increase include US production increases of 1.5m b/d, along with elevated production in Canada, Brazil, and the UK. (see options section below)

Initial weekly jobless claims came in slightly higher than expected (233k vs 230k estimates). Import price growth in March was slightly higher than M/M estimates (0.3% vs 0.2% estimates). Export price growth for March were higher than expected as well (0.3% vs 0.2% estimated).

“Earnings season” began in earnest this week, with numerous companies scheduled to release 1Q data today. BlackRock (BLK) Bank of the Ozarks (OZRK) and Delta Airlines (DAL) report earnings this morning.

US options, pre-market, are implying a drop in risk premiums with the VIX currently at 19.49 after closing at 20.24 yesterday.  April 20 OTM Puts on the SPY and July 20 S&P 500 Minis are the most actively traded index options this morning.  Notably, there is a lot of activity in single names with April 13 OTM Call on BAC the SECOND HIGHEST traded options contract this morning.  This is amidst speculation that Money Center Banks like BAC had a strong 1Q2018 with a return of market volatility.  April 20 OTM Calls on the USO (US WTI ETF) is also a heavily traded options contract this morning following the news headlines that OPEC production fell in March its lowest level in a year.  Commodity strategists expect a tighter market in 2H2018 to be supportive for both oil prices and oil stocks.

Asian & Australia Equities Recap

Asian equities closing broadly down with concerns about geopolitical risk driving news headlines.  Japanese stocks finished their trading session negative with the Nikkei 225 -0.12% and Topix -0.39%.  Consumer and healthcare stocks were the largest outperformers while industrials, energy and materials were the biggest decliners.  Notable movers included: Hino Motors +5.50%, Taiheiyo Cement -4.46%, Showa Denko -4.39%, Tokai Carbon -4.01%.  Market breadth was noticeably negative with 157 stocks of the 225 stocks of the Nikkei 225 finishing negative; only 57 stocks advanced.  Bank of Japan (BOJ) Governor Haruhiko Kuroda, after being reappointed to a second 5-year term as head of the BOJ, stated the BOJ will maintain its current monetary policy.  Japanese M2 money supply grew 3.2% Y/Y In March vs. Consensus of +3.3% Y/Y and +3.2% Y/Y in February (revised).

Hong Kong and Chinese equities closed negative with the Hang Seng -0.21%, Hang Seng China Enterprise -0.29%, and the CSI 300 -1.01%.  Energy, industrials and telecom stocks were the largest positive movers while consumer discretionary, tech and financials the biggest laggards.  Notable movers included: CNOOC +3.66%, Galaxy Entertainment -2.95%, PetroChina +2.89%, WH Group +2.24% and China Unicom +1.98%.  Market breadth for the Hang Seng was neutral with a negative bias: 20 stocks advanced, 29 stocks declined.  Volume traded in Hong Kong remains weak with volume turnover ~24.14% below its 10-day average; volume in Shanghai was ~10.26% below its 10-day average.

Officials in Beijing have begun to draft a proposal to remove curbs on the ability to trade stock index futures.  Currently, traders can only open 20 new contracts a day; the proposal would permit traders to open up to 100 new contracts a day. The China Securities Regulatory Commission will have to approve the stock index futures proposal before it is instituted.  Yi Gang, the People’s Bank of China (PBOC) Governor, believes 1Q2018 economic data was slightly better than the PBOC expected.  1Q2018 GDP growth for China is expected to be released on April 17; the results of a Reuters poll suggests it will be +6.8% Y/Y.

Indian equities finished their trading sessions positive with the Sensex +0.47% and the Nifty 50 +0.40%.  Tech stocks were the best performers in the Sensex; real estate stocks were the largest laggards.  Notable movers included: Tata Consultancy +4.04%, Infosys +3.41%, Dr Reddy’s Laboratory -1.97% and Axis Bank +1.63%.  Market breadth for the Sensex was neutral with 17 stocks advancing and 14 stocks declining.

Aussie stocks closed negative with the ASX 200 -0.23%.  Consumer discretionary, energy and materials stocks were the best performers while industrials, real estate, and consumer staples were the largest laggards.  Notable movers included: Infigen Energy +9.17%, Retail Food Group -8.33%, Bellamy’s Australia +3.820%, Syrah Resources +3.63%, nib holdings +3.63%, and Healthscope +3.43%.  Market breadth was negative with the Advance/Decline ratio closing at 0.42.

1-month implied volatilities for major Asian index options remain cheap with most finishing 1 standard deviation below their 1-year averages; 1-month implied volatility for HSI index options moved upwards and closed ~1.5 standard deviations above its 1-year average.  Skew remains elevated for most major Asia index options with 1-month skew for Nikkei 225 index options and Hang Seng index options closing north of 70%.  April 13 OTM Calls and Puts on the Nikkei 225 were the most actively traded options in Tokyo.  OTM December 20 Puts, OTM December 18 Puts, and April 27 OTM Puts on Hang Seng China Enterprise were the most actively traded options in Hong Kong.

European Equities Summary

European stocks are broadly higher this morning with the Euro Stoxx 600 +0.25%.  Regional indices are generally higher with the DAX +0.39% and CAC 40 +0.17%; the FTSE 100 is down 0.09%.  Financials, energy and healthcare stocks are the best performing sectors across Europe this AM; consumer staples, real estate and telecom stocks are the biggest laggards.  Notable movers include: Volkswagen +2.18%, Koninlijke Philips +1.62%, ING Groep +1.33%, and Fresenius +1.21%.  Market breadth for the large-cap benchmark index Euro Stoxx 50 is positive with 38 stocks advancing vs. 11 stocks declining.

Eurozone Industrial Production grew 2.9% Y/Y in February vs. Consensus of +3.8% Y/Y.  Following the release of this disappointing economic data, Citigroup released a note to its clients suggesting that investors should be buying European stocks now.  European Central Bank (ECB) President Mario Draghi believes the Eurozone will only be slightly affected by a Sino-American trade war though he admits this could hurt investor confidence.

French March CPI was revised to +1.6% Y/Y vs. a preliminary +1.5% Y/Y.

A rally in European stocks is driving down risk premiums in the options market with the VSTOXX at 16.0361 after closing at 16.9837 yesterday.  Skew on 1-month Euro Stoxx v50 options is fairly valued on its 1-year average.  In comparison to Euro Stoxx 50 index options, skew for DAX and CAC 40 1-month index options is expensive, currently at the 70th percentile.  April 20 OTM Puts & Calls on the Euro Stoxx 50 and June 18 OTM Calls on Euro Stoxx Banks are the most actively traded options in Europe.

Latin American Equities

Latin American equities finished mixed today. Brazil’s Ibovespa was up 87bps with healthcare +1.90% and energy +1.59% leading the index. Argentina’s Merval was down 60bps with industrials -3.72% and financials -2.31% driving the losses. Mexico’s Mexbol was up 42bps with the index being led by materials +1.01% and financials +0.84%. Brazil will be auctioning fixed rate debt today with repayment due by 2018, 2020, 2022, 2024, 2025 and 2029. Additionally, Brazil is said to mull setting its 2021 inflation target at 3.75%, down from its current target of 4.25%. Today, Copel (CPLE6 BZ) and Oi (BRFS3 BZ) will be releasing earnings while Brazil will also be releasing its retail sales data from February. Moody’s has lifted Mexico’s outlook to stable as NAFTA risk recedes. Negotiators will meet today to continue a technical round in Washington with rules of origin on the day’s agenda. Lastly in Mexico, Economists are expecting Banxico to keep its overnight rate steady at 7.5%. Elsewhere in LatAm, Ecuador will release economic activity and trade balance data today, Argentina is set to release inflation data and Peru is expected to keep its benchmark interest rate at 2.75% later tonight. Peruvian President Martin Vizcarra will open the Summit of the Americas today with Commerce Secretary Wilbur Ross speaking today.

Rates & Commodities

Bonds in the US and EMEA are weaker this morning and investors are buying bonds in Asia-Pacific except Japanese bonds are lower. The JGB¥ 10-Year Yield is slightly higher at 0.26% from the low of 0.23% earlier this week. German’s 10-Year Yield is back above 0.50% at 0.51% and UK’s 10-Year Yield is at 1.418%. In the US, investors have an appetite for risk as yields are higher across the curve, precious metals are down, and safe-haven currencies are lower. This sentiment follows political uncertainty easing as President Trump tweeting today that an attack on Syria will not be immediate and he hinted at never wanting to fire Robert Mueller. Following this news, the US 10-Year yield is at 2.792% from yesterday’s close of 2.781% and the US 30-Year Yield is at 3.011% from yesterday’s close of 2.995%. The USD$ is moderately higher at 89.80, higher by 33bps. The USD$ is stronger against the JPY¥ by 31bps, currently at 107.16, and sharply higher against the CHF by 62bps which is at 0.9635. All precious metals all lower with gold down 46bps at USD$ 1347.08/ounce, silver down 10bps at USD$16.67/ounce, palladium down 119bps at USD$954.48 and platinum down 26bps at USD$929.49. Contracts for aluminum are up 223bps at USD$2,250/contract, and copper follows up 07bps at USD$6,950/contract.


Major cryptocurrencies have sharply rallying this morning. The top 5 cryptocurrencies by market capitalization has shuffled with Litecoin now number six and EOS entering the top 5 after a +30% rally this week. The big five are trading at; Bitcoin USD$7,514.86 +9.64%, Ethereum USD$457.16 +10.17%, Ripple USD$0.5495 +11.75%, Bitcoin Cash USD$706.73 +8.53% and EOS USD$8.70 +31.50%. In China, a one-day event, called the Global Fintech & Blockchain China Summit was cancelled today. No official reason has been released but social media site Weibo has users saying the event was reported to the police due to an ICO project involved with the event where investors lost large sums of money. Samsung has been reported to have started manufacturing cryptocurrency mining chips. The company already produces memory chips for GPUs. Chinese internet search company, Baidu has launched a blockchain-based stock photo service to protect image intellectual property in China. The service is called Totem, and it uses a blockchain to timestamp submissions of each photograph from a user with a real-name identity and store the data on a distributed network. Lastly, a company owned by the Winklevoss twins have won a patent that will seek to improve the security of digital transactions within a cloud computer system.

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

Companies Trending in the News

BlackRock (BLK) reported 1Q EPS of $6.70, beating EPS estimates of $6.39.

Delta Air Lines (DAL) announced that revenue per seat per mile, an industry standard metric, will increase by 3% to 5% this quarter, and would mark the 5th straight quarterly increase.

Disney (DIS) would be required to pay $15.28 per share if it were to proceed with its acquisition of Fox’s (FOX) stake in British broadcaster Sky Plc (SKY.LN), according to a ruling by the UK’s Takeover Panel.

International Consolidated Airlines Group (IAG.LN), the owner of British Airways, announced that it is considering an acquisition bid for Norwegian Air Shuttle ASA (NAS.NO).

Lockheed Martin’s (LMT) F-35 missiles will no longer be accepted by the US Department of Defense due to disputes over which party is responsible for costs accrued during a production error.

Netflix (NFLX) is being sued by the City of Birmingham’s Relief and Retirement System, citing an unfair compensation system.

Tesla (TSLA) is reportedly targeting November 2019 as the start point for production for the company’s Model Y SUV.

Walmart (WMT) will reportedly reach an acquisition deal for a majority stake in Indian online retailer Flipkart by the end of June. The purchase will cost Walmart $10-$12 billion.

Upcoming Earnings & Events

Company Name




Earnings Date


Event Type

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

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