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Morning Quant Ride April 17, 2018

Apr 17, 2018

Traders' Corner

Key Highlights

  • US equity futures are advancing this morning as investors shift focus to 1Q earnings
  • Netflix reports largest growth in subscribers since going public
  • Goldman Sachs beats estimates on robust sales and trading revenues
  • European and US auto stocks are rallying this morning following news China will ease access for foreign car manufacturers
  • VSTOXX at its lowest levels since January 2018
  • US cryptocurrency exchange, Kraken, is closing up shop in Japan as trading volume has been said to be 5-10% of what it was in January
  • European markets broadly higher, with Italian political developments a focus
  • Asian equites finished mixed with Japanese equities higher, Australian stocks flat, while Chinese and Hong Kong stocks declined

US Equities Before the Open

US equity futures are pointing to a positive open this morning as investors shift their focus to 1Q2018 earnings releases: S&P500 e-mini futures +0.50%, Nasdaq 100 e-minis +0.48% and Dow Jones e-minis +0.78%.   News that China will ease access for foreign auto manufacturers to the domestic Chinese market is causing European auto stocks to rally; expect to see US auto stocks rally in sympathy this morning.  Ford and GM are both up ~1% this AM pre-market.

Cryptocurrency Morning Brief

Major cryptocurrencies have reversed from Monday’s losses and are positive today. Bitcoin is back above USD$8,000 and is at $USD8,088.73 +0.06%. Notably; Verge, EOS, Populous are the top performers today – up 26.23%, up 8.95% and up 44.21% respectively. South Korean exchange, Coinone has decided to move to Indonesia. This move comes from regulations being implemented in South Korea that has reportedly reduced trading to 5-10% of what it was in January. Monex, who bought Coincheck, has said it may be able to relaunch the cryptocurrency exchange within two months. US cryptocurrency exchange, Kraken, has said it will be ending its services in Japan due to rising costs of operating business. Kraken is in the top ten of cryptocurrency exchanges based on trading volume. UK investment bank, Barclays, is considering opening a cryptocurrency trading desk for its clients. Currently the bank is performing due diligence and may partner with Goldman Sachs.

European Equities at Midday

European equities are broadly positive today with the Euro Stoxx 600 advancing 0.38%. Regional markets are higher across the board with the DAX rising 0.78%, the CAC40 advancing 0.39%, and the FTSE 100 0.17% higher. All sectors in the Euro Stoxx 600 are positive, except for consumer staples (-0.03%). Financials, energy, and information technology are the biggest outperformers. Notable movers include: Nokia +3.04%, Bayer AG +2.06%, Anheuser-Busch +1.06%, and ASML Holdings +1.0%. Market breadth is notably positive in the Euro Stoxx 600 with 430 of the 600 stocks advancing.

Of the 55 economists surveyed in a Reuters poll, 85% believe that Eurozone growth will be harshly impacted by further Sino-American trade conflict.

Leading economic institutes in Germany have improved their yearly growth outlook for Germany to 2.2% in 2018, up from 2.0%.

Italian President Mattarella is reportedly expected to decide on how the Italian government will proceed in the coming days, with the Center-Right expected to have priority in forming a government.

Asia & Australia While You Were Sleeping

Japanese equities edged 0.6% higher, compounding on yesterday’s gains.  Healthcare, consumer staples, and consumer discretionary were the biggest outperformers with financials, telecommunications, and materials the worst performers. Notable movers included: FamilyMart UNY Holdings +3.94%, MEIJI Holdings Co +3.27%, Toho Co Ltd +3.16%, Showa Denko +2.02%. Market breadth was negative with 137 stocks declining, while only 73 advanced. Japanese Prime Minister Shinzo Abe is scheduled to meet with President Trump regarding US imposed steel and aluminum traffic, from which Japan in not exempt. The Bank of Japan is expected to leave its inflation target unchanged at 2% for FY 2019 and 2020. Yesterday, Japanese and Chinese officials met, with both sides emphasising the importance of avoiding further global trade conflict.

Chinese and Hong Kong equities declined with the Hang Sang index falling 0.84%, the Hang Sang China Enterprise moving 0.90% lower, and the Shenzen Composite retreating 2.21%, compounding yesterday’s losses. In Hong Kong, only energy (+0.36%) and utilities (+0.15%) finished in positive territory. Information technology, industrials, and real estate were the biggest underperforming sectors. Notable movers in the Hang Sang included: Bank of East Asia +2.01%, Hang Sang Bank Ltd +1.64%, CNOOC Ltd +1.63%, Sands China Ltd +1.49%. Market breadth in the Hang Sang was decidedly negative with 40 of the 50 stocks in the red. Chinese 1Q 2018 GDP growth came in at 6.8%, in-line with expectations, and matching results from 4Q 2017. Chinese industrial production growth for March was in-line with estimates (6.0% vs. 6.0% expected) on a y/y basis but fell from a 7.2% growth level in February. Chinese retail sales for March were stronger than expected on a y/y basis, coming in at 10.1% (vs. 9.9% estimate). Chinses unemployment ticked 0.1% higher for March, m/m (5.1% vs 5.0% prior). China has increased its holdings of US treasuries by $8.5 billion to a total of $1.18 trillion in February, the largest increase in 6 months. Chinese officials have announced that China will be imposing a 178.6% anti-dumping duty on US sorghum imports. The US exported $957 million worth of sorghum to China last year.

Indian equities advanced, with 13 of 19 Sensex sub-sectors in positive territory, led by power companies. Notable movers included: Gird Corp of India +2.94%, NTPC Ltd +1.99%, Hindustan Unilever +1.83%, ICICI Bank +1.50%.

Aussie equities finished flat, with the ASX 200 unchanged, contrasting yesterday’s 0.21% rise. Telecommunications, industrials, and healthcare were the biggest outperformers in Sydney while financials, consumer staples, and energy underperformed. Notable movers included: Webjet Ltd +3.31%, Altium Ltd +2.91%, WiseTech Global +2.83%, REA Group +2.06%. Meeting minutes for the RBA’s April session showed a planned rise in short term Australian rates, and that the next increase will likely be more significant.

Rates & Commodities This AM

World bonds are mostly mixed. In Asia-Pacific, yields are higher except for in Australia. Yields are slightly higher in EMEA with the German 10-Year at 0.522%. In the US, the 10-Year Yield is at 2.834%, up from yesterday’s close of 2.830% and the US 30-Year Yield is at 3.035%, up from yesterday’s close of 3.029%. The US treasury curve flattened yesterday led by gains on the long end. The front end of the curve lagged while Eurodollar options flows were skewed towards downside protection. The USD$ is unchanged from yesterday’s close at 89.42. The USD$ is moderately stronger against the RUB? by 51bps, at 61.54. The USD$ is stronger against the CHF by 28bps at .9621, and flat against the JPY¥ signaling investors may have an appetite for risk today.  Trade talks are affecting USD$ pairs this week. Mexican Economy Minister Guajardo says 10 NAFTA chapters have been concluded or are close to conclusion and another meeting with USTR Lighthizer this Thursday may occur. A Chinese diplomat has said that the UK trade discussions with China would face significant uncertainties if the UK fails to reach a Brexit deal with the EU.

What's Going on in Latin America?

Latin American equities finished lower yesterday. Brazil’s Ibovespa was down 176bps, Argentina’s Merval was down 168bps and Mexico’s Mexbol was down 59bps. Brazil will be auctioning up to 750,000 worth of inflation-linked NTN-B off local notes due in 2023, 2028, and 150,000 worth due in 2035, and 2055. Peru’s Finance Minister has said that the country cannot let GDP growth stagnate at 3%. Bloomberg reported that Venezuela President Maduro is trailing by 12% in a recent poll. On this news, Nomura has said that a regime change supports buying Venezuelan government dent wwhich is currently priced at a steep discount. Brazilian company Minerva has cancelled a bond sale and tender offer due to market conditions.

Our Top Picks in the News

Alibaba (BABA) is reportedly hiring 50-self driving vehicle experts in an effort to expand testing and development of a self-driving vehicle line.

Amazon (AMZN) is reportedly considered to be a top contending bidder for the Department of Defence’s $10 billion cloud services project.

Johnson & Johnson (JNJ) has raised its sales guidance for 2018 to $81 billion, after adjusting EPS outlook to $8.20 for 2018 against $8.10 estimates.

Sanofini (SNY) has engaged in discussions with Advent Intentional regarding the Sale of Sanofini’s European drug branch for £1.9b.

Tesla (TSLA) has announced that the company is suspending the production of its Model 3 product line, due to bottlenecks at its production facility in Fremont, California.

UnitedHealth (UNH) has significantly expanded its global health insurance customer base, now serving 6.1 million members, a 2-million-member increase from the end of 2017.

The U.S Commerce Department has placed a 7-year ban on US sales to ZTE Corp (763-HK), a Chinese telecommunications gear maker.

The Morning Recap