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Morning Quant Ride April 18, 2018

Apr 18, 2018

Traders' Corner

Key Highlights

  • US equity futures are advancing this morning with 1Q earnings
  • VIX declines to 15 this morning following news that CIA Director Mike Pompeo had a secret meeting with North Korean officials over Easter weekend
  • Euro Stoxx 600% flat (-0.01%) following weaker than expected Eurozone data for March
  • Asian markets higher, Japanese equities best performing with Nikkei 225 +1.42%
  • IBM reports 1Q results which beat Consensus with disappointing full-year guidance
  • Morgan Stanley reports net income growth of 38% Y/Y

US Equities Before the Open

Investors awoke this morning to news headlines that US CIA Director (and President Trump’s nominee for Secretary of State) Mike Pompeo had a secret meeting in North Korea over Easter weekend.  While the details of the meeting have not been fully divulged, markets are assuming that this meeting is positive development and points to a cooling of tensions between North Korea and the US.   The perception that geopolitical risks across the Korean Peninsula are decreasing will help support global equity indices.  US equity futures are advancing this AM with S&P500 e-mini futures +0.42%, Nasdaq 100 e-minis +0.40% and Dow Jones e-minis +0.40%. 

Crytocurrency Morning Brief

Major cryptocurrencies are mostly mixed to start the day. Bitcoin is holding support above USD$8,000 and is at $USD8,087.66 -0.27% over the last 24-hours. Stellar, Monero, and TRON are top performers; up 6.66%, 12.94% and 8.42% respectively. Riot Blockchain, a Nasdaq-listed company that pivoted to cryptocurrencies last year has received a subpoena from the SEC. The subpoena shows an inquiry into the company’s asset classifications and amount of investment company assets. Citigroup is looking to hire bitcoin specialists to work in their in-house anti-money laundering operations. Reportedly, candidates with a bitcoin professional certificate will move ahead in the application process. The former CFO, Alesia Haas, of hedge fund Och-Ziff has left to become the new CFO at Coinbase. Telecommunications and smartphone provider Huawei is launched a blockchain-as-a-service (BaaS) platform. The company’s platform will enable companies to develop smart contracts on top of a distributed ledger network for several use-case scenarios.

EU at Midday

European equities are mixed, with the Euro Stoxx 600 -0.01%, the FTSE 100 +0.89%, the DAX -0.02%, and the CAC40 +0.33%. Materials, energy, and industrial stocks are the biggest risers in the Euro Stoxx 600, while consumer discretionary, consumer staples, and telecommunications are the largest laggards. Notable movers included: Danone SA +2.21%, Airbus SE +1.33%, adidas AG +0.66%, and Daimler AG -1.52%.

UK economic data lower than expected. CPI for March y/y came in below estimates (2.5% vs 2.7% consensus), as did the RPI (3.3% vs 3.5% expected) and the PPI input (+4.2% vs 4.4% estimated).

Italy’s industrial turnover for February was 3.4% higher y/y, with industrial orders also rising 3.4%. Despite being 6 months removed from the Italian presidential election, Italy has yet to from a government. Italian President Sergio Mattarella has requested that Senate Speaker Maria Casellati engage with political parties on both sides 

Eurozone CPI for March on a y/y basis came in slightly below expectations ((1.3% vs 1.4% estimated). A study by Jeffries indicated that Eurozone investors held $2.75 trillion in US debt by the end of 2017, an 80% increase from the beginning of 2012.

Asia & Australia While You Were Sleeping

Japanese equities traded higher for the 3rd time this week with the Nikkei 225 +1.42%. All sectors were positive. Telecommunications, industrials and materials were the biggest gainers while healthcare and financials underperformed. Notable movers included: Dekna Co +4.38%, Tokai Carbon Co +4.20%, Ebara Corp +4.15%, and Honda Motor Co -1.06%. Market breadth was notably positive with 199 of 225 stocks in the black. Japan reported a March trade balance that nearly doubled estimates (¥797.3B vs consensus ¥499.2B). Export growth for March on a y/y basis was firmly weaker than expected (+2.1% vs +5.2% estimate). Imports for March declined y/y, bucking the consensus (-0.6% vs +6.3% expected). Japanese officials are pushing to ratify a new Trans-Pacific Partnership trade pact. The latest scandal in the Japanese government involved Administrative Vice Finance Minister Junichi Fukuda, who is accused of sexual misconduct. Fukuda has resigned from his position.

Chinese and Hong Kong equities advanced as the Hang Sang Index advanced 0.74% and the Shenzhen Composite 1.08% higher. Industrials, energy, and financials were the biggest outperformers, with telecommunications and consumer discretionary disappointing. Notable movers included: AIA Group +2.37%, Galaxy Entertainment +2.35%, Geely Automobile -2.46%, and AAC Technologies -2.01%. Market breadth for the Hang Sang was positive as 35 stocks advanced, to only 15 declines. New home prices rose 0.4% m/m in March, against a 0.2% m/m rise in February. The Chinese central bank lowered its reserve requirement rate (RRR) yesterday, down to 16% for major banks and 14% for small banks.

Indian equities moved modestly lower, with the Sensex -0.18% and the Nifty 50 -0.21%, snapping 9 consecutive sessions of positive trading. In the Sensex, 11 of 19 subsectors were lower. Notable movers included Axis Bank -2.60%, Mahindra & Mahindra -1.28%, ITC Ltd +2.82%, and Tata Steel +0.95%.

Australian equities closed higher as the ASX 200 gained 0.35%, contrasting yesterday’s flat trading. Energy, consumer discretionary, and consumer staples stocks outperformed, but telecommunications, financials, and healthcare underwhelmed.  Notable movers included: Wisetech Global +6.89%, Credit Corp Group +4.46%, Sims Metal Management +4.44%, and CYBG PLC -6.65%. Market breadth was decidedly positive with 135 of 200 stocks higher today. The IMF has lifted its projection for Australia’s 2018 GDP to 3.0% from 2.9%. Further forecasts expect Australian CPI to increase to 2.2% in 2018, up from 2.0% in 2012.

Rates & Commodities

Global bonds are mostly lower except for in the UK, Australia and China. The US 10-Year Yield is at 2.84% while the US 10-Year Swap Yield is at 2.873%, from yesterday’s close of 2.882% and the US 30-Year Swap Yield is at 2.901% from yesterday’s close of 2.906%. The spread between US 2-Year Swap the US 10-Year Swap is at 18bps – a multi-year low. The 2-Year Swap is at 2.693, its highest level this year, compared to the US 2-Year Note Yield of 2.402% of Interestingly, high-yield ETF (HYG) is at 86.46 – the highest level since the end of February. The USD$ is higher at 89.53, up 5bps. Notably, the USD$ is stronger against the GBP£ BY 56bps, at 1.4214. The UK released inflation data today which showed that inflation slowed to its weakest level in a year for March. The Y/Y reading came in at 2.5% while economists expected 2.7%. In the FX options market, traders are betting that the pound is more likely to fall back to 1.40 rather than 1.45 in a reversal of sentiment.  The USD$/JPY¥ pair is stronger by 20bps, currently at 107.22 showing investor appetite for risk today. A monthly survey of economists show that they anticipate the Swiss central bank to keep its deposit rate at -0.75% for the first 9 months of 2019 and then raise the rate by 25bps in the final quarter – the first increase since 2007. On the economic front today, the US Fed’s Dudley and Quarles will speak today and the Fed’s Beige book will be released in the afternoon which should weigh on USD$ trading.

What's Going on in Latin America?

Latin American equities posted sharp gains yesterday. Brazil’s Ibovespa was +1.48%, Argentina’s Merval was +1.27% and Mexico’s Mexbol was +1.03%. Brazil’s IGP-M inflation 2nd preview, will be released today along with its currency flows weekly. Inflation is expected to come in at 0.33% from a prior reading of 0.59%. Goldman Sachs economists have said there is still room to grow for emerging markets and that one of their conviction views is to go long Brazilian equities and buy currencies of Brazil, Chile, and Peru against the USD$. The bank’s economists see the Real$ to appreciate to 3 per USD$ from a current level of 3.4078 – a surge of almost 14%. In contrast, Brazilian presidential hopeful Henrique Meirelles has said that uncertainty over the outcome of the October presidential race is weighing on Brazilian economic growth

Our Top Picks in the News

Amazon (AMZN) has begun an international shopping feature, allowing customers to purchase items that can be shipped to their location from the US.

Facebook (FB) is obligating European users to accept targeted ads as a term for using Facebook’s service.

Southwest Airlines (LUV) has come under scrutiny after initial investigations indicated that “metal fatigue" may have led to the fatal incident aboard a Southwest Airlines owned Boeing 737 aircraft.

Tesla (TSLA) plans to increase weekly production of its Model 3 line to 6,000 units, more than double current production, to meet the company’s 5,000 unit/week goal by June.

Total SA (TOT.FR), a French oil & gas firm, has paid 1.4bn for majority ownership of electricity provider Direct Energie, expanding the company’s presence in the electric energy market.

United Continental Holdings (UAL) reported earnings in 1Q 2018 that beat estimates ($0.50 vs $0.44 expected).

The Morning Recap