Morning Quant Ride Mar 22, 2018

Mar 22, 2018

Traders’ Corner

US Markets Preview

After mixed trading day yesterday, with the S&P 500 down 0.18%, US equities are set to open down today. S&P futures are 0.45% lower, while NASDAQ futures have declined by 0.38%. The threat of $60 billion in potential tariffs, targeted towards China, is weighing on US markets. Economic releases today include weekly job claims at 8:30 am EST, as well as the released of leading indicators for the month of February.Social media stocks such as Twitter (-1.83%) and Snapchat (-0.72%) declined before the open as concerns about increased regulation in the industry persist. Shares of Facebook Inc. (FB) are down 2.00% pre-market despite yesterday’s promise by CEO Mark Zuckerberg provide stronger oversight moving forward. JD.com is moving 2.1% higher after it was reported that they would be issuing CDRs as early as June of this year. Shares of General Mills (GIS) are moderately higher (+0.35%) after reporting earnings that edged higher than consensus estimates. Shares of General Mills were down 9.7% during yesterday’s trading leading into the earnings release. Companies releasing earnings after the close today include Nike (NKE), Darden Restaurants (DRI), and Micron Technology (MU).

US options markets, pre-market, are pricing in an increase in risk premium with the VIX currently trading above 19 (after closing below 18 yesterday).  SPY March 23 strangles are some of the most actively traded options spreads this morning though there appears to be bullish bias to trading this morning with BAC March 23 OTM Calls, AAPL March 23 OTM Calls and SPY April 20 OTM Calls also dominating traded volume.

Asian & Australia Equities Recap

Asian equity markets finished their trading session mixed.  Japanese equity markets closed positive with the Nikkei 225 +0.99% and Topix +0.65%.  Energy, industrials and healthcare stocks were the largest outperformers while utilities stocks were the only negative sector.  Market breadth was positive with advance outpacing declines 1.9:1 on the broader Topix index.  Notable movers included: Inpex Corp +4.89%, Japan Tobacco -4.45%, Chugai Pharmaceutical +4.44%, Komatsu +4.22% and Showa Shell Sekiyu +4.02%.  The Flash Manufacturing PMI for March was reported to be 53.2 vs 54.1 in February.

Chinese and Hong Kong equities closed down with the Hang Seng -1.09%, Hang Seng China Enterprise Index -0.75% and CSI 300 -1.00%.  Tech, consumer staples and financials stocks were the largest underperformers while energy and utilities stocks were the top performers.  Market breadth was negative for the Hang Seng with the Advance/Decline ratio finishing at 0.48.  Notable movers included: Tencent Holdings -5.02%, Hengen International -2.87%, CK Asset Holdings -2.54%, China Mengniu Dairy -2.24% and Hang Lung Properties +2.18%.  The Hong Kong Monetary Authority raised its benchmark overnight interest rate 25 bps to 2.0% to maintain its USD$ peg policy.

Indian equities were negative with the Sensex -0.39% and the Nifty 50 -0.40%.  Market breadth was negative for the Nifty 50 with the Advance/Decline ratio finishing at 0.43.  Notable movers included: State Bank of India -2.46%, Mahindra & Mahindra -2.14%, Wipro -2.13%, and ICIC Bank -2.09%.

In the Land Down Under, Aussie equities finished trading down with the ASX 200 -0.22%.  Materials and energy stocks were the only positive sectors while telecom, tech, and utilities stocks were the largest underperformers.  Market breadth was negative for the ASX 200 with the Advance/Decline ratio finishing at 0.52.  Notable movers included: Sigma Healthcare -7.39%, Webjet -5.46%, Alumina Ltd +4.68%, Mineral Resources +4.04% and Orocobre +3.26%.  The February unemployment rate increased to 5.6% from 5.5% (and vs. consensus of 5.5%).  The Labor Force Employment Change in February was +17.5k vs consensus +20.0k.

While implied volatility remains relatively muted in Japanese markets, 1-month implied volatility on Hang Seng index options jumped up to almost 2 standard deviations above its 1-year average.  Skew on Hang Seng options is very rich, currently in the 90th percentile.  March 28 Strangles on the Hang Seng China Enterprise Index and the Hang Seng were the most heavily traded options.

European Equities Recap

European equities are down across the board with the Euro Stoxx 600 -0.87%.  Regional indices are negative with the FTSE 100 -0.84%, DAX -1.09%, and the CAC 40 -1.09%.  Personal & household goods, food & beverage and E&Ps are the best performing stocks in Europe this morning with banks, telecom and tech the worst performers.  Market breadth is negative across all major indices with declines outpacing advances.  Notable movers include: Nokia -3.35%, Societe Generale -2.86%, ING Groep -2.52%, AXA SA -2.31% and Siemens -2.05.  Notably, Addidas AG is the top performing stock in large-cap Euro Stoxx 50 index, at +0.23%. The Bank of England, this morning, left rates unchanged at 0.50%.

Notably, June 18 OTM calls on the Euro Stoxx Banking index are a heavily traded option contract this morning.The VSTOXX has moved up north of 16 this AM after closing below 15 yesterday.  The move in VSTOXX is in sympathy with the sell-off in European equities.  V-VSTOXX continues to be at elevated levels, hovering north of 109.  Even with the move in the VSTOXX this morning, overall levels of 1-month implied volatilities for European index options remains muted.  However, Skew is expensive which may explain the move in the VSTOXX.  Euro Stoxx 50 April 20 strangles is one of the most heavily traded options spreads this AM.

Latin American Equities

Latin American equities traded higher yesterday as the Ibovespa closed up 97bps at 84,976, the Mexbol closed up 89bps at 2820, and Argentina’s Merval was up 180bps at 32,369. In the Ibovespa, 40 firms advanced on the day out of 62, 14 out of 20 firms advanced for the Mexbol and 27 out of 31 firms  advanced in the Merval. Brazil cut its Selic rate to 6.5% as expected yesterday and its central bank has said it views an additional moderate monetary easing as appropriate. The central bank was surprised by inflation and has lowered its expectations to 3.63% for year end. Brazil’s central bank inflation target remains much higher and stands at 4.5% for year end and 4.25% in 2019, with a 1.5% percentage-point margin. Family spending only rose 0.1% in the fourth quarter amid double-digit unemployment. Also, this year’s first monthly reading on economic activity showed a contraction in growth. Surprising news came after the market’s close in Peru as Pablo Kuczynksi resigned as President just before he was set to face an impeachment vote for the second time. Vice President Martin Vizcarra will be sworn in as Peru’s new president on Friday. Kuczynski’s consulting firm was accused of taking in nearly $800,000 from the graft-spreading Brazilian firm Odebrecht more than a decade ago when Kuczynski was finance minister.

Rates & Commodities

US bond yields are lower across the curve this morning following the expected rate hike by the US Federal Reserve. The 10-Year is trading at 2.884% in comparison from 2.880% at yesterdays close, and the 30-Year is trading at 3.075% in comparison to 3.108% from yesterday’s close. Bonds across the world are trading in tandem with US Bonds as bond yields are down across EMEA and Asia-Pacific. Following both the commentary of Jerome Powell and updated forecasts by the central bank’s monetary policy committee, treasury yields closed off their highs and the USD$ (89.72) fell the most in nearly two months. The USD$ is stronger by 47bps against the AUD$ as last night, Australia’s job report showed employment change falling short of expectations and its unemployment rate ticked upward. Investors appeared to be expecting the Fed & Jerome Powell to be more hawkish, however, the Fed is sending the message that it will continue to be data-dependent. The Fed’s dot plot has shown that it will hike two more times this year, three times in 2019, and two more times in 2020. US GDP has been revised upward to 2.7% form 2.5% for 2018 and revised upward to 2.4% for 2019 from 2.1%. The committee is expecting core inflation this year of 1.9% however median readings for 2019 and 2020 have been lifted to 2.1%, up from 2.0%.WTI Crude oil is giving back some of its gains from this week as it is currently down 43bps from yesterday’s close at $64.89/barrel. Crude oil seems to have found stability near $65/barrel as global efforts appear to be in tandem to not oversupply the market. Concerns remain with investors that the US will continue its record output and put supply pressure on the price of oil. Gold is down 20bps at (1,329 $USD/ounce) among other precious metals despite USD$ weakness and a risk-off sentiment.

Cryptocurrencies

Major cryptocurrencies are lower this morning except for EOS, ICON, and DigixDAO. The negative sentiment across cryptocurrencies appears to stem from the news outlet, Nikkei, announcing that Japan will issue a warning against the crypto exchange Binance. Japan’s Financial Services Agency (FSA) has been quite active with regulating the country’s crypto exchanges as it has already issued seven “punishment notices”, as well as temporarily halting operations at two more exchanges. Binance is the number one crypto exchange by 24-hour volume according to CoinMarketCap. Following this news, two South Korean regulators have reportedly launched a probe into its domestic banks over their implementation of anti-money laundering procedures for cryptocurrency exchanges. The Financial Services Commission (FSC) will launch an inspection next month at banks that offer corporate accounts connected to cryptocurrency exchanges. EOS is up ~7% on the day as a major European FinTech investor and Block.one announce a $100mm fund for EOS projects. There was some positive news in the cryptocurrency world overnight; IT giant, Fujitsu, has unveiled a European blockchain innovation center in Brussels. The company’s primary objective will be to facilitate research on blockchain technology and to develop projects with the public and private sector. Additionally, Accenture has stated they believe the US can still be a blockchain innovator. Accenture is currently working with partners such as the World Economic Forum and the UN on blockchain projects that are geared towards digital identity. Lastly, Zcash has confirmed it will be having its first hard fork, which will take place in June.

After yesterday's market action, we are watching a few of our A-rated laggards:

ACCO Brands Corporation - 13.22% off its 52wkH, reports earnings on 04/27/2018

Huntington Ingalls Industries, Inc. - 7.60% off its 52wkH, reports earnings on 05/09/2018

QuantShot: Kohl's Corporation - 8.26% off its 52wkH, reports earnings on 05/22/2018

Laboratory Corporation of America Holdings - 6.68% off its 52wkH, reports earnings on 04/25/2018

Stamps.com Inc. - 14.70% off its 52wkH, reports earnings on 05/03/2018

The J. M. Smucker Company - 10.42% off its 52wkH, reports earnings on 06/07/2018

Verizon Communications Inc. - 13.68% off its 52wkH, reports earnings on 04/24/2018*All returns are price returns

Companies Trending in the News

Accenture FY (ACN) released an adjusted forecast for EPS for CY2018. The midpoint for new range of guidance provided is below consensus estimates ($6.61 to $6.71 vs $6.67 estimates)

Conagra Brands (CAG) reported 3Q EPS of $0.61, which was higher than consensus estimates of $0.56 in per share earnings. Revenue for 3Q came in slightly lower than estimates ($1.99 billion vs $2 billion estimate).

Darden Restaurants (DRI) has upgraded its guidance for fiscal 2018.  Net earnings per share have been adjusted to a range between $4.75 and $4.80. This is up from previous estimates of earnings between $4.70 and $4.78 per share.PetroChina Co. (857 HK) announced that profit nearly tripled last year due to strong returns from oil exploration and production projects. The company’s net income for 2017 was $3.6 billion.

GlaxoSmithKline Plc has submitted a bid to purchase Pfizer Inc.’s (PFE) consumer health unit. The potential bid is expected to fall within a range of $15 billion to $20 billion.

Starbucks (SBUX) has announced that it is expanding its mobile ordering and is now offering the service to customers who are not Starbuck Rewards members.

Naspers Ltd., a South African media company is selling its 2% of its 33.2% stake in Tencent Holdings (TCEHY), which is worth approximately $10.6 billion.

Terna Rete Elettrica Nazionale SpA (TRN.IM) reported forecasted FY2018 revenue estimates of €2.2 billion which is lower than the lowest estimates of €2.31 billion.

United Internet AG (UTDI.GR) fell by as much as 12%, the largest decline in the stock since March 2009, after the company reported mixed guidance projections.

Large-Cap Conviction Buy Movers

Winners   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Kansas City Southern   KSU   Industrials   Railroads  

2.96%

 

4.12%

 

4.41%

Celanese Corporation   CE   Materials   Specialty Chemicals  

2.60%

 

-2.48%

 

-2.80%

Lear Corporation   LEA   Consumer Discretionary   Auto Parts and Equipment  

2.10%

 

0.98%

 

9.02%

Huntsman Corporation   HUN   Materials   Diversified Chemicals  

1.81%

 

-0.48%

 

-6.91%

Masco Corporation   MAS   Industrials   Building Products  

1.29%

 

-0.05%

 

-5.44%

Losers   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Post Holdings, Inc.   POST   Consumer Staples   Packaged Foods and Meats  

-4.23%

 

-6.74%

 

-5.48%

The J. M. Smucker Company   SJM   Consumer Staples   Packaged Foods and Meats  

-4.20%

 

-4.51%

 

-4.86%

Darden Restaurants, Inc.   DRI   Consumer Discretionary   Restaurants  

-1.72%

 

-1.19%

 

1.10%

UnitedHealth Group Incorporated   UNH   Healthcare   Managed Healthcare  

-1.75%

 

-2.21%

 

-1.48%

Anthem, Inc.   ANTM   Healthcare   Managed Healthcare  

-1.73%

 

-0.93%

 

-3.99%

Source: S&P Capital IQ                        

Large-Cap Conviction Short Movers

Winners   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
QUALCOMM Incorporated   QCOM   Information Technology   Semiconductors  

-2.49%

 

-6.29%

 

-12.60%

bluebird bio, Inc.   BLUE   Healthcare   Biotechnology  

-2.48%

 

-7.61%

 

-8.16%

Gates Industrial Corporation plc   GTES   Industrials   Industrial Machinery  

-2.02%

 

-1.43%

 

3.46%

Blueprint Medicines Corporation   BPMC   Healthcare   Biotechnology  

-1.83%

 

1.10%

 

16.23%

MACOM Technology Solutions Holdings, Inc. MTSI   Information Technology   Semiconductors  

-1.77%

 

-7.90%

 

-8.72%

Losers   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Whiting Petroleum Corporation   WLL   Energy   Oil and Gas Exploration and Production  

9.62%

 

9.62%

 

26.93%

Range Resources Corporation   RRC   Energy   Oil and Gas Exploration and Production  

7.62%

 

1.92%

 

-9.73%

Pacira Pharmaceuticals, Inc.   PCRX   Healthcare   Pharmaceuticals  

7.59%

 

4.37%

 

-29.35%

Oasis Petroleum Inc.   OAS   Energy   Oil and Gas Exploration and Production  

7.38%

 

4.00%

 

2.02%

Menlo Therapeutics Inc.   MNLO   Healthcare   Pharmaceuticals  

7.05%

 

1.14%

 

0.00%

Source: S&P Capital IQ                        

Upcoming Earnings & Events

Company Name

 

Ticker

 

Earnings Date

 

Event Type

MSC Industrial Direct Co., Inc.  

MSM

 

4/9/2018

 

Estimated Earnings Release Date

Celanese Corporation

 

CE

 

4/15/2018

 

Estimated Earnings Release Date

J.B. Hunt Transport Services, Inc.  

JBHT

 

4/15/2018

 

Estimated Earnings Release Date

UnitedHealth Group Incorporated

 

UNH

 

4/15/2018

 

Estimated Earnings Release Date

Comerica Incorporated  

CMA

 

4/17/2018

 

Earnings Release Date

M&T Bank Corporation

 

MTB

 

4/17/2018

 

Estimated Earnings Release Date

Quest Diagnostics Incorporated  

DGX

 

4/18/2018

 

Estimated Earnings Release Date

BB&T Corporation

 

BBT

 

4/19/2018

 

Earnings Release Date

AT&T Inc.  

T

 

4/19/2018

 

Estimated Earnings Release Date

Caterpillar Inc.

 

CAT

 

4/19/2018

 

Estimated Earnings Release Date

Gentex Corporation  

GNTX

 

4/19/2018

 

Estimated Earnings Release Date

IDEX Corporation

 

IEX

 

4/19/2018

 

Estimated Earnings Release Date

Kansas City Southern  

KSU

 

4/19/2018

 

Estimated Earnings Release Date

Lockheed Martin Corporation

 

LMT

 

4/19/2018

 

Estimated Earnings Release Date

Norfolk Southern Corporation

 

NSC

 

4/19/2018

 

Estimated Earnings Release Date

Line for QuantShots

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