Morning Quant Ride Mar 27, 2018

Mar 27, 2018

Traders’ Corner

US Market Preview

US options, pre-markets, are implying a bullish bias with the VIX currently at 20.31 after closing at 21.03 yesterday.  April 6 OTM Puts on EFA, April 6 Puts on SPY and March 29 OTM Puts on SPY are the most actively traded options spread this morning which suggests investors sentiment is more cautious than futures markets implies.

Futures are up this morning following yesterday’s rally, which was the largest single day gain for US equities since August 2015: (S&P 500, +2.72%); (Nasdaq Composite, +3.26%); (Dow Jones Industrial, +2.84%). S&P 500 futures are up 0.64%, and DJI futures are 0.50% higher. After strong returns in technology yesterday, Nasdaq Composite futures are up 0.72%.

There was little news overnight, with financial markets continuing to focus on US-Chinese trade discussions. It is reported that President Trump is seeking a $100-billion decrease in the US trade deficit with China by years end.

Trade discussions between the EU and US continue to unfold. According to German officials, Germany is willing to offer the US concessions in exchange for a more permanent exemption from steel and aluminum tariffs. The potential impact of the tariffs on Germany, one of the world’s largest auto manufacturers, has led Germany to be more aggressive in seeking full exemptions. This decision may put Germany at odds with other EU countries, such as France, which have urged member nations to withhold these concessions. The temporary exemption from tariffs that was granted to the EU by the US is set to expire in a roughly four weeks.

After the discovery of the Facebook (FB) data breach scandal drove shares of the company down more than 12% last week, FB finished trading up 0.42% yesterday and had the highest trading volume in the S&P 500. Facebook stock is edging 0.11% higher in pre-market trading today.

Economic data to be released today includes S&P Corelogic Case-Shiller Home Price Index for January at 9:00 a.m EST, and Consumer Confidence for March at 10:00 a.m EST.

Asian & Australia Equities Recap

Asian markets finished up across the board in sympathy with the rally in US equity markets on Monday.  In Japan, the Nikkei 225 finished +2.65% while the Topix closed +2.74%.  Energy, real estate and industrials stocks were the best performing sectors while utilities, healthcare and telecom stocks were the worst performers.  Market breadth was overwhelming positive with the advance/decline ratio closing at 19:1 for stocks in the Topix.  Notable movers included: Toho Zinc +7.04%, Tokuyama +6.41%, Tokai Carbon +5.63%, Fuji Electric +5.56% and Showa Denko +5.56%.  Volume traded in Tokyo was robust with volume traded 12.88% above its 10-day average.  A former official in the Finance Ministry, Nobuhisa Sagawa, who is at the center of the Moritomo Scandal, denied receiving instructions from Prime Minister Shinzo Abe during a presentation to the Japanese parliament.

In China and Hong Kong, equity markets were positive with the Hang Seng +0.79%, Hang Seng China Enterprise Index +0.85% and CSI 300 +0.86%.  Telecom, tech, and real estate stocks were the top performing groups while consumer staples stocks were the only sector closing negative.  Market breadth as positive in Hong Kong with advance/declines finishing 4.4:1.  Notable movers included: China Unicom +5.58%, AAC Technologies +4.69%, China Overseas Land & Investment +4.43%, and Country Garden Holdings +3.60%.  Volume traded in Hong Kong was notably weak with volume traded 41.09% below its 10-day average and 45.94% below its 100-day average.  Among news headlines, China Banking Insurance Commission Chairman Guo Shuqing was been appointed the PBOC's Communist Party Secretary and Deputy Governor. This move divides authority within the central bank, because in affect this makes Guo senior to current governor Yi Gang in the political structure. There are reports that Beijing officials are allegedly rushing to finalize regulations that will allow foreign financial groups to take majority stakes in Chinese securities companies.  In the context of the US government’s request that Chinese companies buy more products from US semiconductor companies, Beijing offered to buy more US semiconductor products by reducing purchases of semiconductor products from South Korean and Taiwanese companies.  Officials in Beijing announced they are preparing to submit a file to the WTO to request compensation for lost trade due the US's proposed steel and aluminum tariffs

Indian equities finished their trading session positive with the Sensex +0.33% and the Nifty Fifty +0.53%.  Indian banks led the rally in Indian stocks, rising to their highest level in a week.  Market breadth was positive with advances outpacing declines 3.5:1.  Notable movers included: State Bank of India +3.04%, Bharti Airtel -2.42% and IndusInd Bank +1.56%.

In the Land Down Under, Aussie equities finished +0.72%.  All sectors of the ASX 200 were positive with consumer discretionary, industrials and materials stocks the best performers.  Market breadth was positive with the advance/decline ratio closing at 4.1:1.  Notable movers included: Western Areas +9.30%, Independence Group +5.42%, a2 Milk Company +4.82%, and Orocobre +4.72%.  Labor Party leader Bill Shorten stated that the party will repeal the corporate tax rate cut being pushed by the Conservative Party.

1-month implied volatility levels of major Asian index options remained on a downward mean-reverting path yesterday.  The dampening of overall volatility has brought implied volatilities below 2 standard deviations on a one month basis for most major Asia index options.  Notably, in Australian markets, 1-month implied volatility remains more than 2 standard deviations above 1-year average.  March 28 OTM Calls on the Hang Seng and June 28 Straddles on the Hang Seng China Enterprise Index were some of the most traded options in Hong Kong.   April 13 OTM Calls on the Nikkei 225 were the most actively traded options in Tokyo.

European Equities Recap

European equities are broadly positive with the Euro Stoxx 600 +1.32%.  Major regional indices are positive with the FTSE 100 +1.84%, DAX +1.63% and the CAC 40 +1.28%.  Tech, autos & parts, and healthcare stocks are the top performing stocks in Europe.  Market breadth is positive with advances outpacing declines 9.3:1.  Notable movers include: Safran +3.10%, Schneider Electric +2.88%, ASML Holding +2.75%, Airbus +2.28% and BMW +2.26%.  Eurozone February M3 money supply grew +4.2% vs. consensus +4.6% and +4.6% in January.  European Central Bank (ECB) Governing Council Member, Ewald Nowotny, stated that a decision on Eurozone Quantitative Easing must be made by this summer feels that the ECB may be able to reduce asset purchases gradually.  In contrast, ECB Governing Council member, Erkki Likkanen of Finland, highlights that underlying inflation in the euro zone may remain lower than expected even if growth is robust and believes the ECB needs to remain patient in removing quantitative easing policy.

In Italy, Italian Five Star leader Luigi Di Maio is ready to offer the Northern league control of the most important ministries, in exchange for leading the Italian government.  The FTSE MIB is +1.32% this AM.  In Spain, Catalonia's leader, Carles Puigdemont, was arrested yesterday in Germany and German judges are expected to determine whether he will be extradited to Spain in the coming days.  Spain preliminary March CPI was +1.2% Y/Y vs. consensus +1.5%, prior +1.1%.  Spanish equities are positive this morning with the IBEX 35 +1.04%.

Implied volatility for European options continues its decline with the VSTOXX currently at 18.90.  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 December 18 Puts and OTM April 20 Calls on the Euro Stoxx 50.

Latin American Equities

LatAm equities performed well yesterday following the global markets return to risk assets. Brazil’s Ibovespa index was up up 84bps with 48 out of 62 constituents advancing, Mexico’s Mexbol up 13bps with 11 out of 20 constituents advancing, Argentina’s Merval up 61 bps with 13 out of 30 constituents advancing. Futures are trading with a positive bias this morning as Ibovespa futures are up 6bps and Mexbol futures are up 40bps. Yesterday, a Brazilian appeals court rejected unanimously a plea by former president Lula, upholding a corruption conviction. Lulu is currently the front-runner in opinion polls for the presidential election that will take place in October and Monday’s court ruling would make Lulu ineligible to run under Brazil’s “clean slate” electoral law. Mexico will be releasing data this AM on February’s trade balance (est. $USD 375mm, prior -USD$ -4.41bn), and its seasonally adjusted unemployment rate SA (est. 3.33%, prior 3.36%). Brazil’s Central Bank monetary policy minutes will be released today and are expected to reinforce the dovish approach following last week’s Selic rate cut. Later in the afternoon, Brazil’s government budget balance will be released (est. USD$ -21.1bn, prior USD$31.1bn).

Rates & Commodities

Global bonds are rallying this morning with US bond yields slightly lower and EMEA bond yields moderately lower with bonds rallying the most in Portugal, Greece, Spain and Italy. In contrast, Japanese, New Zealand and Chinese bonds are trending lower after overnight’s trading session. The JGB 10-Year Yield is slightly higher at .028% in comparison to last week’s low of .025%. The US 10-Year Yield is unchanged from yesterday’s close at 2.845%. The 30-Year is slightly lower at 3.082% from yesterday’s close of 3.084%. The 2-year auction went smoothly yesterday in tandem with 3m and 6m auctions. The US treasury still has over USD$100bn left to auction as 5 year and 7 year notes will be auctioned later this week. The Fed’s Randal Quarles spoke late last night and reassured that the economy is performing well and highlighted low unemployment. In Europe, ECB hawk, Weidmann, mentioned that quantitative easing should be scaled back “soon” as inflation picks up and that the market’s expectation of QE to end in 2018 with a first rate-hike in 2019 is not unrealistic. Economic data releasing today in the US includes S&P CoreLogic’s 20-city housing price measure, Richmond Fed’s manufacturing index and consumer confidence.

The USD$ (89.42) has strengthened from yesterday’s close of 89.02. The USD$ is stronger against major G10 pairs, notably 45bps stronger against the EUR€ (1.2390), 33bps stronger against the JPY¥ (105.75) and 98bps stronger against the GBP£ (1.4091). The USD$ strength today seems to be stemming from the sentiment that the USD$ was oversold last week during the trade war fears. Gold and silver have returned to traditional correlations with the JPY¥ as gold is lower at USD$ 1347.92/ounce, down 41bps and silver is lower at USD$ 16.65/ounce, down 31bps. Gold and silver may be trading lower as trade discussion progress continues to be made with China Premier Li meeting with a US Congress delegation and reiterating that China does not want a trade war. WTI Crude oil is trading higher from yesterday’s close of $65.50/barrel, up 37bps at $65.79/barrel. Investors will be looking ahead to this week’s inventory releases.

Cryptocurrencies

Major cryptocurrencies remain negative on the week with most major cryptos posting negative returns to start the day except for Tron (USD$ .0426) +3.23% Verge (USD$ .0467) +24.88% and Siacoin (USD$ .0140) +.42%. Bitcoin broke a psychological level of USD$ 8,000 and is trading at $7989.30 this morning. Last night, Spanish police arrested a cybercrime gang, made up of Russian and Ukrainian nationals who allegedly stole more than USD$ 1.24bn from financial institutions and converted their illicit gains into Bitcoin. In the US, a recent report discussed on CoinTelegraph showed that US students have trended towards using student loan money to invest in cryptocurrencies. Additionally, some employees have been opting to receive work payments in cryptocurrencies. Litecoin payment startup, LitePay, has abruptly terminated its operations; which would have offered a crypto wallet and a “LitePay debit card” allowing users to convert Litecoin into USD$. Overseas in South Korea, internet giant Kakao is setting up a new blockchain subsidiary and has quashed rumors of a planned initial coin offering (ICO). Kakao was previously involved in the launch of South Korea cryptocurrency exchange, Upbit, and it had integrated its messaging services with the trading platform.

After yesterday's market rally, we are watching these stocks that lagged the market:

QuantShot: AbbVie Inc. - 24.30% off its 52wkH, reports earnings on 04/25/2018

Amdocs Limited - 7.14% off its 52wkH, reports earnings on 05/10/2018

AmerisourceBergen Corporation - 20.06% off its 52wkH, reports earnings on 05/07/2018

Atlas Air Worldwide Holdings, Inc. - 12.66% off its 52wkH, reports earnings on 05/02/2018

QuantShot: Pfizer Inc. - 11.13% off its 52wkH, reports earnings on 05/01/2018

Verizon Communications Inc. - 14.06% off its 52wkH, reports earnings on 04/24/2018

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

Companies Trending in the News

Akzo Nobel NV (AKZA.NA) has agreed to sell its chemical unit to the Carlyle Group private equity firm for $12.5 billion.

Deutsche Bank AG (DBK.GR) is reportedly considering several candidates as potential replacements for current CEO John Cryan. Tensions between Cryan and Supervisory Board Chairman Paul Achleitner have been escalating, prompting the firm to seek alternatives.

GGP Inc (GGP), the second biggest landlord of US malls, has agreed to be acquired by Brookfield Asset Management. Shares of GGP are 3.3% higher pre-market.

GlaxoSmithKline PLC (GSK.LN) has agreed to purchase Novartis AG’s (NOVN.SW) 36.5% stake in a consumer health joint-venture between the two companies for $13 billion.

Hennes & Maurtiz AB (HMB.SS) has announced that that it will be increasing markdown prices in its stores after stockpiling of clothing worth a $4 billion.

IHS Markit (INFO) has released adjusted EPS for 2018, with a midpoint that is lower than consensus estimates. FY2018 EPS has been adjusted to between $2.23 and $2.27 per share, compared to consensus estimates of $2.26

Panasonic (6752 JP) shares are 4.9% higher after JP Morgan raised its rating for the company, citing growth in auto electronics and batteries.

Large-Cap Conviction Buy Movers

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

6.29%

 

8.04%

 

-6.82%

Comerica Incorporated   CMA   Financials   Regional Banks  

4.85%

 

-2.88%

 

10.75%

Entercom Communications Corp.   ETM   Consumer Discretionary   Broadcasting  

4.32%

 

1.05%

 

-10.65%

Jacobs Engineering Group Inc.   JEC   Industrials   Construction and Engineering  

3.98%

 

-4.54%

 

-12.40%

Zions Bancorporation   ZION   Financials   Regional Banks  

3.92%

 

-3.38%

 

4.74%

Losers   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
AbbVie Inc.   ABBV   Healthcare   Biotechnology  

-2.24%

 

-15.27%

 

-17.74%

National Beverage Corp.   FIZZ   Consumer Staples   Soft Drinks  

-2.24%

 

-3.14%

 

-12.51%

AT&T Inc.   T   Telecommunication Services   Integrated Telecommunication Services  

-0.03%

 

-3.31%

 

-4.03%

Markel Corporation   MKL   Financials   Property and Casualty Insurance  

0.11%

 

-1.47%

 

3.69%

Liberty Broadband Corporation   LBRD.K   Consumer Discretionary   Cable and Satellite  

0.17%

 

-3.75%

 

-4.69%

Source: S&P Capital IQ                    

Large-Cap Conviction Short Movers

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

-16.62%

 

3.15%

 

64.58%

MACOM Technology Solutions Holdings, Inc. MTSI   Information Technology   Semiconductors  

-5.30%

 

-13.86%

 

-21.37%

Editas Medicine, Inc.   EDIT   Healthcare   Biotechnology  

-3.91%

 

-7.19%

 

-0.60%

Rite Aid Corporation   RAD   Consumer Staples   Drug Retail  

-3.25%

 

-3.25%

 

-24.37%

Altice USA, Inc.   ATUS   Consumer Discretionary   Cable and Satellite  

-3.17%

 

-9.68%

 

-1.10%

Losers   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Roku, Inc.   ROKU   Consumer Discretionary   Consumer Electronics  

7.89%

 

0.99%

 

-33.20%

Loxo Oncology, Inc.   LOXO   Healthcare   Biotechnology  

5.47%

 

-5.39%

 

39.38%

Portola Pharmaceuticals, Inc.   PTLA   Healthcare   Biotechnology  

5.46%

 

-3.27%

 

-33.77%

Seattle Genetics, Inc.   SGEN   Healthcare   Biotechnology  

5.14%

 

-1.02%

 

0.13%

Synaptics Incorporated   SYNA   Information Technology   Semiconductors  

4.95%

 

-1.05%

 

17.90%

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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