Morning Quant Ride Mar 29, 2018

Mar 29, 2018

Traders’ Corner

US Markets Preview

US equities are broadly higher this morning in contrast to market declines in the previous two days. S&P 500 futures are 0.50% higher, while the Dow Jones Industrial is up 0.35%.

Nasdaq Composite futures advanced 0.44%, despite the sell-off in technology in recent trading. Social media stocks such as Facebook (+1.77%) and Twitter (+1.93%) are higher premarket, after closing broadly lower yesterday.

Large-cap technology has been one of the most negatively impacted segments of the sell-off in US markets. The NYSE FANG+ index, which tracks 10 of the largest tech stocks in the world, is 14% lower than its peak on March 12.

US-Chinese trade tensions continue to linger in the financial markets. Gao Feng, a spokesman for China’s Commerce Ministry, described President Trump’s tariff levy as a “flagrant violation” of WTO regulations. He went on to say that these US trade actions may “trigger a chain reaction” that would be detrimental to global growth.

Patrick Harker, the president of the Federal Reserve Bank of Philadelphia, offered hawkish sentiment regarding interest rates. Harker stated that he believes three hikes will be necessary as opposed to his earlier estimate of two rate increases for 2018.

Economic data scheduled for release today includes weekly jobless claims, as well as personal income and outlays for February at 8:30 a.m EST. The Fed Balance Sheet, and the current money supply, will be reported at 4:30 p.m EST.

US options, pre-markets, are implying a mixed bias this morning with the VIX currently at 22.24 after closing at 22.87 yesterday.  March 29 strangles and ITM Puts on SPY and OTM May 18 Puts on IWM are the most actively traded options this morning.

Asian & Australia Equities Recap

Following an overwhelmingly negative start to the trading week, Asian equity markets appear to have begun to stabilize.  Japanese equities closed up with the Nikkei 225 +0.61% and the Topix +0.26%.  Consumer and real estate stocks were the best performing sectors while tech and telecom stocks were the largest laggards.  Market breadth turned positive with the Advance/Decline ratio at 1.5.  Notable movers included: Takeda Pharmaceuticals -7.45%, Recruit Holdings -5.30%, Nichirei -3.99%, Panasonic -3.96% and FamilyMart UNY +3.53%.  Japan February retail sales +1.6% Y/Y vs. consensus +1.4% Y/Y.  Deputy Prime Minister and Minster of Finance Taro Aso made news headlines by suggesting that opening bilateral trade talks with the US would not be good for Japan.  The Bank of Japan (BOJ) has been supporting Japanese equity in March, purchasing JPY¥830.9bn (USD$7.83bn) in equity ETFs.

Hong Kong equities finished their trading session mixed while Chinese stocks were positive: Hang Seng +0.24%, Hang Seng China Enterprise -0.02% and CSI 300 +1.34%.  Consumer and telecom stocks were the best performing sectors while tech and industrials were the worst performing groups.  Market breadth was neutral with the Advance/Decline ratio for the Hang Seng closing at 1.0.  Notable movers included: China Mengniu Dairy, Want Want China Holdings +2.78%, Sands China +2.43% and Wharf Real Estate +2.40%.  Volume in traded in Hong Kong remained weak with total volume traded 28.09% below its 10-day average.  A cut to value-added tax (VAT) rates this year was announced at a State Council executive meeting chaired by Premier Li Keqiang. The tax reduction package will be worth about CNY$400bn (USD$63bn) this year: the manufacturing tax rate will be lowered to 16.00% from 17.00%, and the transportation, construction, basic telecom services, and farm produce tax rates will be lowered to 10.00% from 11.00%.  US Trade Representative Robert Lighthizer will be meeting with American agribusiness groups to discuss concerns about how tariffs may impact their industry.

Indian markets were closed last night for holidays.

In the Land Down Under, Aussies stocks finished negative with the ASX 200 -0.52%.  Utilities and real estate stocks were the only positive sectors in the ASX 200 with tech, consumer staples and telecom the largest underperformers.  Market breadth was negative with the Advance/Decline ratio closing at 0.35.  Notable movers included:   Retail Food Group -9.27%, Bellamy’s Australia -8.15%, WiseTech Global -6.82%, Altium -6.18%, and Orocobre -6.13%.  Continued worries about a global trade war weighed on Aussie stocks.

Options markets were more subdued last night with implied volatilities coming off their previously rich levels.  1-month implied volatility on Hang Seng index options remains expensive but now only 2+ standard deviations about its 1-year average after closing yesterday 3+ standard deviations above its 1-year average.  OTM June 18 Call, OTM December 18 Puts, and OTM June 19 Calls on the Hang Seng China Enterprise index were the most actively traded options in Hong Kong.  OTM April 13 Calls on the Nikkei 225 were the most actively traded options in Tokyo.

European Equities Recap

European equities appear to bouncing back from the sell-off this week with the Euro Stoxx 600 +0.30%.  Regional indices are positive with the FTSE 100 +0.40%, DAX +0.71% and the CAC 40 +0.55%.  Auto & parts, materials and real estate stocks are the best performing industries in Europe this morning with travel & leisure, utilities and healthcare stocks the biggest laggards.  Market breadth is positive with 40 of the 50 stocks positive in the large-cap Euro Stoxx 50 index.  Notable movers include: BMW +2.97%, Volkswagen +2.68%, Daimler AG +2.43% and LVMG +1.68%.  The German unemployment rate hit a record low of 5.3% in March vs. Consensus 5.3% and 5.4% in February.  UK Q4 Final GDP was reported at +1.4% Y/Y (final revision) which was the same as previous estimate of +1.4%.  Dutch Central Bank head Klass Knot commented earlier that the European Central Bank (ECB) bond-buying plan can be phased out in September during an interview with Reuters.

The center-right coalition in Italy is expected to form a government next Wednesday.  Italian equities are up this morning with the FTSE MIB +0.19%.

Implied volatility for European options has shifted downwards this morning with the VSTOXX at 18.51 after closing at 19.68 yesterday.  While overall levels of implied volatility have dampened,   1-month options skew remains slightly elevated for major European index options albeit now around the 70th percentile after closing above the 85th percentile.  June 18 strangles and April 20 OTM Puts on the Euro Stoxx 50 index are the most actively traded options this morning.

Latin American Equities

Yesterday, in Latin America, Brazil’s Ibovespa finished up 10bps. Materials +1.07%, financials +.89% and healthcare +.36% led the index while utilities -1.80%, telecom -1.20% and real estate -1.01% were the biggest underperformers. Argentina’s Merval was down 0.34% and industrials +0.64%, info tech +0.26%, and materials +0.16% led the index while consumer staples, consumer discretionary and energy were the biggest laggards, down 1.01%, 0.86% and 0.81% respectively. Mexico’s Mexbol was down 1.48% with all sectors negative; materials -3.10%, telecom -2.16% and financials -1.62% were the biggest laggards. On the economic front for Brazil, its Q1 inflation report will be released this AM, along with February PPI  and the national unemployment rate. The Brazilian central bank currently sees 2018 inflation at 3.8% from 4.2% in its previous report and sees 2018 GDP growth at 2.6% from 2.6% in its previous report. On Wednesday, Brazilian monetary authorities cut the reserve requirements that banks must hold for cash deposits from 40% to 25% and for savings accounts from 24.5% to 20%. This move will free BRL$ 25.7 billion (USD$ 7.7bn) into the financial system, the central bank has said. Lastly, Braskem’s Q4 earnings missed yesterday and JBS posted a surprise loss.

Rates & Commodities

The US 10-Year yield is at 2.768% to start the day from yesterday’s market close at 2.779%. The US 30-Year Yield is slightly lower from yesterday’s close of 3.017% and is currently at 3.003%. Bonds in the EMEA region are trading in tandem with US bonds as yields are mostly lower across the region as well. After yields sliding for most of the month, the German 10-Year is trading marginally above the 50bp market benchmark at 0.503%. In Asia-Pacific, bonds were weaker overnight. Notably the Japanese 10-Year Yield is at 0.030% from a low of .023% earlier this week. The USD$ is slightly lower to start the day, giving back some of its gains over the past two trading days. The USD$ is just below a 90-price level at 89.98, down 11bps on the day. Notably, the USD$ is 29bps lower against the JPY¥ (106.50). Gold is slightly higher on the day, up 10bps at USD$ 1326.33/ounce and is currently up 1.81% YTD. Silver (USD$ 16.29), platinum (USD$ 938.16) and palladium (USD$ 972.46) are mixed and are -0.05%, +0.04% and +0.30% respectively. With recent USD$ strength and rising Crude oil inventories WTI Crude oil slightly lower to start the day, down 8bs at USD$ 64.33/barrel. WTI Crude has been on a losing streak over the past four trading sessions.

Cryptocurrencies

Major cryptocurrencies are sharply lower to start the day, extending losses on the week. Bitcoin is currently trading at USD$ 7,545.25 down 6.71%, Ethereum is following at USD$ 412.21, down 11.02% with Ripple (USD$ .5418), Bitcoin Cash (USD$ 767.48) and Litecoin (USD$ 119.28), down 8.03%, 14.13% and 14.20% respectively. The sharp sell-off today may be stemming from two exchanges in Japan announcing today that they will cease trading, rather than work with the country’s regulators. Additionally, investors may be selling due to technical analysis indicators as the “death-cross” officially occurred on Bitcoin. What this means is that the 50-day moving average is now below the 200-day moving average, often seen as a very bearish indicator for technical analysts. There is some positive news on the day; China is still process of developing a state digital currency, the chief of a government-funded blockchain research center has said. Additionally, the government of Lichtenstein will be introducing new legislation to regulate blockchain business and underlying blockchain systems.  Lichtenstein hopes to lay the groundwork for extensive economic applications, according to Prime Minister Arian Hasler.

After yesterday's market pull-back, we are watching the following A-rated laggards:

QuantShot: Brooks Automation, Inc. - 23.58% off its 52wkH on 11/01/2017, reports earnings on 04/27/2018

QuantShot: Cognizant Technology Solutions Corporation - 6.38% off its 52wkH on 03/15/2018, reports earnings on 05/04/2018

Huntsman Corporation - 19.95% off its 52wkH on 01/25/2018, reports earnings on 04/26/2018

Lear Corporation - 10.75% off its 52wkH on 01/29/2018, reports earnings on 04/26/2018

ON Semiconductor Corporation - 12.14% off its 52wkH on 03/13/2018, reports earnings on 05/08/2018

United Rentals, Inc. - 11.34% off its 52wkH on 03/13/2018, reports earnings on 04/20/2018

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

Companies Trending in the News

Bank of America (BAC) and Deutsche Bank AG (DBK.GR) employees colluded over bond trades in 2012, which is a breach of antimonopoly rules according to Japan’s Fair-Trade Commission.

Boeing Company (BA) has stated that the company has detected malware in it systems, but that only a few small systems were affected by the breach.

CME Group (CME) has agreed to buy NEX Group (NXG.LN) for nearly £3.9 billion.

Facebook Inc (FB) announced that it will no longer do business with third party data brokers. The previous arrangement involved Facebook providing marketers with the personal data of users to improve advertisement targeting on Facebook’s platform.

FUJIFILM Holdings Company (4901.JP) has agreed to purchase Irvine Scientific Sales Co. and IS Japan Co. for a total of $800 million.

iQIYI (IQ), a Chinese video streaming company, raised $2.25 billion from its IPO.

Movado (MOV) is trading 11% higher pre-market after the company reported strong earnings for the previous quarter. Net sales for 4Q grew 14.1%, and adjusted EPS rose Y/Y to $0.52 from $0.22.

Renault (RNO.FP) has had merger discussions with Nissan (7201.JP) regarding the creation of a new entity that would trade under a single stock. Renault currently owns 43% of Nissan, and Nissan owns 15% of Renault. The French government owns 15% of Renault.

Tesla (TSLA) will be offered car buyer subsidiaries from the German government. Tesla previously received these subsidiaries but had been removed from the program in December.

Large-Cap Conviction Buy Movers

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

2.46%

 

-3.27%

 

-2.52%

Prestige Brands Holdings, Inc.   PBH   Healthcare   Pharmaceuticals  

2.44%

 

3.71%

 

-22.54%

Walmart Inc.   WMT   Consumer Staples   Hypermarkets and Super Centers  

2.00%

 

2.75%

 

-11.12%

AT&T Inc.   T   Telecommunication Services   Integrated Telecommunication Services  

1.89%

 

2.48%

 

-8.54%

Cigna Corporation   CI   Healthcare   Managed Healthcare  

1.68%

 

2.63%

 

-17.12%

Losers   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
United Rentals, Inc.   URI   Industrials   Trading Companies and Distributors  

-4.54%

 

-2.91%

 

-3.42%

LogMeIn, Inc.   LOGM   Information Technology   Internet Software and Services  

-3.42%

 

-3.38%

 

-3.38%

FMC Corporation   FMC   Materials   Fertilizers and Agricultural Chemicals  

-2.62%

 

-2.89%

 

-6.22%

Lear Corporation   LEA   Consumer Discretionary   Auto Parts and Equipment  

-2.38%

 

-1.20%

 

-3.17%

MSCI Inc.   MSCI   Financials   Financial Exchanges and Data  

-2.27%

 

-2.28%

 

6.38%

Source: S&P Capital IQ                    

Large-Cap Conviction Short Movers

Winners   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Riot Blockchain, Inc.   RIOT   Healthcare   Biotechnology  

-9.64%

 

-16.27%

 

-40.64%

Tesla, Inc.   TSLA   Consumer Discretionary   Automobile Manufacturers  

-7.67%

 

-14.51%

 

-24.86%

Square, Inc.   SQ   Information Technology   Data Processing and Outsourced Services  

-7.19%

 

-8.28%

 

2.91%

Sarepta Therapeutics, Inc.   SRPT   Healthcare   Biotechnology  

-6.08%

 

-7.80%

 

14.27%

Roku, Inc.   ROKU   Consumer Discretionary   Consumer Electronics  

-5.15%

 

-2.37%

 

-23.23%

Losers   Ticker   Sector   Industry   1 Day Return   5 Day Return   YTD
Rite Aid Corporation   RAD   Consumer Staples   Drug Retail  

12.84%

 

12.08%

 

-15.23%

Menlo Therapeutics Inc.   MNLO   Healthcare   Pharmaceuticals  

5.44%

 

8.06%

 

0.00%

Brixmor Property Group Inc.   BRX   Real Estate   Retail REITs  

4.59%

 

5.59%

 

-16.93%

Taubman Centers, Inc.   TCO   Real Estate   Retail REITs  

3.58%

 

3.14%

 

-11.68%

Portola Pharmaceuticals, Inc.   PTLA   Healthcare   Biotechnology  

3.52%

 

4.84%

 

-34.16%

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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