Morning Quant Ride April 3, 2018

Apr 03, 2018

Traders’ Corner

US Equity Market Preview

Following the imposition of $3 billion in tariffs by China onto US agricultural goods yesterday, Cui Tianki, the Chinese Ambassador to the US, has warned that any further tariffs levied by the US would be met by “countermeasures of the same proportion”. The uncertain prospect of further Sino-American trade frictions, and their potential implications for broader global markets, still weighs on global equities. Yesterday’s significant sell-off in the technology sector is creating a general contagion that is affecting other market sectors.

US futures are mixed this morning after yesterday’s sharp declines. S&P 500 futures are up 0.16%, while Dow Jones Industrial futures are relatively flat, falling 0.03%. Technology fell broadly again yesterday, though Nasdaq 100 futures are advancing by 0.91% today. Chipmakers are on pace to open higher this morning with companies such as Micron Technology (+0.72%), Advanced Micro Devices (+0.94%), and Intel (+0.47%) up pre-market. These companies were among the worst performers in yesterday’s trading.

According to Bloomberg reports, President Trump is aggressively pursuing a NAFTA deal by the end of next week. The Trump Administration would reportedly announce the deal at a summit in Peru on April 13th.

Economic data set to be released today includes Redbook Chain Store Sales at 8:55 a.m EST, as well as weekly API Crude Inventories at 4:30 p.m EST. US auto sales for March will be released throughout the day.

US options, pre-market, are implying a calm open with the VIX currently at 22.71 after closing at 23.62 yesterday.  May 18 OTM QQQ Puts, May OTM SPY Puts and April 20 OTM Puts are the most actively traded options this morning.

Asian & Australia Equities Recap

The sharp sell-off in US equities yesterday was felt in Asian equity markets this morning.  Japanese equities closed down with the Nikkei -0.45% and the Topix -0.29%.  Utilities and consumer stocks were the best performing stocks in the Nikkei 225 while energy, tech and telecom stocks were the worst performing.  Notable movers included: Furukawa Electric -3.68%, OKUMA -3.24%, SCREEN Holdings -2.84% and Ebara -2.74%.  Bank of Japan (BOJ) Governor Haruhiko Kuroda told the Japanese Parliament that the BOJ is in discussions about whether to begin to rollback its monetary stimulus policy.  Goldman Sachs announced a downward revision for it 1-year price target for the Topix to 1,950.  The Topix closed at 1,703.80.

Chinese and Hong Kong equities finishes their trading session mixed with the Hang Seng +0.29%, Hang Seng China Enterprise +1.15% and the CSI 300 -0.63%.  Consumer and telecom stocks were top performing stocks in the Hang Seng while utilities, energy and industrials were the biggest laggards.  Notable movers included: Power Assets Holdings -11.37%, Hengen International +8.25%, Wharf Real Estate +3.72%, China Mengniu Dairy +3.72% and China Petroleum & Chemical +3.63%.  Volume in Hong Kong was weak with total volume traded 29.24% below its 10-day average.  1Q2018 GDP is expected to be close to ~+6.8% Y/Y; it will be reported on April 16th.  Chinese Ambassador to the US, Cui Tianko, implied that China will respond if the US imposes more tariffs on Chinese goods.

Indian equities finished positive with the Sensex +0.35% and the Nifty 50 +0.33%.  Utilities and financials were the top performing stocks on Sensex.

In the Land Down Under, Aussie stocks finished negative with the ASX 200 -0.13%.  Energy, materials and telecom stocks were the top performing stocks while consumer discretionary, tech and industrials stocks were the worst performers.  Notable movers included: BT Investment -3.18%, Breville Group -3.10%, Primary Health Care -3.08%, and NETDC -3.06%.  The Reserve Bank of Australia chose to keep its benchmark interest rate unchanged.

Asian options markets were relatively quiet given the sell-off in US equities and price weakness Asian equity indices.  1-month implied volatility remains relatively high for Nikkei 225, Hang Seng and ASX 200 index options: roughly 1 to 2 standard deviations above their 1-year average. Skew on all Asian index remains rich with demand for OTM Puts driving 1-month Skew to the 90th percentile.  Nikkei 225 April 13 OTM Calls Puts were the most actively traded options in Tokyo.  December 18 OTM Puts, December 18 ATM Calls, June OTM Puts and June 18 ATM Calls on the Hang Seng China Enterprise were the most actively traded options in Hong Kong.

European Equities Summary

European equities are broadly negative this morning with the Euro Stoxx 600 -0.59%.  Regional indices are down with the FTSE 100 -0.23%, DAX -0.96%, and the CAC 40 -0.52%.  E&Ps, personal & household goods and utilities stocks are the best performing stocks this morning while auto & parts and tech stocks are the largest underperformers.  Notable movers included: Schneider Electric -2.33%, Fresenius SE -2.06%, Deutsche Bank -2.01% and Anheuser-Busch -1.98%.  The Governor of the Bank of Finland, Erikki Liikanen is now seen as the favorite to succeed European Central Bank  President Mario Draghi.  March PMIs were inline:

  • Spain 54.8 vs consensus 54.8, prior 56.0
  • Italy 55.1 vs consensus 55.0, prior 56.8
  • France 53.7 vs preliminary 53.6
  • Germany 58.2 vs preliminary 58.4
  • Eurozone 56.6 vs preliminary 56.6
  • UK 55.1 vs consensus 54.7

European options markets are catching up with the rise in risk premium in US markets this morning.  The VStoxx is currently at 19.1817 after closing at 17.4364 on Thursday.  April 20 ATM Puts, June 18 OTM Puts, June 18 OTM Calls and December 19 OTM Puts are the most actively traded options in Europe.

Latin American Equities

Brazil’s Ibovespa finished down 82bps, and Mexico’s Mexbol was down 65bps yesterday. The Ibovespa’s decline was led by Energy -2.32%, Industrials -1.96% and health care -1.69%. The only positive sector on the day was Materials, at +1.00%. Mexico’s decline was led by consumer staples -1.35%, and materials, -0.67%. Positive sectors on the day were consumer discretionary +1.18% and utilities +0.02%. In Ecuador, President Moreno has announced plans to cut spending, close ministries and open talks with creditors to boost investor confidence and mitigate the risk of further downgrade of Ecuador’s credit. Newly elected Peruvian President, Martin Vizcarra swore in his 19-member cabinet yesterday. Lastly, secretary of economic monitor at the Brazilian finance ministry spoke yesterday at a conference in Lisbon and said that Brazil should grow at 3% in 2018 and 3% again in 2019.

Rates & Commodities

US bonds are lower to start today with bond yields higher across the curve. The 10-Year yield is moderately higher at 2.750% from yesterday’s close of 2.735% and the US 30-Year Yield and is at 2.983% from yesterday’s close of 2.971%. Global bonds are trading mostly in tandem with US bonds except for bonds in Japan, South Korea, and China as bonds in Asia are rallying. The USD$ is slightly higher to start the day, currently at 90.06, up 4bps. With Europe’s return to trading and a risk-off sentiment absent today, the USD$/JPY¥ is higher by 43bps at 106.25. Additionally, the USD$ is stronger against the CHF (.9562). North American currencies, CAD (1.287) and MXN$ (18.22) are stronger against the USD$ as President Trump is hoping to reach a NAFTA deal this month, ahead of the summit in Peru next week. Gold and silver are lower this morning down 34bps at USD$ 1336.74/ounce, and down 35bps at USD$ 16.54 respectively. Platinum (USD$ 930.25) -0.45% and palladium (USD$ 935.15) +0.42%. are mixed, as palladium seems to be ending its recent losing streak. Lastly, WTI Crude oil up on the day after trading sharply lower yesterday and is now at USD$ 63.25/barrel, up 38bps. UAE Minister Suhail Al Mazrouei has said that the global deal to rein in oil output has reduced 85% of the problem and that the world economy is benefiting from the supply cuts.

Cryptocurrencies

Major cryptocurrencies are higher to start the day, following yesterday’s gains. Bitcoin is trading at USD$ 7,365.85 up 3.92%, Ethereum is following at USD$ 400.70, up 2.13% and Ripple at USD$ .5383 up 7.28%, to round out the top three. Cryptocurrencies seem poised for their first week of gains since mid-March. Crypto news is mixed on the day so far; Bloomberg reported yesterday that 9 cryptocurrency hedge funds have closed in 2018. This move comes after only 2 of the top 25 cryptocurrencies posted gains in the first quarter of 2018. Google reportedly has banned cryptocurrency mining browser extensions from the Chrome store. Google has said that the mining extensions have failed to comply with their single purpose policy or were malicious. On the positive side, Japanese online brokerage firm, Monex Group, has said that it is considering buying the cryptocurrency exchange Coincheck. Coincheck was a target of hacking earlier this year, and in December, Coincheck accounted for more than half of the bitcoin trading volume in Japan. Lastly, Japanese social messaging platform Line will be launching a blockchain subsidiary, just months after announcing its Line Pay service would offer cryptocurrencies. The subsidiary will be based in South Korea and it will research blockchain technology and its potential applications.

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

Companies Trending in the News

Air France (AF.FR) union employees have announced that a two-day strike will be conducted for April 10th-April 11th, citing pay disputes with the airline.

Celgene (CELG) has announced the unexpected departure of COO Scott Smith. Smith served in his role for only a year.

General Motors (GM) has announced that it will no longer report monthly auto sales, citing the belief that 30 days is not a long enough period to provide accurate measurements of productivity. GM will begin to report US sales quarterly. Monthly auto sales releases are the current industry standard.

Longfin (LFIN) stock is down 29.4% pre-market after the cryptocurrency stock announced an SEC probe is being conducted into the company’s operations.

Renesas Electronic Corp (6723 JP) shares moved lower after the company announced that the it's largest shareholder, Innovation Network Corp. of Japan, will be cutting its holdings of Renesas from 46% to 33%.

Spotify’s (SPOT) IPO reference point has been set at $132 by the NYSE. The company’s IPO is scheduled for today.

Total SA (FP.FR) has updated its guidance and is projecting annual average revenue growth of 5% for the next 5 years.

Twenty-First Century Fox Inc. (FOXA) will reportedly offer Sky PLC’s (SKYAY) Sky News division to the Walt Disney Co (DIS) in hopes of clearing regulatory hurdles following Fox’s acquisition.

Walmart (WMT) is furthering its expansion into healthcare and is reported to be in discussion with PillPack regarding the acquisition of the online pharmacy start up. This follows reports from yesterday’s that Walmart is also attempting to acquire Humana (HUM).

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

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