Morning Quant Ride April 4, 2018

Apr 04, 2018

Traders’ Corner

US Market Preview

Following the US’s imposition of an additional $50 billion in trade tariffs last night, the Chinese government responded by announcing a proposed 25% tariff on 106 US products including soybeans, autos, planes, and whiskey. These new tariffs represent $50 billion in trade, and match what was originally imposed by the US. The new round of tariffs will not go into effect until May 22nd. Yesterday, Cui Tianki, the Chinese Ambassador to the US, foreshadowed these retaliatory measures when he warned that China would meet US trade actions with “countermeasures of the same proportion”. Concerns regarding an escalating Sino-American trade war has caused US investor sentiment to turn notably negative before the open.

US futures have declined sharply as markets digest the trade escalation. S&P 500 futures are 1.43% lower, while Dow Jones Industrial futures have receded by 1.93%. Technology continues to offer disappointing returns, and Nasdaq 100 futures have fallen by 1.66%.

US ADP Employment numbers for March came in firmly above estimates (241,000 vs 205,000 estimate). Further economic data scheduled for release today includes Factory Orders for February at 10 a.m EST, and Oil Inventories for the previous week ended at 10:30 a.m EST. Shares of chipmakers are significantly lower pre-market with Micron Technologies (-3.01%), Advanced Micro Devices (-4.08%) and Intel (-3.40%) among the biggest decliners before the open.

US options, pre-market, are implying a rise in risk premiums with the VIX currently at 23.96 after closing at 21.10 yesterday.  April 06 ITM Puts on Monsanto, May 18 OTM Puts on IWM and April 04 OTM Puts on the SPY are the most actively traded options this morning.

Asian & Australia Equities Recap

Asian equity markets were mixed this morning with yesterday’s bounce back in US equities overshadowed by Chinese Ministry of Commerce’s decision to levy 25.0% tariffs on 106 US products (USD$50n in value).  Japanese equities finished positive with the Nikkei 225 +0.13% and Topix +0.14%.  Consumer and utilities stocks were the best performers while materials, tech and energy were largest laggards.  Japan March Services PMI was 50.9 vs. 51.7 in February.  The Bank of Japan (BOJ) purchased JPY¥833bn (USD$7.8bn) of ETFs in March, bringing is total purchases to JPY¥1.3tn for 1Q.  If the current pace holds, the BOJ will overshoot its target for CY2018 of JPY¥6.0tn in purchases of ETFs.

Chinese and Hong Kong equity markets finished their trading session negative with the Hang Seng -2.19%, Hang Seng China Enterprise -2.30% and CSI 300 -0.20%.  Real estate, utilities and industrials stocks were the top performing sectors while tech and consumer stocks were the worst performers.  Volume traded continues to lag with total volume traded in Hong Kong 35.03% below its 10-day average.  China March Caixin services PMI was 52.3 vs. 54.2 in February.  The Ministry of Commerce’s decision to raise tariffs on US products specifically targets imports of soybeans, autos, and chemicals products.

Indian equities closed negative with the Sensex -1.0% and Nifty 50 -1.14%.   Metals stocks were the worst performers in the Sensex.

Australian equities finished their trading session positive with the ASX 200 +0.17%.  Real estate, consumer staples and healthcare stocks were the best performers while consumer discretionary, telecom and utilities were the biggest underperformers.  Australian February retail sales were +0.6% M/M vs. a consensus of +0.3% and +0.1% M/M in February.

Asian options markets were relatively quiet with the back-drop of the US and China escalating tensions around trade.  1-month implied volatility remains muted for Nikkei 225, Hang Seng and ASX 200 index options:, still hovering around  roughly 1 to 2 standard deviations above their 1-year average.   Skew on all Asian index remains very rich with demand for OTM Puts driving 1-month Skew above the 90th percentile.  Nikkei 225 April 13 OTM Calls and Puts were the most actively traded options in Tokyo.  OTM April 27 Calls and Puts on the Hang Seng and OTM March 19 Puts on the Hang Seng China Enterprise were the most actively traded options in Hong Kong.

European Equities Summary

European equities are broadly lower this morning with the Euro Stoxx 600 -1.07%.  Regional indices are also negative with the FTSE 100 -0.63%, DAX -1.35% and the CAC 40 -0.91%.  Energy and real estate stocks are the only positive sectors this AM in European equities.  Tech, materials and industrials stocks are the worst performing stocks across the region.  Eurozone February Unemployment was 8.5% vs. consensus of 8.5% and 8.6% in January.Italian February unemployment was 10.9% vs consensus of 11.2% and 11.1% in January.  Italian equities are down this morning with the FTSE MIB -1.08%.Escalating trade tensions between the United States and China is driving up risk premiums across Europe.  The VStoxx is currently at 20.3029 after closing at 18.8146 yesterday.  June 18 ATM Calls, April 20 ATM Puts, April 20 OTM Calls and Puts are the most actively traded options in Europe.

Latin American Equities

Latin America equities were mixed yesterday with Brazil’s Ibovespa being the lone decliner, down 5bps. Brazil’s index was led lower by consumer discretionary -1.21% and energy -0.70% while defensive sectors telecom +1.84% and consumer staples +0.87% were the top outperformers. Mexico’s Mexbol finished up 187bps, even with a higher MXN$ on the day. Telecom +2.45% and Materials +2.07% were the top outperformers on the day.  Argentina’s Merval finished up 104bps. Led by financials +2.89% and info tech +2.85%. Volatilities remain heightened across the region as 10D realized volatility is higher than 30D volatility on all three indices. Brazil’s supreme court will be arguing today about the merits of former President Lula’s request to stay out of jail despite losing an appeal against a criminal conviction for corruption and money-laundering. Following this news, Brazil’s Finance Minister, Henrique Meirelles, said he will be joining the Democratic Movement Party (MDB) and decide on whether to run for president in the next two days. Brazil’s top currency forecaster from Q1 of this year, Tania Escobedo from RBC Capital has said that the Brazilian Real is poised to weaken to 3.40 by mid-year amid rising volatility ahead of the October elections. Lastly, Colombia central bank co-director, Adolfo Meisel has said the bank sees inflation close to 3% at the end of the year and that GDP growth should come in line with the 2.7% forecast. While these data points are positive for the country, Adolfo said the possibility is always open for an interest rate cut.

Rates & Commodities

US bonds are rallying to start the day with bond yields lower across the curve. The 10-Year yield is moderately lower at 2.753% from yesterday’s close of 2.775% and the US 30-Year Yield and is just above 3.0% at 3.001% from yesterday’s close of 3.011%. The rallying in US bonds appears to stem from the risk-off sentiment today led by further reciprocal tariffs (see above) imposed on each other by the US and China.  The USD$ is moderately lower to start the day currently at 90.11, down 7bps. The USD$ is lower against the JPY¥ by 22bps at 106.20. Additionally, the USD$ is stronger against the CNY¥ by 25bps (6.303). Following a stronger JPY¥, Gold and silver are higher this morning, and are up 75bps at USD$ 1342.77/ounce, and up 26bps at USD$ 16.46 respectively. Platinum (USD$ 920.31) -0.54% and palladium (USD$ 921.52) -1.36%. are lower, as metals overall are mostly mixed in today’s risk-off sentiment. Lastly, WTI Crude oil is trading sharply lower following the trade war news at USD$ 62.34/barrel, down 184bps. Additionally, API data was released yesterday showing a drawdown of 3.3mm for headline crude, but a build in the other product components.

Cryptocurrencies

Major cryptocurrencies are giving back gains from earlier this week. Bitcoin is trading at USD$ 7,145.73 down 3.18%, Ethereum is following at USD$ 387.28, down 3.71% and Ripple is at USD$ 0.5136 down 4.56%, to round out the top three. The only two positive cryptocurrencies in the top 25 by market capitalization are Verge ($USD 0.062) up 3.85% and List (USD$ 8.68) up 3.47%. Crypto news is mostly positive from overnight leading up until this morning. Russia’s central bank is reportedly considering using the Ethereum blockchain software to transmit SWIFT financial messaging across the Eurasian Economic Union (EAEU). US insurance giants, UnitedHealth and Humana have said they will pursue a blockchain pilot aimed at improving the quality of healthcare data. MultiPlan and Quest Diagnostics will also be participating with the two healthcare insurance providers. Lastly, US equity, Longfin, disclosed that the SEC is currently investing trading of the company’s shares and details regarding its IPO and acquisition of Ziddu.com. Longfin is a public FinTech company that acquired Ziddu.com, a company specializing in smart contracts and micro-lending using blockchain technology. Longfin’s shares fell 30% on the news and is down over 80% this year after rising 1,000% in just two days last year.

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

Companies Trending in the News

Amazon.com (AMZN) reportedly may make a bid for Flipkart, an Indian e-commerce company. This offer would rival that of Walmart (WMT), who is currently in discussion with Flipkart regarding the purchase of a 40% stake in the company.

Apple Inc (AAPL) is reported to be working on touchless gesture control and curved screens for its future iPhone models. These developments would further differentiate the iPhone in a crowded market.

Cloudera Inc (CLDR) is 29% lower pre-market due to forecasted revenue for 2018 was adjusted to a range of $435-$445 million, missing estimates of $460.3 million.

Jollibee (JFC.PM) shares are lower after the Philippines restaurant operator was ordered to regularize the employment of 6,482 workers which had been provided by 2 contractors.

Southwest Airlines (LUV) is considering the purchase of numerous Boeing Co (BA) 737 planes.

WPP PLC (WPP.LN) has announced that it will conduct an independent investigation into CEO Sir Martin Sorrell following reports of personal misconduct and the misuse of company assets.

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

Quantamize is the trade name of Quantalytics Research, LLC.

Disclaimer

Quantamize is not an investment adviser, brokerage firm, or investment company. Any data, information, or opinions presented by Quantamize or Quantalytics Research are for general information purposes only. Such data, information, or opinions are not an offer to sell or to buy, or a solicitation to buy or sell any securities. All investments and investment recommendations entail risks. Any forward looking estimates presented by Quantamize or Quantalytics Research may prove to be incorrect and not be realized. Any data, information, or opinions expressed in any form may change without notice. Any data, information, or opinions in Quantamize or Quantalytics Research in any form attributed to a third party represent Quantamize's or Quantalytics Research’s interpretation of the data, information, or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. The data, information and opinions presented have been obtained or derived from sources believed by Quantamize or Quantalytics Research to be reliable. Quantamize or Quantalytics Research, does not make any representations as to their accuracy or completeness. Nothing discussed or presented in Quantamize or Quantalytics Research constitutes a representation that any investment, investment strategy, or recommendation is suitable or appropriate to an investor's individual circumstances or otherwise constitutes a personal recommendation. Data, information, or opinions contained in Quantamize or Quantalytics Research in any form give no consideration to any particular individuals' investment needs or objectives, nor do they consider any individuals' financial condition. Consequently, any such data, information, or opinions do not in any way represent a personal recommendation to any individual investor or any entities, whatever the type. Quantamize and Quantalytics Research does not accept any liability for any losses or damages arising from the use of the data, information, or opinions included in Quantamize or Quantalytics Research in any form. All investments involve risks of loss and potential permanent impairment of capital. Investors should diversify risks and exercise prudence and their own judgement in making their investment decisions. Quantamize and Quantalytics Research and any information contained therein is not intended for distribution to or use by any person, or entity, who is a citizen or resident of or located in any locality, state, country, or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or cause Quantamize or Quantalytics Research, LLC to be required to register or be licensed within any such venues. All data, information, and opinions expressed in Quantamize or Quantalytics Research in any form are as of the date of publication and are subject to change. Quantalytics Research partners and employees may own or have positions in any investment(s) mentioned respectively therein or related thereto and may, from time to time add to, or dispose of, any such investment(s).