Morning Quant Ride April 9, 2018

Apr 09, 2018

Traders’ Corner

US Market Preview

President Trump softened his trade rhetoric this weekend with a tweet saying that “China will take down its Trade Barriers because it is the right thing to do. Taxes will become reciprocal & a deal will be made on Intellectual Property. Great future for both countries.” The market has viewed this as a signal of a more accommodating stance by the President. Secretary of Treasury Steve Mnuchin further assuaged trade concerns by remarking that US objectives are to “continue to have discussions with China”. Trade tensions between China and the US drove market sentiment last week and continue to with US futures higher this morning following these latest comments.

After last week’s debacle with the S&P 500 down 1.4% and no sector in positive territory, S&P 500 futures are up 0.59%. In similar fashion, Dow Jones Industrial futures moved 0.74% higher, and Nasdaq 100 futures have advanced 0.95%.

Market focus may begin to shift from trade rhetoric to company financials as “earnings season” begins this week with major banks JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) reporting on Friday.

No major economic news is scheduled for release today.

US options, pre-market, are implying no change in risk premiums with the VIX currently at 21.46 after closing at 21.49 on Friday.  April 20 OTM Puts on EEM, April 13 ITM Puts on TWX, and April 20 & April 09 ITM Puts on the SPY are the most actively traded options this morning.

Asian & Australia Equities Recap

Asian equity markets shrugged off worries about a Sino-American trade war and broadly closed positive.  Japanese equities finished their trading sessions positive with the Nikkei 225 +0.51% and Topix +0.38%.  Consumer staples, utilities and real estate stocks were the best performers while energy and telecom stocks were the worst performing sectors.  Notable movers included: COMSYS Holdings +4.91%, Yamaha +3.53%, Furukawa Electricity -2.95%, NH Foods +2.87% and Rakuten -2.86%.  Market breadth was positive with the Advance/Decline ratio finishing at 2.18.  The Japanese Current Account Balance in February was JPY¥2,076.7bn vs. Consensus JPY¥2,196.0bn and JPY¥607.4bn in January.  The Japan March Consumer Confidence Index came in at 44.3 vs. Consensus of 44.3 and 44.3 in February.  Japanese investors sold USD$36.68bn of US Bonds in February, which was a record-setting amount according to an article in Reuters. During the same period, Japanese investors added EUR€8.06bn of Euro-denominated bonds.

Hong Kong equities finished positive with the Hang Seng +1.29% and the Hang Seng China Enterprise +0.88%.  Chinese equities were mixed with the CSI 300 closing down 0.05%.  All sectors of the Hang Seng were positive.  Consumer and telecom stocks were the top performing stocks while energy, utilities and financials were the biggest laggards.  Notable movers in Hong Kong included: Sunny Optical Technology +5.87%, Geely Auto +5.16%, China Mengniu Dairy +4.57%, CITIC +3.87% and WH Group +3.86%.  Market breadth for the Hang Seng finished positive with 47 stocks of the 50 stock Hang Seng index closing positive.  Volume traded in Hong Kong was tepid with total volume  ~27.6% below its 10-day average.  China FX Reserves were USD$3.14tn in March vs. Consensus of USD$3.14tn and USD$3.13tn in February.  Fan Gang, Director of National Economic Research Institute and a People’s Banlk of China (PBOC) advisor, recommends that China invest in assets other than US Treasuries

Indian equities closed positive with the Sensex +0.48% and the Nifty 50 +0.46%.  Notable movers included: Axis Bank +3.44%, Mahindra & Mahindra +2.18%, IndusInd Bank +2.11% and Tata Motors -2.11%.  Market breadth was neutral with 17 stocks advancing and 13 stocks declining on the 31 stock Sensex index.

Aussie equities finished in the green with the ASX 200 +0.34%.  Healthcare, consumer staples and tech stocks were the top performing groups while energy stocks were the only sector negative.  Notable movers included: Mineral Resources -6.90%. Alumina +6.28%, IPH +5.26%, and Macquarie Atlas +4.60%.  Market breadth was positive with the Advance/Decline ratio finishing at 2.22.  The AIG Construction Index was 57.2 in March vs 56.0 in February.

Asian options markets were relatively quiet with 1-month implied volatilities for major Asian index options dampening over the course of trading.  Skew for most index options moved down towards the 75th percentile; Hang Seng Index options were the only outlier with Skew still above the 90th percentile.  April 13 OTM Calls and Puts were the most actively traded options in Tokyo.  April 13 OTM Calls and Puts on the Nikkei 225 were the most actively traded options in Tokyo.  OTM December 18 Puts, OTM December 19 Calls and Puts on the Hang Seng China Enterprise and April 27 OTM Puts on the Hang Seng were the most actively traded options in Tokyo.

European Equities Summary

European equities are mixed with the Euro Stoxx 600 +0.19%.  Regional indices are also mixed with the FTSE 100 -0.12%, DAX +0.55% and the CAC 40 +0.24%.  Tech, industrials and financials stocks are the top performing stocks across Europe while energy, materials and consumer staples are the biggest laggards.  Notable movers in Europe include: Deutsche Bank +2.61%, Fresenius SE +1.42%, SAP +1.34% and Munich Re +1.33%.  Market breadth is generally positive with 42 of the 50 stocks in the benchmark large-cap Euro Stoxx 50 index positive.

The February Trade Balance for Germany came in at EUR€19.2bn vs. Consensus EUR€23.1bn and EUR€23.1bn in January.  News headlines in the London Telegraph are pushing the idea that Eurozone may be heading back into a recession: weakness in German economic data may be a forward indicator of weakness in economic data points across other European countries.  In Italy, the center-right parties La Lega, Fratelli d'Italia, and Forza Italia have agreed to present a united front in forming a government next week.  Italian equities are positive this morning with the FTSE MIB +0.40%.

Risk premiums are relatively neutral this this morning with the VSTOXX currently at 17.3939 after closing at 17.4368 on Friday.  Skew on 1-month Euro Stoxx 50 options remains fairly valued; 1-month implied volatility is less than ½ a standard deviation above its 1-year average.  Notably, skew for FTSE 100 index options is at the 70th percentile.  June 18 OTM Puts on the Euro Stoxx 50 are the most actively traded options in Europe.

Latin American Equities

Latin American equities were less affected last week than compared to other regions during the ongoing trade conflict between the US & China. Brazil’s Ibovespa was down 110bps, Argentina’s Merval was down 51bps and Mexico’s Mexbol was up 79bps. All three indices outperformed global indices except for the Nifty. As of now, a NAFTA deal ahead of the Americas summit in Peru does not look likely according to sources close to the matter. With Mexican’s election coming up in July and the US midterms later this year, a deal may not be made until 2019. Brazil’s former president Lula turned himself into the police and has been begun to serve his 12 year prison sentence. On the economic front in LatAm today, Chile’s trade balance, international reserves and copper exports for March will be released. In Mexcio, March CPI and March vehicle data will be released. Lastly, Brazil will be releasing inflation data this morning and its trade balance data in the afternoon.

Rates & Commodities

Global bonds are mixed this morning. Bonds in Asia-Pacific are slightly higher, notably bonds in China have rallied the most following news that the country is studying a Yuan devaluation as a retaliatory measure against US tariffs. Bonds in EMEA are mixed with UK & France selling off and Italy, Spain, Portugal slightly higher. US bonds are slightly lower this AM as the 10-Year yield closed is at 2.792%, lower from Friday’s close of 2.773% and the US 30-Year Yield is at 3.032% from Friday’s close of 3.019%. The USD$ is flat from Friday’s close at 90.13. The USD$ has been performing well over the last two weeks, up from 88.90, a 1.40%. There is no economic data for the US this week, however, inflation data will be released mid-week and the minutes from the last Federal Reserve meeting. Precious metals are mixed with Gold at (USD$ 1328.90/ounce) and Silver (USD$ 16.35/ounce), lower by 31bps and 19bps respectively. Palladium and Platinum are higher by 9bps at USD$ 918.19 and 162bps at USD$ 920.02/ounce respectively. WTI Crude oil is slightly higher to start the week, up 29bps at USD$ 62.24. Data related to oil has been light recently; Baker Hughes rig count showed an uptick in rigs in the US last week. Traders will be watching ongoing developments in the Middle East related to US and Iran this week as John Bolton begins his role as National Security Advisor.

Cryptocurrencies

Major cryptocurrencies are mostly lower as only Ethereum +1.08%, NEO +6.50%, Dash +0.19%, and Verge +6.69% are positive out of the top 25 cryptocurrencies by market capitalization. Singapore’s minister for finance has said that the government is hoping to foster innovations such as blockchain to improve access to finance in the region. Arizon’s cryptocurrency tax payment bill is being reworked; originally residents were going to have the ability to pay taxes in cryptocurrencies. The reforms seem positive as Arizona Senator Petersen is looking to have the bill contain language that indicates any cryptocurrency can be used for payment, not just bitcoin. News from Asia was mostly negative towards cryptocurrencies; Korea is set to inspect three banks over crypto exchange anti-money laundering practices. Japanese regulations have suspended two crypto exchanges over know-your-customer issues. The suspended exchanges are Eternal Link and FSHO. Lastly, Pakistan’s central bank has issued a statement barring financial companies in the country from working with cryptocurrency firms, similar to policies announced in India.

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

Companies Trending in the News

Barclays (BARC.LN) has announced that it will be dividing its European trading division and relocating operations that trade in Eurozone bonds off its London trading floor.

Deutsche Bank AG (DBK.GR) shares are 3% higher after confirming the two weeks of rumors that Christian Sewing will take over the CEO roll at the share holders meeting in May. John Cryan will stay until the end of the month.

Facebook Inc (FB) will begin to notify the users whose data was improperly shared. Of the 87 million users affected, 70 million reside in the US.

General Motors (GM) shares are 2.5% pre-market after announcing that GM China vehicle sales for March rose 2% Y/Y.

Novartis International AG (NVS) announced it will buy AveXis Inc (AVXS) for $8.7 billion.

PayPal (PYPL) has been gauging user interest regarding the addition of basic banking features to online payment services PayPal already provides.

Tata Motors (TTM) shares were the worst performing on the Sensex and Nifty after reporting a 7.8% drop in Y/Y sales of Jaguar Land Rover vehicles in March.

Tesla Inc (TSLA) will voluntarily recall 8,898 of its Model S vehicles from China due to quality issues with the company’s power steering features.

A TransCanada (TRP) spokeswoman has reported that an oil leak in the Keystone pipeline last year was nearly twice as large as the original 9,700-barrel estimate.

Viacom (VIAB) has reportedly requested CBS to raise its acquisition bid by $2.8 billion, or almost an additional quarter of the previous bid.

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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