Morning Quant Ride April 16, 2018

Apr 16, 2018

Traders' Corner

Key Highlights

  • Markets are responding positively following statements that no further action contemplated in Syria at this time. US futures broadly higher this morning. The market is focused on earning releases this week with positive expectations
  • European equities are negative this morning with negative revisions to CY2018 Eurozone GDP Growth
  • Japanese Prime Minister Shinzo Abe may be forced to resign as  his poll numbers continue to drop
  • Drop in VSTOXX suggests weakness in European stocks presents buying opportunity
  • Cryptocurrencies are looking for direction after breaking out of a bearish channel last week. Cardano and Icon are the top performers in the asset class today and it will be critical to see if other major coins can maintain momentum

US Market Preview

Controlled missile strikes against Syria by a US-led coalition on Saturday have dampened concerns of further escalation in the region after a tweet by President Trump declaring “Mission Accomplished”. President Trump was reportedly seeking a more aggressive response to the atrocities in Syria, but heeded caution from advisors in the Pentagon to proceed with restraint. Markets have responded positively to the President’s measured actions.

US futures are broadly higher this morning. S&P 500 futures advanced 0.56%, while Dow Jones Industrial futures moved 0.61% higher and Nasdaq 100 futures are up 0.59%.

While no new trade action has been taken, a new symptom of escalating Sino-American trade tension has emerged. The Chinese government has reportedly slowed the process of reviewing billion-dollar acquisition deals by US companies. (seen Qualcomm below)

Mexican President Enrique Pena Nieto, US Vice President Mike Pence, and Canadian Prime Minister Justin Trudeau have made statements regarding a newly negotiated NAFTA deal that could be completed before July 1st.

Following Friday’s heavy slate of earnings releases, this week began with Bank of America, M&T Bank, and Charles Schwab reporting before the open with Netflix scheduled to report after the close.

Economic data scheduled to be released today includes US retail sales for March at 8:30 a.m, and Business Inventories for February at 10:00 a.m.

US options, pre-market, are implying a small drop in risk premiums with the VIX currently at 17.30 after closing last week at 17.41.  OTM April 20 Puts on SPY, OTM May 18 Puts on QQQ, April 20 OTM Calls on BAC, and July 18 OTM Puts on the NXPI are the most heavily traded options this morning

Asian & Australia Equities Recap

Japanese equities opened the week positive with the Nikkei 225 +0.26% and Topix +0.40%.  Healthcare, consumer staples and utilities stocks were the biggest gainers with consumer discretionary and energy stocks the worst performers.  Notable movers included: NH Foods +3.22%, Sumitomo Dainippon +3.03%, FamilyMart UNY +2.85%, Nippon Electric +2.77% and Daiichi Sankyo +2.64%.  Market breadth was positive with 143 stocks of the 225 stocks in the Japanese large-cap benchmark Nikkei 225 advanced.   Support for Prime Minister Shinzo Abe continue to slide with a recent poll by Nippon TV suggesting only 26.7% support for Prime Minister Abe.  News headlines speculate that Prime Minister may not have the support he needs to win a third term as Prime Minister and may need to resign at the of June when the parliamentary session ends.  As of April 3rd, Japanese busineeses have raised wages, on average, by 2.41% this year.  If this run-rate were to continue for the full year, it would be the highest increase in 20 years.  As a comparison, wages rose 0.35%, on average, for CY2017.

Chinese and Hong Kong Equities finished negative with the Hang Seng -1.60%, Hang Seng China Enterprise -2.06% and CSI 300 -1.610%.  All sectors in Hong Kong finished negative with utilities, consumer staples and telecom stocks the best relative outperformers; consumer discretionary, real estate and financials stocks were the largest laggards.  Notable movers included: China Shenhua Energy -4.12%, AIA Group -3.97%, Country Garden -3.87%, China Overseas -3.26% and Galaxy Entertainment -2.96%.  Market breadth was overwhelmingly negative with 44 stocks of the 50 stocks in Hang Seng declining.  According to a Bloomberg News Survey, 1Q2018 GDP for China is expected to grow +6.8% Y/Y.  The official GDP results will be relased tomorrow at 10am Beijing time.  China’s state-owned enterprises (SOEs) net income grew +19.4% Y/Y in 1Q2018 while total revenues grew 8.7% for the same period.

Indian equities closed their trading session negative with the Sensex +0.33% and the Nifty 50 +0.46%.  Real estate and healthcare stocks were the performers in Mumbai.  Notable movers included: Tata Motors -4.96%, Infosys -3.10%, Kotak Mahindra +1.88%, Hero MotoCorp +1.84%, and Bajaj Auto +1.81%.  Wholesale price inflation grew +2.47% Y/Y for March 2018; in comparison, wholesale price inflation expanded 5.11% Y/Y in March 2017.

Aussies stocks open their trading week positive with the ASX 200 +0.21%.  Utilities, energy and materials stocks were the best performing stocks in Sydney while real estate, consumer discretionary and financials were the worst performing sectors.  Notable movers included: Seven West Media -10.34%, Perpetual -5.37%, Webjet -5.18%, Retail Food Group -4.30%, and Western Area +4.19%.

European Equities Summary

European equities are negative to start the trading week with the Euro Stoxx 600 -0.26%.  Regional indices are broadly negative with the FTSE 100 -0.54%, DAX -0.13% and the CAC 40 -0.18%.  Healthcare, tech and industrials stocks are the best performers this morning while consumer staples, energy and utilities are largest decliners.  Notable movers include: Volkswagen -1.49%, Deutsche Telekom -1.36%, Anheuser-Busch -1.20%, and Airbus -1.14%.  Volume traded for the European composite continues last week’s weakness with total volume turnover ~12.85% below its 10-day moving average.  German Finance Minister Olaf Scholz does not believe that all of the reforms for the EU budget proposed by French President Emmanuel Macron are achievable.  

A Bloomberg survey finds may economists lowering their forecasts for CY2018 GDP growth for the Eurozone: Consensus is now ~2.13% Y/Y for CY2018, down from ~2.4% previously.

This morning, Moody’s upgraded its credit rating for Spain’s long-term debt to Baa1 from Baa2 (with a stable outlook).  Spanish equities are neutral this morning with the IBEX 35 +0.04%.

Latin American Equities

Latin American equities were sold going into the weekend, but positive US equity futures suggest the region may begin the day recovering. Brazil’s Ibovespa was down 130bps, Argentina’s Merval was down 139bps and Mexico’s Mexbol was down 7bps. Today, Brazil will be releasing inflation data, economic activity for February and its trade balance weekly. Vale is expected to report iron ore 1Q output of 75.4mm metric tons, its lowest quarterly output since 2014 according to analysts. Peru’s economic activity expanded 2.9% Y/Y in February vs. estimate of 3.0% and its unemployment for March rose to 8.1% from 8% the prior month. Lastly, Colombia will be releasing retail sales, consumer confidence measure and industrial production data today.

Rates & Commodities

Global bonds are weaker to start the trading week. The JGB 10-Year Yield is at 0.032%, the German 10-Year Yield is at 0.538% and the UK 10-Year Yield is at 1.474%. US bonds are trading in tandem with its global peers; the US 10-Year Yield is at 2.858%, up from Friday’s close of 2.830% and the US 30-Year Yield is at 3.065%, up from Friday’s close of 3.026%. The USD$ is moderately lower to start the week, at 89.52, down 35bps. Notably, the USD$ is weaker against the RUB? by 94bps as the market continues to digest US missile strikes in Syria from late Friday night. The USD$/ RUB? may be an interesting pair to watch today as the US is set to announce more sanctions on Russia. The USD$ is weaker against the JPY¥ BY 17bps at 107.33 showing that investors remain cautious as uncertainty still looms. Precious metals are mixed to start the week with gold down 20bps at USD$ 1343.46/ounce, silver down 32bps at USD$16.60/ounce, palladium up 38bps at USD$992.09 and platinum down 37bps at USD$927.88. WTI Crude is down 102bps at USD$66.70 following last week’s 6.6% rise. Rig count in the US increased again last week and traders are digesting the geopolitical tensions from the weekend.

Cryptocurrencies

Major cryptocurrencies are mixed after breaking out of a bearish channel for most of 2018. Bitcoin remains above USD$8,000 and is at $USD8,070.54 -1.82%. Cardano and Icon are notably higher, up 13.66% at USD$0.2414, and up 9.17% at USD$2.78 respectively. Cardano’s sharp rally likely stems from Chinese based cryptocurrency exchange Huobi announcing it is listing the ADA token. Samsung electronics is considering using a blockchain ledger system to keep track of its global shipments. This implementation may save Samsung 20% on its shipping costs, according to the Song Kwang-woo, the vice president of one of Samsung’s IT subsidiary. Numerous cryptocurrency exchanges have sought to appeal the recent decision by several Chilean banks to suspend the accounts of cryptocurrency exchanges. In the meantime, exchanges have been required to return all funds held in fiat currency to investors but that they will continue to offer trading for crypto-to-crypto pairings.

Stocks Trending in the News

Bank of America (BAC) released earnings this morning that beat estimates. EPS for 1Q was $0.62 against $0.59 expectations. Revenue from equities trading came in firmly above estimates ($1.52b vs $1.18b consensus).

Crispr Therapeutics (CRSP) has been granted permission by European regulators to proceed with a DNA-therapy to treat a blood disorder called beta thalassaemia.  This will mark the first time in European history that humans will be genetically modified.

Domino’s Pizza (DPZ) has added online ordering to 150,000 “hotspots”, locations with uncommon address such as parks and beaches. This is an attempt to compete with other companies expanding food delivery services, such as Amazon.

JB Hunt’s (JBHT) 1Q 2018 EPS was in-line with estimates ($1.07 vs $1.07 expected). Revenue for the quarter rose 19.6% Y/Y, to $1.95 billion. 

Kinder Morgan Canada (KMLGF) may receive financial aid from the Canadian city of Ottawa to ensure that the company’s pipeline project proceeds. The project was under threat after the government of British Columbia made attempts to curtail the project, citing environmental issues.

M&T Bank (MTB) reported 1Q 2018 EPS that was significantly below estimates ($2.26 vs $2.76 expected).

Qualcomm (QCOM) will resubmit an application to the Chinese government, continuing its pursuit of a $44 billion acquisition deal for NXP Semiconductors (NXPI).

Starbucks (SBUX) has issues an apology after two men were arrested in one of the company’s Philadelphia locations. A video recording of the incident has led to some backlash against Starbucks.

Shire (SHPG) is selling its oncology unit to French company Les Laboratories Servier (41022Z.FP) for a reported $2.4 billion.

Teva Pharmaceutical (TEVA) is facing legal action from Israeli labor group Histadrut if it does not halt the closing of a plant in the city of Ashdod. Teva is downsizing significantly, reducing 25% of its global workforce.

WPP PLC (WPP.LN), the world’s largest advertising firm, will be searching for a new CEO after CEO Martin Sorrell quit over the weekend. An independent investigation by the company was being conducted into reports of Sorrell’s alleged misconduct and improper business practices.

Carl Icahn and Darwin Deason, 15% shareholders of Xerox (XRX), have filed a lawsuit against the company. Icahn and Deason claim that CEO Jeff Jacobson continued to pursue a deal with Fujifilm, despite advisory from the board of directors to cease negotiations.