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Morning Brief

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Morning Quant Ride

Apr 20, 2018

Traders' Corner

Key Highlights

  • US equity futures rebounding off early morning lows following strong 1Q results from HON and GE
  • GE reports 1Q2018 results ahead of Consensus and reaffirms FY2081 guidance.  GE is up 5.4% pre-market
  • Large-cap consumer staples appear set to continue yesterday’s 3.1% sell-off amidst worries about pressures on sales of US household products
  • OTM July 18 Puts on XOP are some of the most heavily traded options contracts in US pre-market following a Tweet from US President Trump stating that oil prices are “artificially” high
  • Weakness in Asian equities, Chinese stocks worst performing with Hang Seng -0.95%
  • European equities mostly higher, Euro Stoxx +0.13%

 

US Equities Before the Open

US equity futures are mixed this morning but are trading off their early morning lows following strong earnings results from GE and Honeywell.  S&P 500 e-mini futures +0.7%, Nasdaq 100 e-minis -0.06% and Dow Jones e-minis -0.03% before the open.  Positive results from major oil services companies Schlumberger and Baker Hughes are being digested in the context of President Trump’s tweet this morning which suggests he believes the current level of WTI (USD$67-68 range) and Brent (USD$73-74) is “artificially” high.

Some pre-market highlight from this morning:

  • Honeywell reports 1Q2018 results ahead of Street estimates and boosts FY2018 guidance.  HON is up 1.04% pre-market.
  • GE reports 1Q2018 results ahead of Consensus and reaffirms FY2081 guidance.  GE is up 5.4% pre-market.
  • Large-cap consumer staples appear to be set to continue yesterday’s 3.1% sell-off amidst worries about pressures on sales of US household products
  • Schlumberger reports 1Q2018 EPS which beat Consensus expectation.  Pre-market, the stock is down 1.5% following a tweet by President Trump oil prices being “artificially” high.
  • Stanley Black & Decker reports 1Q2018 EPS that was in-line with expectations and reaffirmed FY2018 guidance.  The stock isn’t trading in pre-market.

There are no major companies reporting earnings after-market today.  Before the market open on Monday, the following large-cap stocks are expected to report;

  • Hasbro
  • Haliburton
  • Google

 

Cryptocurrency Morning Brief

Major cryptocurrencies rallying and are poised to post a strong week’s worth of returns. Bitcoin is at $USD8,506.86, +3.38% over the last 24-hours. Bitcoin is up 21% so far this month. Ripple, Bitcoin Cash, EOS and Monero are top performers; up 21.29%, 16.70%, 11.20% and 10.00% respectively. Since Square, Inc. added Bitcoin trading capabilities to its payment app, the value of Square’s stock has risen modestly. Nomura Instinet has set a price target to USD$65. The stock is currently trading at USD$50. The co-founder of Tezos, the cryptocurrency project that made headlines with its USD$232mm ICO last year has received a sanction order from the Financial Industry Regulatory Authority (FINRA). FINRA has reportedly prohibited the co-founder from associating with broker-dealers for two years and has handed him a USD$20,000 fine. 

EU at Midday

European equities are mostly higher with the Euro Stoxx 600 +0.13%, the FTSE 100 +0.46%, the CAC40 +0.42%, with only the DAX negative (-0.15%). In the Euro Stoxx 600, telecommunications (+1.26%), materials (+0.52%), real estate (+0.26%) are the best performing sectors, with healthcare (-0.40%), consumer staples (-0.07%), and consumer discretionary (-0.05%) stocks being the largest laggards. Notable movers in the Euro Stoxx 600 included: CRH PLC +282%, Orange SA +1.59%, Vivendi SA -1.85%, and Deutsche Bank AG -1.80%. Market breadth in the Euro Stoxx 600 is positive with 372 of 600 stocks positive.
In an interview with the BBC, Bank of England Governor Mark Carney noted that although several interest rate hikes were “likely” in the coming years, weaker than expected economic data has given the BOE hesitations on how large the increases will be.

European Options

Risk premiums are declining slightly off yesterday’s levels with the VSTOXX sitting at 13.3670 after closing at 13.7415 yesterday.  Skew for 1-month Euro Stoxx 50 options has dropped this AM, moving from the 50th percentile yesterday back down below the 30th percentile based on its 1-year average this morning.  Skew for major regional index options remains fairly valued.  This disconnect may suggest investors are choosing to hedge on a country by country basis rather than focusing on the aggregate European equities market.  Options activity again today is limited to “macro” trades with OTM April 20 Calls and Puts, OTM May 18 Calls, OTM December 19 Puts, OTM December 20 Puts on the Euro Stoxx 50 are the most actively traded options in Europe.

 

Asia & Australia While You Were Sleeping

Japanese equities declined today, with the Nikkei 225 -0.13%, revising from yesterday’s higher trading. Financials (+0.80%), energy (+0.67%), and telecommunications (+0.62%) were the biggest out performers in the Nikkei 225, with materials (-1.70%), information technology (-0.79%), and industrials   (-0.43%) the largest laggards. Notable movers included: Shin-Etsu Chemicals -4.86%, Takeda Pharmaceuticals -4.67%, Pacific Metals Co +3.07%, and Nikon Corp +2.06%. Market breadth in the Nikkei 225 was positive with 124 of 225 companies advancing. Bank of Japan Governor Haruhiko Kuroda acknowledged his concerns that the rising level of global trade protectionism poses an immediate threat to Japan’s economy. Though he went on to hedge his concerns, stating that he does not believe that protectionism will spread further, he reiterated that the “risk is right in front us, so we need to carefully watch how development unfold”.  


Chinese and Hong Kong stocks are broadly lower today, in sharp contrast to yesterday, with the Hang Seng -0.95%, the Shenzhen Composite -2.01%, and the CSI 300 -1.34%. Telecommunications (+0.20%) was the only sector in the Hang Seng index in the black, with information technology (-2.35%), energy (-2.18%), and consumer discretionary (-1.19%) being the sharpest decliners. Notable movers in the Hang Seng included:  AAC Technologies -7.26%, Sunny Optical Technologies -5.63%, Lenovo Group -3.56%, Hengan International-3.20%. Market breadth for the Hang Seng was overwhelmingly negative with only 6 equities advancing (44 declines). The Trump Administration is reportedly considering evoking the International Emergency Economic Powers Act (IEEPA) of 1977 , giving the administration the ability to impose tighter restrictions on Chinese investment into US technology firms. The law has typically been applied to rogue regimes and terrorist organizations, and it would give the President the ability to limit foreign investment in sectors deemed “sensitive”. Chinese Ministry of Commerce spokesman Gao Feng stated that he believes China’s economic forecast remains strong despite rising uncertainty from trade protectionism. Gao Feng noted that China’s trade deficit in March was a symptom of the Spring Festival, which negatively impacted production and exports. 


Indian equities were modestly lower with the Sensex -0.07%, and the Nifty 50 -0.01%. Information technology (+4.86%), and telecommunications (+1.68%) were the only sectors in positive territory in the Sensex, with materials (-1.47%), industrials (-1.43%), and utilities (-1.18%) the worst performers. Notable movers in the Sensex included: Tata Consultancy +6.96%, Infosys Ltd +3.92%, Yes Bank Ltd -2.80%, ICICI Bank Ltd -2.28%.
Australian stocks were down with the ASX 200 -0.21%, relinquishing most of yesterday’s 0.33% gain, though ending higher for the 3rd straight week. Energy (+0.27%), consumer staples (+0.20%), and industrials (+0.11%) were the largest outperformers in the ASX 200 with telecommunications (-1.06%), utilities (-0.72%), and information technology (-0.66%) the biggest laggards. Notable movers included: Eclipx Group Ltd -4.24%, western Area Ltd -3.89%, TPG Telecom Ltd -2.66%, and IRESS Ltd +3.04%. Market breadth for the ASX 200 was negative with only 58 of 200 equities advancing. 

Asian Options

1-month implied volatilities for major Asian index options remain cheap as of market close in Asia, closing below their 1-year averages for the second day in a row.  Skew ticked up all major Asia index options and is now fairly valued.  May 11 OTM Calls and Puts on the Nikkei 225 were the most actively traded options in Tokyo.  OTM April 27 Call and Puts on the Hang Seng China Enterprise and April 27 Call and Puts on the Hang Seng were the most actively traded options in Hong Kong.

 

Latin American Equities

Latin American equities mostly traded negatively yesterday except for Brazil which was +0.06%. Argentina’s Merval was -0.79% and Mexico’s Mexbol was -0.70%. Brazil will be releasing M/M and Y/Y inflation data this morning while Colombia will be releasing trade balance data and economic activity data. Brazilian company Usiminas (USIM5 BZ) will be releasing earnings before the open today. Bain Capital-backed Notre Dame Intermedica Partipacoes SA priced its shares at R$16.50 yesterday. The IPO yesterday was the first successful IPO for Brazil in 2018. 

Rates & FX

Global bonds are mixed currently with bonds weaker in Asia-Pacific, bonds rallying in EMEA, and in the Americas, bonds are mixed. Yields on 10-Year Chinese government debt are set for their biggest weekly decline since 2015, pulled down by the central bank’s unexpected move to ease lenders’ funding pressure by cutting their reserve requirements. US Treasury yields have climbed this week with the current US 10-Year Yield at 2.901%. The USD$ has posted a strong week, currently trading at 90.11, from a low of 89.23 this week. Notably, the USD$ is at a recent high against the JPY¥, up 16bps on the day at 107.6; a level not seen since the end of February. Notably, the USD$ is stronger against the GBP£ by 23bps at 1.405 following surprising commentary by the BoE indicating that a rate hike for May which was seemingly priced in does not look as guaranteed as once thought. 

Commodities

WTI Crude Oil is trading lower amid USD$ strength, and tweets by President Trump claiming that OPEC is artificially inflating the price of oil. President Trump’s comments most likely stem from increased OPEC’s continued efforts to maintain supply cuts. While OPEC has been cutting oil supply, US has increased its oil production to record highs, currently at 10.5mm barrels/day. The price of WTI Crude Oil is trading at levels not seen since December 2014 and has surged ~10% since April 6th following OPEC discussions, geopolitical tensions in the Middle East and oil data showing inventory drawdowns. The strength in the USD$ in the second half of this week is weighing on commodity prices currently.  Gold is down 26bps at USD$1342.07 silver is down 63bps USD$17.14, platinum is down 49bps at USD$933.77 and palladium is down 28bps at USD$1026.75. Aluminum has given back some of its sharp gains over the last two weeks and is down 205bps at USD$2,485/contract.

 

Stocks Trending in the News

Alibaba (BABA) will be launching several new projects in partnership with the government of Thailand to improve cross-border e-commerce for small businesses and rural customers. Alibaba is continuing it expansion into Southeast Asian markets. 
General Electric (GE) posted 1Q2018 EPS that bested estimates ($0.16 vs $0.12 consensus). Revenue, however, came in below expectations ($26.87bn vs $27.6 bn estimated). 
General Motors (GM) has been offered $470 million by the South Korean government as incentive for the company to continue its operations in the country.
JP Morgan (JPM) has begun testing a blockchain platform for issuing financial instruments, seeking to improve the efficiency of its operations and reduce costs.
Mattel (MAT) announced that CEO Margo Georgiades will be leaving the company after nearly a year in her role. 
Proctor & Gamble (PG) will once again be advertising its products on YouTube. Proctor & Gamble avoided YouTube’s platform for more than a year over concerns of inappropriate content posted on the site. 
Qualcomm’s (QCOM) latest effort to meet its goal of cutting expenses by $1bn will be cutting 1,500 jobs across the company and is also planning to terminate 4.4% of its total workforce starting in June.
Stanley Black & Decker (SWK) released 1Q2018 earnings that beat estimates ($1.39 vs $1.35 consensus).
Wells Fargo (WFC) has been hit with $1 billion in fines by federal regulators, citing the company’s practice of selling unnecessary products to customers.

 

The Morning Recap