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IB Traders' Insight

Global market commentary from IBG traders and market participants.

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2014-04-24 10:03:39

Posted by
Andrew Wilkinson
Chief Market Analyst
Interactive Brokers
Contributor

Macro

US Durable Goods Orders

Orders for longer-lasting goods rose in March by 2.6% and beat a nearby consensus forecast. The gain was broad-based with all sectors showing increasing output. The ex-transport measure showed a rise of orders of 2.0%, which is the fastest pace of order growth since January 2013. Within the transport measure the pacesetter was commercial aircraft (+8.6%) rather than autos, where orders grew by just 0.4%. Electrical equipment and machinery orders each snapped back following two months of declines. Orders for fabricated metals rose by 2.2% easily reversing a February decline while orders for primary metals jumped for a second straight month. Demand for capital goods outside of the defense arena rose by 1.7% and improved on a minor gain in February. It was the strongest gain since November. Such demand is often seen as a gauge of core business investment and includes computers and other capital equipment items.

Signs of faster growth will probably outweigh the accompanying jump in weekly initial jobless claims, which rose by 25,000 to 329,000 and missed economists’ forecast of 315,000. Gathering final demand is likely to lead to higher future employment while the latest view of granular jobs data is subject to distortions owing to the timing of Easter. 

Chart – Durable goods and ex-transport orders

2014-04-24 09:58:13

Posted by
Andrew Wilkinson
Chief Market Analyst
Interactive Brokers
Contributor

Options

Apple jumps on earnings - here's how an option trader might assess combinations

Let’s cut to the chase and show you the visuals for the shift in investor expectations post-earnings at Apple (Ticker: AAPL). Implied volatility or expected uncertainty at the nearby May options expiration was bid higher ahead of earnings (chart 1), running at 22% compared to ~17% on June and July expiries. Judging by the 8% pre-market gain in shares of Apple it is not unreasonable to expect implied volatility at the front end to head lower to similar levels to June or July.

Chart 1 – May implied volatility higher into earnings

The second chart displays the Probability Distribution either side of earnings – the blue curve is before the event and the red curve, reflecting a shift in expectations to show the typical type of post-earnings drop in implied volatility, is shown in red.

Chart 2 – Probability Distribution before and after earnings

Using the IB Probability Lab, users can build customized scenarios using live option prices to determine potential strategies that suit their forecasts. Of course we had no idea that Apple would beat the street, but the ability to plan using this free software allows investors to examine their homework through the lens of wishful thinking. Importantly here, investors can rank strategies according to computed Sharpe ratios for each suggested strategy. It is also possible to compare potentially profitable strategies according to the number of legs associated with each trade and determined by the user. Below we show the difference in potential profitability, ranked by Sharpe ratio and determined by the number of legs chosen, using the same strategy.

Chart 3 – Rising Sharpe ratios

By recalibrating the software to select one, two, three or four legs investors are returned a choice of possible strategies and can quickly determine which might be the best strategy given their view. In this scenario you can see from chart 4 that adding two long strikes in combination with two short options at even higher prices returns a better outcome than using three, two or one legged combinations.

2014-04-24 09:42:05

Posted by
Jamie Lissette
Trading Analyst
Hammerstone Group
Contributor

Stocks

Hammerstone recap

The S&P 500 ended its 6 day winning streak on Wednesday to close 0.2% lower.

In terms of data, housing was again the focal point yesterday and the data wasn’t that good. We started with mortgage applications data from MBA; The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, declined 3.3 percent last week.

The much looked at New Home Sales numbers were also pretty bad. The U.S. Commerce Department reported that the annualized sales pace of new single-family homes fell 14.5% to a seasonally adjusted 384,000 last month. This was a huge miss from economists’ forecasts of 450,000, and would add to worries that growth in housing has started to stall in an otherwise broad economic recovery in the US.

On The Forum

Participants on the forum remained focused on discussing the earnings numbers from the previous night and adjusting their positions based on the new data.  From the previous day’s earnings, forum participants appeared to be the most impressed with the positive numbers from GILD.

On the broad market, forum participants discussed how, in the recent past, poor macro data was usually seen as good news for stocks as it increased the possibility of Fed easing. Participants discussed if they could see that dynamic again with the poor housing data, however, that did not turn out to be the case.

Wednesday was a big day for earnings, and participants on the forum were generally impressed by earnings reports from heavy-weights AAPL and FB.

Looking Forward

The investor sentiment appears to have improved after last night’s blowout earnings from AAPL and FB, and therefore the path of least resistance may be higher for the stocks.

In terms of macro data, we have Durable Goods Orders, Claims (today at 8:30AM ET); and Markit US Services PMI and U. Michigan Confidence (tomorrow.) 

The bulk of this week’s remaining earnings will come out tonight including AMZN, BIDU, BRCM, LVS, MSFT, P, SBUX, and V. The Ford Motor Company reports tomorrow morning. 

 

The Hammerstone Institutional Forum, a chat-based platform for traders, provides subscribers with up-to-the-minute breaking news headlines and instant analysis that drive the market. For more information please visit www.thehammerstone.com.

2014-04-24 06:39:19

Posted by
Darren Deacon
Australian Trade Desk
Contributor

Stocks

Mostly small gains for Australian equities

Another small rally on the ASX with the ASX200 +0.24%.  In a shortened trading week with Easter holidays and ANZAC day tomorrow, the local market saw moderate gains Tuesday (+0.46%) and Wednesday (+0.70%), on positive US/EU market leads.  Wednesday was a little busier with stock option expiry and quarterly inflation (annualized) at 2.9% reducing pressure for any interest rate rise from record low rates by the Reserve Bank of Australia, which holds a 2-3% inflation target band.

2014-04-24 03:22:41

Posted by
IB European Trade Desk
Contributor

Stocks

Market update: Netherlands / Belgium

  • HEINEKEN (NL): Heineken 1Q Organic Consolidated Rev. Beats Ests. Heineken 1Q organic consolidated rev. up 3.4%, est. up 2.9% (median of 12).  1Q organic consolidated beer vol. up 1.5%, est. up 1.6% median of 11).
  • UNILEVER (NL): Unilever Revenue Growth Beats Estimates as Europe Stabilizes. Unilever, the maker of Magnum ice cream and TRESemme shampoo, reported first-quarter sales growth that beat estimates as demand stabilized in Europe and the company outperformed its markets in Asia and Latin America. Underlying sales gained 3.6 percent, London- and Rotterdam- based Unilever said today in a statement, compared with the 3.3 percent median estimate of 10 analysts surveyed by Bloomberg News. Growth slowed from the fourth quarter’s 4.1 percent. “We delivered good growth in the first quarter despite slowing markets and a tough competitive environment, further evidence that Unilever is now delivering consistently ahead of our markets,” Chief Executive Officer Paul Polman said in the statement. Unilever had already signaled that underlying sales growth would slow in the first quarter. Chief Financial Officer Jean- Marc Huet in January forecast a gain at the “low end” of 3 percent to 5 percent. Underlying selling volume in the quarter rose 1.9 percent, Unilever said, beating the 1.7 percent median estimate of nine analysts. Prices increased 1.6 percent, compared with the median estimate for a 1.5 percent gain. Unilever shares were little changed at 30.69 Euro in Amsterdam trading yesterday.
  • DUTCH BANKS (NL): Dutch Banks Must Add ~EU26.7b in Capital, Regulator Says. Dutch lenders need to add ~EU26.7b in capital by 2019 to meet requirements including Basel III rules, 4% leverage ratio and contributions to deposit-guarantee fund and resolution fund, Dutch central bank says in report.  Central bank says: Lenders need to add EU10.2b in core Tier 1 and additional Tier 1 capital to meet full Basel III requirements taking effect in 2019. Banks need to increase their additional Tier 1 instruments by EU7.8b to achieve 4% leverage ratio; largest part can be achieved by converting Tier 2 instruments. Based on current estimates, banks will have to pay EU2.4b to deposit guarantee fund, resolution fund by 2019. Dutch lenders also have to pay EU3b in bank tax; could be used in future to build European resolution fund. Lenders have to pay EU1b in 2014 related to rescue of SNS Reaal * In base case, with economy developing in line with recent central bank estimates and banks not experiencing capital market constraints, lenders can meet requirements while still lending to companies, households * Estimates are based on 3Q 2013 numbers.
  • NUTRECO (NL): Nutreco 1Q rev. up 8.4% to EU853.3m, vol. effect 10.7%. Animal nutrition 1Q rev. down 4.6%. Fish feed 1Q rev. up 27%. Process of exploring possible divestment opportunities of compound feed and meat business in Spain and Portugal taking more time than anticipated as seek a fair valuation. Sees 1H Ebita ex-items cont. ops. to be "clearly higher" than 1H 2013’s EU80.3m.
  • ASML (NL): 1Q rev. EU150.7m vs est. EU142.6m. 1Q adj. net EU32.5m vs est. EU23.3m. 1Q net income EU27m versus pro-forma EU1.41b Y/y, co. says in statement • Co. sees "low single-digit decrease" in 2Q rev. at constant currencies, says hard to forecast 2H. Sees "strong double-digit decrease" in 2Q order intake q/q, after "very high" 1Q intake.
2014-04-24 03:21:40

Posted by
IB European Trade Desk
Contributor

Stocks

Market update: France

  • GDF SUEZ (FR): Suez Environnement Says Waste Improving After Profit Declines. Suez Environnement, Europe’s second-biggest water company by market value, reported a 2 percent fall in first-quarter profit and said the waste treatment business has improved. Earnings before interest, tax, depreciation and amortization fell to 552 million Euro ($763 million) from 564 million Euro a year earlier, the utility said today in a statement. That missed the 568 million euro average estimate of six analysts compiled by Bloomberg. “The slight improvement in the waste business seen at the end of last year has continued,” Chief Executive Officer Jean- Louis Chaussade said in the statement. Treated volumes rose 1.7 percent as the European economy “seems to be stabilizing.” The utility kept 2014 financial targets. Suez Environnement, which is 34 percent-owned by energy producer GDF Suez SA, together with larger rival Veolia Environnement SA, had seen demand for industrial waste collection slide after manufacturers reduced factory output amid the European economic slowdown. The utility said in February the drop “may have hit bottom” last year. Suez and Veolia compete in France for municipal waste and water services and globally for large treatment installations like desalination plants. Suez is seeking to expand in faster- growing places like China, India and North Africa and move into providing services for world-spanning industrial companies. The company had set a goal for organic growth for Ebitda this year of at least 2 percent, debt-to-Ebitda of about 3 times and free cash flow of about 1 billion Euro. Ebitda in 2013 was 2.52 billion Euro, lower than the target of 2.55 billion Euro. Chief Financial Officer Jean-Marc Boursier said in an interview in February that he has a “wish list” of possible targets for acquisitions and the company has financial flexibility to carry them out. Net financial debt was 7 billion Euro at the end of the quarter compared with 7.6 billion Euro at the end of 2013, according to today’s press release.
  • SCHNEIDER ELECTRIC (FR): Schneider Electric 1Q Sales Beat Ests.; Reaffirms 2014 Targets. Schneider Electric 1Q sales EU5.67b, up 7.7% y/y, vs est. EU5.40b. 1Q organic rev. up 2.5%. CEO says trends in 1Q in line with expectation at start of year. 1Q sales by division: Buildings & Partner +5.8% LFL, Industry organic growth of +6%, Infrastructure down -3.7% organically, hurt by double-digit decline in western Europe, and IT fell -3.4% organically. Expects 2Q to be hurt by “high comparison basis and slightly negative working day effect” of ~0.6 pt, with growth seen accelerating in 2H. Still sees low single-digit organic growth in 2014 rev., 0.4-0.8 pt improvement of adj. Ebita margin vs 2013 proforma level, ex-forex impact. Negative forex impact estimated at ~0.4 pt w/most of the impact concentrated in 1H.
  • TOTAL (FR): France’s Total SA expects the biggest share of its oil and gas output to come from Russia by 2020 and plans to stay there for the long haul despite recent tensions with the West over Ukraine, a top executive said. Total executives said they expect its production in Russia to soar to 400,000 barrels of oil equivalent per day (boe/d) by around 2020, almost doubling from 207,000 boe/d last year, thanks to its partnership with Russia’s Novatek and their giant Yamal LNG project in Siberia.
  • PERNOD RICARD (FR): Pernod 3Q Organic Sales Growth Misses Ests. Pernod Ricard 3Q organic sales unchanged, est. up 1.4% (median of 13). 3Q total rev. EU1.62b, est. EU1.66b. Confirms FY forecast: organic growth in profit from recurring ops. 1% to 3%. Asia/Rest of World sales impacted primarily by China where the decline exacerbated by destocking in 3Q as anticipated. 3Q Europe organic sales down 3%. 3Q Americas organic sales up 5%. 3Q Asia ROW organic sales down 1%. Operational efficiency programme Allegro project being gradually implemented.
  • AIR LIQUIDE (FR): Air Liquide 1Q Sales Meet Est., Confident Can Raise Net In come. 1Q sales EU3.73b vs est. EU3.75b. Says confident it can lift net income in 2014. Says full year profit growth assumes environment doesn’t worsen. Environment is notably favorable for electronics.
  • TECHNIP (FR): Technip 1Q Net EU67m vs Est. EU64.1m; Keeps 2014-15 Guidance. Ebitda EU180.6m vs est. EU168.6m. Subsea Ebitda EU107.3m, margin 10.6%; onshore/offshore Oifra EU85.9m, margin 5.9%. 1Q order intake EU2.8b; EU2.06b in subsea, EU723m in onshore/offshore. Backlog EU15.36b at end 1Q. Keeps guidance 2014 subsea revenue growth to between EU4.35b-EU4.75b, oper. margin of at least 12%; onshore/offshore revenue growth to between EU5.4b-EU5.7b, oper. margin 6%-7%.
  • DASSAULT SYSTEMS (FR): Dassault Systemes Receives CFIUS Confirmation for Accelrys. The Committee on Foreign Investment in the United States completed its investigation of the Accelrys acquisition and cleared the purchases. Yday: Dassault Systemes Extends Accelrys Offer for 4th Time until April 28. Earlier: Dassault Systemes 1Q IFRS Rev. Beats; Updates 2014 Outlook.
  • IPSOS (FR): Co. says 1Q revenue fell 4.5% to EU343.3m.
  • MICHELIN (FR): Co. says 1Q revenue fell 2.4% to EU4.76b.
2014-04-24 03:20:42

Posted by
IB European Trade Desk
Contributor

Stocks

Market update: Spain/Italy

  • REPSOL (ES): Argentine Cabinet Chief Jorge Capitanich said an agreement to pay Repsol SA $5 billion in compensation for the expropriation of its controlling stake in YPF SA will open the door for increased energy investment. The proposed compensation plan, which was already approved by the Senate and is being voted on today by the lower house, would provide the Madrid-based energy company with $5 billion worth of government bonds and end international lawsuits over the 2012 takeover of YPF. "The bill will be converted into law today," Capitanich told a room full of business leaders during an hour-long speech at the Alvear hotel in Buenos Aires including Pan American Energy LLC board member Alejandro Bulgheroni. "It’s a very important step to have capital market access and multiply our efforts to explore for and develop oil and gas to achieve self- sufficiency."
  • CAIXABANK (ES): CaixaBank 1Q net profit EU152m vs EU335m a yr earlier, bank says.  Earnings compare with EU140m avg. est. in survey of 7 analysts. 1Q net interest income EU993m vs EU1b in 4Q, EU992m a yr earlier. Bad loans ratio 11.36% vs 11.66% in Dec.; decline is first since 4Q 2006, bank says. Basel III ratio 12.4%, fully-loaded 12.1%. Gross lending falls 2.8% from Dec.
  • BANCO SABADELL (ES): Banco Sabadell to publish 1Q earnings before market opens.
  • SACYR (ES): Sacyr to issue up to EU300m in convertible bonds or bonds exchangeable for existing shares; board also approves capital increase.
  • ASSICURAZIONI GENERALI (IT): Assicurazioni Generali sells EU1b 12Y T2 Subord Notes at MS +225.
  • SOGEFI (IT): Sogefi 1Q net loss EU6.3m vs EU7m profit Yr earlier.
2014-04-24 03:19:56

Posted by
IB European Trade Desk
Contributor

Stocks

Market update: Scandinavian Region

  • WAERTSILAE (NORD): Waertsilae 1Q Net Beats Ests.; Orders Fall, Outlook Unchanged. Waertsilae 1Q net sales EU1.01b vs est. EU937m. 1Q order intake decreased 16% q/q to EU1.14b. EPS EU0.31 vs est. EU0.22. Ebit EU84m vs est. EU82.1m. Pretax profit EU81m vs est. EU76.2m. Net income EU62m vs est. EU42.7m. CEO says power plant customers postpone decision-making due to economic uncertainty, emerging mkt currency fluctuations. Keeps 2014 outlook; sees 2014 net sales growing 0-10%; Ebit margin ex-items ~11%. NOTE: 2 buys, 10 holds, 9 sells, avg. PT EU40.67.
  • BILLERUDKORSNAES (NORD): BillerudKorsnaes 1Q Profit Beats Est.; Sees Unchanged Demand. operating income SEK541m vs est. SEK504m. 1Q sales SEK5.41b vs est. SEK5.04b. Says demand, order situation expected to remain stable in 2Q for all business areas. Says avg. prices in local currency anticipated to stay on current level in 2Q. Target of SEK530m annual synergies, savings expected to be reached by end 2014.
2014-04-24 03:18:59

Posted by
IB European Trade Desk
Contributor

Stocks

Market update: United Kingdom

  • ASTRAZENECA (UK): AstraZeneca 1Q Core EPS, Op. Profit Miss; Keeps FY14 Forecast. AstraZeneca still sees 2014 core EPS decline in the teens, low-to-mid single digit percentage decline in revenue at constant FX. 1Q core EPS $1.17 vs est. $1.21. 1Q rev. $6.4b vs est. $6.39b. 1Q core op. pft $1.95b vs est $2.07b. NOTE: April 23, AstraZeneca Still Compelling Investment After Recent Rally.
  • ANGLO AMERICAN (UK): Anglo 1Q Iron Ore Output Rises 10% to 11.3mt; Platinum Plummets. Export metallurgical coal production advances 31% to 6.1mt. Export thermal coal +14% to 7.9mt. Copper +18% to 202kt. Nickel +48% to 9.2kt. Platinum (equivalent refined) output drops 39% to 357k oz. Diamond output +18% to 7.5m carats.
2014-04-24 03:18:16

Posted by
IB European Trade Desk
Contributor

Stocks

Market update: Switzerland

  • LONZA (CH): Lonza Says 1Q Performance Fully In Line With Company Expectation. Lonza says 2014 started with good momentum, leading to better performance than previous year, is delivering as expected on growth targets. Says 1Q FX impacts have been compensated by productivity improvements. Says Specialty Ingredients saw positive overall market demand in most areas, Pharma & Biotech saw an uptake in demand across all technologies and offerings. Strategic review process of Wood Protection business proceeding according to plan. Says on track to deliver revenue growth of ~5% and core Ebit growth of ~10% in 2014.
  • LOGITECH (CH): Logitech 4Q Gross Profit Rises; Keeps FY15 Guidance. Co. reports gross profit of $165m for three months ended March 31, up from $159m in the prior corresponding period, in results announcement on Business Wire. Co. confirms FY15 guidance for $2.16b in sales and $145m in non-GAAP operating income. 4Q GAAP operating income $7m, compared to a loss a year ago. 4Q non-GAAP operating income $23m.. .4Q net sales $485.3M, vs $469.1m a year ago.
  • SWISS LIFE (CH): Swiss Life shareholders approved all resolutions proposed by the board.
  • NOVARTIS (CH): Novartis AG’s first-quarter profit was little changed as weaker currencies in Japan and emerging markets weighed on sales, offsetting gains from newer products such as the Gilenya treatment for multiple sclerosis. Earnings excluding some items totaled $3.21 billion, or $1.31 a share, compared with $3.21 billion, or $1.30, a year earlier, the company said in a statement today. Novartis, which is based in Basel, Switzerland, and reports earnings in dollars, also was hurt by a strong Swiss franc. Analysts predicted profit of $1.31 a share, according to the average of 12 estimates compiled by Bloomberg. The results come two days after Novartis announced a series of deals that will reshape the company. Novartis agreed to buy GlaxoSmithKline Plc’s cancer-drug business for as much as $16 billion, sell most of its vaccines business to Glaxo for as much as $7.1 billion and sell its animal-health unit to Eli Lilly & Co. for $5.4 billion. Glaxo and Novartis also will form a consumer-health joint venture. Sales of newer medicines -- the company’s so-called growth products, which are those introduced in 2009 or later, or which have patents extending to at least 2018 -- climbed 17 percent to $4.3 billion. They accounted for 31 percent of pharmaceutical sales in the quarter. Novartis reiterated that sales this year will increase by a low to mid-single-digit percentage in constant currencies, and core operating income will rise more than sales. The forecast assuming Diovan faces generic competition in the U.S. at the beginning of the third quarter.
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