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IB Traders' Insight

Global market commentary from IBG traders and market participants.

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2014-04-17 14:33:47

Posted by
Andrew Wilkinson
Chief Market Analyst
Interactive Brokers
Contributor

Options

Capital injection at Citic Pacific prompts investors to look up

If shareholders approve in June, Hong Kong-listed iron ore miner Citic Pacific (Ticker: 227 HK) will become the island’s largest conglomerate. That honor currently rests with Li Ka-shing’s Hutchison Whampoa empire (Ticker: 13 HK). Last month the Chinese government sparked a jump in Citic Pacific’s share price by outlining a plan to inject capital from the parent, Citic Group. Now, it has just fleshed out details of the 100% purchase of key assets by Citic Pacific to include stakes in listed companies such as Citic Bank, Citic Securities. It will also take on stakes in unlisted ventures including media, manufacturing, construction and real estate. It’s also getting a stake in Chinese soccer’s Super League-leader, Beijing Guo’an. Of the Rmb227bn ($37bn) cost, Citic Pacific will pay Rmb50bn in cash and issue the balance in new shares to Citic Group. But in order to remain compliant with stock exchange rules and maintain its free float back to a minimum of 15%, Citic Pacific must place a 12% stake in the enlarged group with existing institutional owners. The combined assets of the “new” Citic Pacific in 2013 of HK$410bn exceed those of Mr. Ka-shing’s Hutchinson Whampoa.

Ahead of the reform announcement of state-owned enterprise, the average of analysts’ price target for 12-months ahead stood at around HK$10.00 for Citic Pacific. Analysts are still crunching the numbers on what the deal might mean for the name as it shifts dramatically from miner to conglomerate. After the summer of 2011 shares in the company collapsed from HK$24.50 to reach a low around HK$8.00 last July. Currently option markets would appear a healthy way to play for upside in the enlarged name, yet the highest strike options we can find out to year-end stretch to only HK$16.50 and only 19% above the prevailing trading price of HK$13.85. To put that in perspective, the delta on call options at that strike is 0.19, indicating an approximate one-in-five chance of reaching the goal by expiration in December. That would be akin to drawing a line in optimistic expectations on Caterpillar (Ticker: CAT) by year-end at $117.50 with its underlying shares currently trading at $103.00. Strike prices for Caterpillar options incidentally run up to $145.00. Using the available implied volatilities and a key driver of option premium, we can show using the IB Probability Lab that the market is currently assigning a 20% chance of shares exceeding HK$16.50 by December’s expiration regardless of the current non-availability of higher strike prices at present.

Chart – Probability Distribution for December options on Citic Pacific  

2014-04-17 14:33:35

Posted by
Caitlin Duffy
Equity Options Analyst
Contributor

Options

Wild ride for Chipotle

Shares in Chipotle Mexican Grill Inc. (Ticker: CMG) opened higher on Thursday morning, rising more than 6.0% to $589.00, after the restaurant operator reported better than expected first-quarter sales ahead of the opening bell. But, the stock began to falter just before lunchtime on concerns the burrito-maker will increase menu prices for the first time in three years. The price of Chipotle’s shares have since fallen into negative territory and currently trade down 3.5% on the session at $532.89 as of 1:50 p.m. ET.

Chart – Shares in Chipotle cool by lunchtime

2014-04-17 11:49:47

Posted by
Waverly Advisors, LLC
Technical/Quantitative Market Research
Contributor

Stocks

Waverly Advisors Midday Update

Global Equity markets and commodity movers:

Equities

S&P 500 Index (+0.1%), Spike: 0.1σ, Related tickers: SPY, ES

Indus India Index, Cash (+1.5%), Spike: 2.0σ, Related tickers: EPI, INDA

Rates and Currencies

10 Yr U.S. Treasury Note futures (-0.3%), Spike: -1.5σ, Related tickers: ZN, IEF

Commodities

Natural gas futures (+3.5%), Spike: 2.0σ, Related tickers: NG, UNG

This list highlights large standard deviation moves using Waverly Advisors’ SigmaSpikes™ indicator—markets that are making significant moves today on a volatility-adjusted basis.

For more information about Waverly Advisors please click http://bit.ly/1mj1Toa.

 

2014-04-17 10:27:56

Posted by
Andrew Wilkinson
Chief Market Analyst
Interactive Brokers
Contributor

Macro

Philly Fed manufacturing index accelerates

 Manufacturing activity accelerated in the Philadelphia region, with business owners feeling the benefit of the end to a cruel winter. The general business activity index rose by the most since June and to its highest level since September. The index jumped 7.6-points to 16.6. Likewise, the new orders index fared its strongest advance since September to its highest reading since October. The chart below shows that the gain in overall activity lifted both labor market measures. The employment index showed hiring picked-up rising to 6.9, while the average workweek strengthened to 5.0. Investors’ response has been lackluster following the data perhaps for two reasons. First, trading desks are thinning ahead of the long Easter weekend. Second, evidence has been piling up to confirm that the economy is snapping back, and the marginal evidence is offering less incremental spur to stock prices after a vicious setback for momentum names. With little evidence over instability for prices paid or received, the latest report offers little impetus for bond investors either way.     

Chart – Philly Fed manufacturing index boosts hiring

2014-04-17 09:33:53

Posted by
Jamie Lissette
Trading Analyst
Hammerstone Group
Contributor

Stocks

Hammerstone recap

Spurred by some further dovish comments by Fed Chair Yellen and some good earnings numbers, US stocks made healthy gains on Wednesday as the S&P 500 gained 1%.

The Macro

The day started with some important data for housing but unfortunately, it was another string of disappointing data for the builders. Building permits, an indicator of future demand for housing, fell 2.4% in March to an annual rate of 990,000, led by a drop for apartments. Analysts were expecting a 0.6% gain. Housing starts rose 2.8% to a seasonally adjusted annual rate of 946,000, led by single-family homes, the U.S. Commerce Department said. Market expectations had been for a 6.4% increase.

In better news, US Industrial output rose for a second straight month in March. Overall industrial production was up 0.7%, beating analysts’ expectations of a 0.5% gain.

The Fed’s beige book for April, which was released yesterday, also supported the industrial production data. The beige book showed that the economy was starting to gain some steam after a slowdown from the rough winter.

The Forum

Despite an important day for macro data and a lot of Fed speak, the discussion among the participants on the Hammerstone Forum still revolved around the recent revaluation in growth/momentum vs value stocks. Many participants on the Hammerstone Forum are closely monitoring some beaten down stocks but are waiting for such stocks to cross important technical barriers before moving in. Participants on the Forum also noted that Friday is option’s expiry date for April, so there could be some out of the ordinary activity in the market tomorrow.

Looking Forward

The initial jobless claims just came out at 304k vs 315k expected, and we have the Philly Fed index coming out at 10:00. There’s virtually no Fed speak today, and most of the important earnings have already come out before the open, so let’s see if the market can continue its strong run this week.

 

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.

2014-04-17 09:22:24

Posted by
Andrew Wilkinson
Chief Market Analyst
Interactive Brokers
Contributor

Macro

Weekly initial jobless claims

The latest reading once again confounded Wall Street estimates and clung to the psychologically important 300,000 line for a second week. Initial jobless claims through last weekend were 11,000 less than the 315,000 forecast dragging the key four-week moving average to 312,000 and the lowest since October 2007. Prior weekly data was massaged 2,000 lower to 302,000. Despite the encouraging news, economists will be mindful of creeping volatility surrounding the timing of Easter over the coming weeks. Yet on the surface the latest reading was encouraging. Fewer claimants for benefits are likely the result of companies willing to retain workers as confidence in a rebounding economy builds. Should those signs flourish it will become increasingly likely that hiring will accelerate into the summer months. Continuing claims also fell in the prior week by 11,000 to 2.74 million.

Chart – Weekly and monthly average initial claims hover near 2007 levels

2014-04-17 04:23:06

Posted by
IB European Trade Desk
Contributor

Stocks

Market update: Netherlands/Belgium

  • ROYAL KPN (NL): KPN gets EU14,000 fine from Dutch competition regulator for violation of European Roaming Regulation; decision is open to appeal.
  • AKZO NOBEL (NL): Akzo Nobel Profit Stagnates on Revamp Costs and Currency Woes. Akzo Nobel NV, the world’s largest decorative paints maker, reported a little changed first-quarter operating profit as restructuring costs and adverse currency effects held back earnings. Operating profit reached 216 million Euro ($299 million) after 217 million Euro a year earlier, the Amsterdam-based company said today in a statement. Sales dropped 2.4 percent to 3.4 billion Euro. The company said it is still on track to reach its 2015 targets. The paint maker is trying to bring profitability in line with peers including PPG Industries Inc. by focusing on fewer and more profitable businesses. Akzo Nobel is seeking a buyer for assets in its paper-chemical operations, people familiar with the matter told Bloomberg in February and the company earlier this year reported an impairment charge of 139 million Euro on a “business held for sale” within the specialty chemicals division. “We are on track to deliver the 2015 targets despite the expected continued fragile economic environment and continued volatile currencies in 2014,” Akzo said in the statement today. Chief Executive Officer Ton Buechner has set targets for an operating margin of 9 percent and a 14 percent return on investment in 2015. The company in January said it will spend an extra 50 million Euro on its reorganization this year, bringing total revamp costs to 250 million Euro. In the first quarter, the company had restructuring costs of 44 million Euro. Akzo Nobel shares have risen 19 percent in the last six months. They gained 3.7 percent to 56.86 Euro yesterday in Amsterdam trading.
  • IMTECH (NL):  Imtech to Divest ICT Division Via Auction. Says sale of ICT division is a part of debt program to reduce indebtedness by at least EU400m.  In 2013, ICT rev. was EU740m, operational EBITDA EU37m, employs 2,380 staff.
  • SLIGRO (NL):  Sligro Says 1Q Organic Sales Growth Flat. Total 1Q sales up 0.6% to EU592m. Easter timing had adverse effect on both food retail, foodservice sales growth, est. ~1.5 ppt. Food Retail 1Q sales down 4.4%. Foodservice 1Q sales up 3.5%
  • RENTABILIWEB (BEL): Rentabiliweb 1Q Revenue Rises 11% to EU17.3 Mln Vs EU15.6 Mln. Rentabiliweb says 1Q B-to-B revenue rose 7.1% to EU7.2m vs EU6.8m. 1Q B-to-C rev. rose 14% to EU10.1m vs EU8.8m. To publish 1H results on July 30.
2014-04-17 04:21:53

Posted by
IB European Trade Desk
Contributor

Stocks

Market update: France

  • ATOS (FR): Atos 1Q Sales Decline; Confirms 2014 Outlook. 1Q statutory rev. EU2.06b vs EU2.12b. 1Q rev. at constant scope, FX EU2.06b vs EU2.10b. 1Q rev. est. EU2.07b (4 analysts). 1Q order entry EU1.67b. Free cash flow EU30m, net cash of EU830m at end of March. Reiterates 2014 forecasts: Expects co. to positively grow in 2014 vs 2013. Sees 2014 operating margin of ~7.5% to 8%. Sees free cash flow above 2013 level, in line with 2016 targets. NOTE: Said Nov. 15 it sees compound annual rev. growth of 2-3% for 2014-16. Seeks operating margin improvement between 100-200bp in 2016 relative to 2013. Sees free cash flow EU450m-EU500m in 2016.
  • PUBLICIS (FR): Publicis Groupe SA, the French company merging with Omnicom Group Inc. to form the world’s biggest advertising company, said first-quarter sales rose 2.2 percent as Europe showed a “fragile” recovery and demand improved in emerging markets. Revenue in the period was 1.60 billion Euro ($2.21 billion), Paris-based Publicis said in a statement today. That compared with the 1.61 billion-euro average estimate of seven analysts surveyed by Bloomberg. Stripping out effects from currency fluctuations, which lowered revenue by 67 million Euro, sales advanced 6.8 percent. Publicis, which owns the Leo Burnett and Saatchi & Saatchi ad agencies, said business in China had picked up in the first quarter after contracting late last year. In Europe, there was growth in Spain and Italy for the first time since 2011, it said. While the company confirmed its growth target of more than 4 percent for the year, it cautioned the second-quarter would not be as strong because of high comparables from the year prior. “After a fourth quarter well below our expectations in 2013, the group is now back to more satisfactory organic growth,” Chief Executive Officer Maurice Levy said in the statement. Emerging markets which declined last year were now showing growth, he said. Publicis’s merger with Omnicom, awaiting approval only from Chinese regulators, is “slower than anticipated” after receiving clearance in all other jurisdictions including the U.S. and Europe, the company said. China is expected to decide on the combination in the third quarter, it said. The companies initially expected to merge in the first quarter of 2014. Plans the company outlined last year to reach an operating margin of 18 percent to 20 percent by 2018, from 16.1 percent in 2012, are on track, Publicis said. The company had new business in the first quarter from brands including British Airways, Honda, American Express and Puma.
  • VEOLIA, GDF SUEZ (BOTH FR): Veolia Environnement and its peer Suez Environnement both denied on Wednesday that the companies are in talks on a merger or even studying such a project. Shares in Veolia closed 4.3 percent higher and Suez closed 7.1 percent higher following an Exane BNP Paribas research report which said the "stars are aligned" for the French waste and water companies to revisit the idea of merging. Volume in Suez stock was the second highest in more than a year. "There are no talks ongoing and there is no project for an alliance. The speculation on the bourse is based on nothing," a Veolia spokesman said. A Suez spokesman also denied alliance plans. "Two years ago we held talks, which were broken off. Today, the project is definitely not on the agenda," he said.
  • SODEXO (FR):  Sodexo 1H Adj. Oper. Profit Beats Ests., Rev. Misses. Sodexo 1H rev. EU9.28b, est. EU9.32b.  1H adj. oper. profit EU559m, est. EU548.4m. Confirms FY forecast: organic rev. growth 2.5% to 3%, oper. profit up 11%, oper. margin 5.6%. 1H organic sales growth 2.4%, est. 2.9% (median of 5). 1H oper. margin 6%, est. 5.9% (median of 6).  For FY15 targets reaching consolidated oper. margin of 6% at FY13 exchange rates.
  • CGG (FR): CGG  to use proceeds of EU400m note sale to offer buyback of convertible bond due 2016 and repay other debts.
  • DELTA PLUS GROUP (FR): Co. says net income up 6.3% to EU7.1m.
  • ITS GROUP (FR): Co. expects FY sales of EU180m, op. profit of EU10m.
  • KLEPIERRE (FR):  Standard & Poors raises Klepierre’s rating to A- from BBB+ after co. completes sale of retail centers to Carrefour-led group.
  • PIERRE & VACANCES (FR): Co. says 1H 2013/2014 revenue up 7.8% to EU561.8.
  • RADIALL (FR): Radiall says 1Q revenue rises 28% to EU68.8m.
  • SOPRA GROUP (FR): Sopra Group says Vincent Paris will replace Pascal Leroy as CEO from May 1.
2014-04-17 04:21:02

Posted by
IB European Trade Desk
Contributor

Stocks

Market update: Spain/Italy

  • PESCANOVA (ES): Pescanova Seeks Deadline Extension for Convertible Noteholders.
  • IBERDROLA (ES): Iberdrola to Exchange 2015, 2016, 2017 Bonds For Debt Due 2022.
  • TELECOM ITALIA (IT): Telecom Italia  investors voted on new chairman.
  • FIAT (IT): Fiat’s Manley says Jeep on target in 1Q to reach 1mln sales goal in 2014.
  • GEOX (IT): Geox CEO Says Confident in Achieving Targets.
  • SNAM (IT): Snam Sells Bonds.
  • BANCO POPOLARE DI MILANO (IT):  Popolare Di Milano To Carry Out EU500m Cap Increase as Planned. Lender says recent rejection by bank’s investors of proposed governance changes won’t impact planned capital increase, according to stock-exchange statement. Bank to make further LTRO reimbursement of EU750m by end April. Pop. Milano to complete LTRO reimbursement by end 2014.
2014-04-17 04:20:19

Posted by
IB European Trade Desk
Contributor

Stocks

Market update: Scandinavian Region

  • HEXAGON (NORD): Hexagon to Have EUR17.4m Negative One-Off in 1Q. Writedown relates to overlapping technology between acquired Veripos TerraStar positioning business, existing network positioning business within Hexagon. Writedown also relates to obsolete GNSS technology within Veripos.
  • DANSKE BANK (NORD): Danske Bank, which is being investigated for rigging mortgage bond prices, will step up efforts to ensure its traders comply with the rules after being fined by Nasdaq OMX for placing fake orders in AstraZeneca.
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