Market Outlook - BNP PARIBAS - Investment Services India

More documents

Recommendations

Info

This section classified as non-objective researchTrade ReviewsOptions, Money Market and Bond Trades – Tactical & Strategic TradesThis page summarises our main tactical (T) and strategic (S) trades. The former focus on short-term horizons (a few weeks),allowing one to play any near-term corrections within a defined trend, while the latter rely on a medium-term assumed trend.For each trade we provide the expected target and the recommended stop loss.Current StrategiesYield CurvesEUR Fly Pay EUR 1Y2Y Rec EUR 1Y5Y Pay EUR 1Y10Y50% entered at 16.1 we would add the rest at 20bp. Observed fwd fly is still trading13.5bp above its fair value and the spot/fwd differential is very high.Current* Targets Stop Entry12.5(T)2.0 23.0 16.1(26-Sep)Carry/ mthRisk**10KP/L(ccy/Bp)EUR+3.6bp+36kUSD Box Spread Buy 6M-fwd 2s10s Sell 1Y-fwd 2s10sFlattening implied from 6m- to 1y-fwd is too little compared to history, and positionhas little negative roll. Will tend to work in a sell-off, and risk-reward looks betterthan for other bearish trades.0.0(S)30.0 -8.0 10.0(19-Jul)15k/01 USD -150k-10bpLinkersUSD TIPS Swap BE Long 10y Inflation swap Short TIPS BE 0.625 Jul-21Market is long TIPS and TIPS BE look rich vs. swap, especially taking into accountthe level of stress on libor and upcoming 10y TIPS supply.33(S)47.0 33.0 38.25(09-Sep)+1.0 40k/01 USD -160k-4.0bpMoney MarketsEurodollar Fly Sell ED M5Z5M6Z5 looks quite cheap on the curve vs. surrounding contracts (same goes for 4y1yswaps). On a fly, these points look almost at all-time cheap levels, and an addedfeature of the trade is its lack of directionality.7(T)-3.0 16.0 9.5(19-Jul)30k/01 USD +75k+2.5bpOptionsEuribor Call Buy Euribor Z1 9950 C1.0 10.0 0.0 1.0Option on ECB cutting rates aggressively.(S)(10-Aug)USD Payer Fly Buy 1Y7Y Payer Sell 1Y10Y Payer Buy 1Y15Y Payer-25k 300k -150k 0k7s10s15s (either spot or 1y-fwd) has rarely gone above the current level of 11bp in (S)(14-Jun)its entire history, but using payers one can sell the fly at 17bp (due to vol advantage)if the trade is in the money at expiry.*Tactical (T) and strategic (S) trades. **Risk: vega, gamma for options, or ΔDV01 for futures, bonds and swaps.12.5k/01 EUR 0kflat1k/01 USD-25kInterest Rate Strategy 20 October 2011Market Mover50www.GlobalMarkets.bnpparibas.com
This section is classified as non-objective researchAUD: Moving On Up• AUD’s high beta characteristicsdominated as of late.• Our AUDUSD forecast is predicated onQE3 from the Fed and above 8% growth inChina in 2012.• Despite moderation in China importgrowth, our calculations suggest thatAUDUSD should remain above parityChart 1 : AUDUSD vs. S&P 500AUDUSD suffered a near-15% decline between Augustand early October due to increased market volatility inother asset classes. Concerns over Europe coupledwith weak economic data and the repricing of globalgrowth took a toll on sentiment. With Chinese datasignalling slower growth and concerns over a hardlanding becoming even more ubiquitous, AUD’svulnerabilities were exposed. However, we reiterateour bullish AUD view, which is contingent on anotherround of QE from the Fed that weakens the USD andon growth holding above 8% at least in China. Thelatter in isolation may be enough to keep the AUD TWIstrong, but the former is required if our forecast ofAUDUSD trading above 1.15 next year is to bevalidated. Perhaps the biggest tail-risk to our AUDforecast is that China halts currency appreciationagainst the USD.In essence, AUDUSD has been trading in lockstep withUS and global equities (Chart 1). As such, the recentstabilisation/rebound in stocks coincided with arenewed rally in the currency. With headline risk stilldominant, AUD will remain vulnerable to sentiment andthe volatility that results. AUD, the favoured carry tradein G10, only looks able to recover on a sustained basisif volatility abates.Even though market sentiment has governed themoves of AUD as of late, there remains a strongfundamental story behind the AUD that can transcendcurrent ‘headline’ volatility and justify our 1.12 year-endforecast for AUDUSD. China’s insatiable appetite forcommodities remains the key driver of AUD. Chinaaccounted for almost 60% of global iron ore importsand has kept Australian miners in clover. As shown inChart 2, the price of iron ore and scrap steel correlateswell with Australia’s terms of trade (ToT). The physicalmarket for iron-ore is much more a function ofunderlying supply-demand dynamics than speculativetrading (the latter arguably the case for someexchange-traded industrial commodities). This hasSource: Reuters EcoWin Pro, BNP ParibasChart 2 : AUD ToT vs. Iron Ore and Scrap SteelIndexSource: Reuters EcoWin Pro, BNP ParibasChart 3 : AUDUSD v. USDCNY fixingSource: Reuters EcoWin Pro, BNP Paribaskept iron-ore prices resilient in the face of wild swingsMary Nicola 20 October 2011Market Mover51www.GlobalMarkets.bnpparibas.com
Page 1 and 2: Market Economics | Interest Rate St
Page 8 and 9: Germany: On the Hook• German data
Page 10 and 11: UK: Top Of The Hill• The Septembe
Page 13: we believe that contractions in pri
Page 16 and 17: Japan: Real Reason for ‘Turning J
Page 18 and 19: Political question of whether peopl
Page 20 and 21: This section is classified as non-o
Page 34 and 35: EMU Debt Monitor: Key RV ChartsThis
Page 40 and 41: Global Inflation WatchInflation see
Page 42 and 43: Table 2: BNP Paribas' Inflation For
Page 54 and 55: Economic Calendar: 21 - 28 October
Page 56 and 57: Key Data PreviewChart 1: UK Public
Page 58 and 59: Key Data Preview1400120010008006004
Page 60 and 61: Key Data Preview12.510.07.55.02.50.
Page 62 and 63: Key Data PreviewChart 13: Japanese
Page 64 and 65: Economic Calendar: 31 Oct - 25 Nov3
Page 68 and 69: Economic ForecastsGDPYear 20112012(
Page 70 and 71: Market CoverageMarket EconomicsPaul

Market Outlook - BNP PARIBAS - Investment Services India

Create successful ePaper yourself

Delete template?

Save as template?