House Oversight — Estate records
HOUSE_OVERSIGHT_014731
Global Rates, FX & EM 2017 Year Ahead
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Global Rates, FX & EM 2017 Year Ahead Tectonic shifts 16 November 2016 Corrected Our top 10 Rates, FX & EM trades for 2017 FX and Rates Global 1. Short US 5y rates – Two and a half Fed hikes priced by the rates market for 2017- 18 are not consistent with aggressive fiscal easing promised by Trump. 2. Short US 10y real rates – After the violent repricing of inflation breakevens, we believe real rates offer better risk-reward to position for higher rates. 3. Buy USD/JPY – With the BOJ pegging 10y JGB yields at zero, we expect this highly interest rate sensitive USD cross will continue to be the biggest beneficiary of the Trump win. 4. Sell a basket of Brazilian, Mexican, and Colombian long bonds – Positioning in EM fixed income market remains crowded while liquidity is poor. 5. Sell BRL/MXN – MXN is oversold but BRL will likely be vulnerable to the divergent paths between Brazil’s easing and the Fed’s tightening cycles. David Woo FX, Rates & EM Strategist MLPF&S david.woo@baml.com See Team Page for Full List of Contributors 6. Buy USD call/CNH put – President Trump will need a weak USD, but President Xi needs a weak CNY. We believe risk premium for a collision course is too low. 7. Sell EUR/GBP – Brexit and Trump could bolster the anti-globalization parties in Europe ahead of key elections next year. 8. Sell Eurozone 30y inflation breakevens – We think investors should take advantage of the recent rally to sell into the December ECB meeting, which could disappoint. 9. Sell EUR/RUB – Likely OPEC production cuts on November 30 and possible sanction relief for Russia are bullish for the RUB, in our view. Unauthorized redistribution of this report is prohibited. This report is intended for kaasha.saini@baml.com 10. Buy NZD/USD put spread – Spot NZD/USD is forming a head and shoulders top pattern that suggests a decline will follow in 2017. Trading ideas and investment strategies discussed herein may give rise to significant risk and are not suitable for all investors. In […]