Halister News

(Bloomberg) -- BofAML investment strategists led by Michael Hartnett list eight trades for the Nov. 8 U.S. presidential election, in client note.

• Go long VIX futures, as the vote is likely to be close and the cost of a Nov. hedge has fallen to the 19th percentile vs. the past year
• Both candidates have policies targeted at raising wages and reducing inequality, which could lead to higher inflation or stagflation; will likely be positive for TIPS
• Proposals for higher minimum wages, paid family leave and higher taxation on the rich could be positive for U.S. municipal bonds
  • Favors long global E-commerce (BIGECOM), short fast-food restaurants (BINAFCRC); long mass retailers (BRUSMASS), short luxury goods makers (SPGLGUP), long fiscal stimulus
• Best way to leverage fiscal stimulus under either president is via infrastructure spending and defense spending, so favor longs in U.S. aerospace & defense (S5AEROX), materials (S5MATR), and large-cap banks (S5BANKX)
  • NOTE: Stimulus is the primary reason BofAML rates strategists see higher U.S. bond yields in 2017
• Go long AUD/USD volatility, which would benefit in a risk- off scenario in the event of a Trump victory
• Trans-Pacific Partnership may be at greater risk under Trump; a reduction in global trade would likely be most negative for EM, Germany and Japan, while U.S. small caps would benefit from any protectionism-led inflation and have less foreign exposure, so best trade is long U.S. small caps, short EM
• A Trump win could mean lower capital flows to the U,S,, a rise in UST yields and a weaker USD, all of which would be positive for gold
  • Would also raise expectations that populist parties in Europe in 2017 could rise to power and increase the EU disintegration risk premium, so favor long gold vs short European banks (SX7E)
• Recommend selling USD vs MXN on a Clinton victory as MXN appears 15% undervalued after polls showing gains by Trump
  • Long health care services (SPSIHPTR), short biotech (XNBI) is a good way to leverage a Clinton win, given her promises of a tax break for health-care services and greater pharmaceutical regulation

(Bloomberg) -- Jerome Kerviel was ordered to pay Societe Generale EU1m in damages as French judges say Societe Generale shares blame with convicted rogue trader because of failings in control systems.

• Three-judge panel led by Patrick Wyon gives ruling Friday
• Ruling of Versailles court of appeals closes trial to determine how much Kerviel owes bank for EU4.9b trading loss over eight years ago
• SEE: Kerviel Gets Boost as Prosecutor Says He Owes SocGen Nothing Link

(Bloomberg) -- Some investors are moving from fixed-income into pure RUB plays, Citi analysts led by David Lubin, Luis Costa say in research note.

• Citi presents feedback from meeting clients in U.S.
• Interest in OFZs remains high, more in “belly” than back- end
• “Dream curve for a macro investor is the curve where the CB

keeps conditions very tight, currency in order, and small cuts are being delivered over time. For them, Russia seems to be ticking all the boxes”

• Closes short ZAR/RUB recommendation w/ total 5.2% loss

(Bloomberg) -- Expect ~EUR 8 million/bp of EGB supply next week, lowest compared to previous 4 weeks, with ~60% of it from Italy at ~EUR 4.9 million/bp, Citigroup strategists including Puja Sawant write in client note.

• EGB supply next week comes from Italy (estimated EU8.9b), Netherlands (EU0.75b-1.25b) and Germany (EU4b)
  • There are EU3.4b of coupons and EU13b of redemptions from Belgium that will be eligible for reinvestment next week
• U.K. DMO will issue GBP0.4b of IL52 via gilt tender next Tuesday (GBP2.9million/bp)
  • There are no gilt cash flows eligible for reinvestment next week
• Expect the 2Y-10Y sector to account for around 82% of total gross issuance (~EU55b) over next 4 weeks
  • In DV01 terms, the 10Y sector is expected to contribute the maximum (EUR 19 million/bp)
  • This is ~43% of the total issuance (~EUR 44 million/bp) over the next 4 weeks

(Bloomberg) -- Taiwan dollar closes at its strongest level since Sept. 8 as investors bought up shares of Apple suppliers.

• TWD rises 0.2% to close at 31.33 per dollar,
• Foreign investors net buy TWD4.8b ($151.7m) Taiwan stocks; Taiex index gains for fifth day
• CBC will probably cut discount rate at policy meeting next week to weaken TWD, revive inflation and lift growth, given the lack of fiscal stimulus and near-term reform, BNP Paribas economist Mole Hau writes in note today
  • TWD REER has jumped by more than 10% annualized over the past three months
  • Momentum of tech shipments may not last beyond cyclical smartphone-driven recovery; China’s structural industrial slowdown remains a significant headwind
  • Cut could boost confidence and weakens TWD, while material difference to onshore borrowing conditions unlikely
• Taiwan government to issue TWD145b of bonds in 4Q, vs TWD125b for the same period last yr and TWD120b in 3Q
• Absence of significant pickup in govt bond supply in 4Q indicates Ministry of Finance is conservative, says Jih Sun Securities bond trader Kevin Shih
• Says market has largely priced in expectation of no rate cut, with Aug export orders better than expected
  • If CBC cut rates, it would be the last time for this cycle and won’t drive 10-yr govt bond yield to new low
  • Expects yield of 10-yr note to trade within 0.69% - 0.74% next week, ahead of policy meeting on Thursday
• Yield of 10-yr govt note little changed at 0.719% today, declining 3 bps this week

(Bloomberg) -- With the ECB deliberately keen to choke off speculation about more stimulus, Commerzbank pushes back forecast for a 10bps rate cut to March, analysts Christoph Rieger and Michael Schubert write in client note.

• When the central bank addresses QE’s scarcity limitations in December, it should opt for a slightly longer extension of the program until at least the end of 2017 in order to preclude a large bearish reaction
• The net impact on bunds will still be mildly negative so lifts 10Y year-end yield forecast to 0.1% vs 0%
• Favor increasing duration and increasing overweights in large peripherals; recommend overweights via Italy instead of Spain, given the latter’s outperformance and as sufficient political concern is reflected in Italian spreads near-term