HALISTER1: Financials May Lag, Gilt Curve to Flatten on Further BOE QE: UBS

Financials May Lag, Gilt Curve to Flatten on Further BOE QE: UBS

(Bloomberg) -- If U.K. economic activity slows more beyond the end of 2Q, the market is likely to rapidly start considering how the BOE could ease further, UBS analysts including John Wraith and David Tinsley write in research note.
  • MPC could cut rates to zero, possibly in two stages; the questionable success of negative-rate policies elsewhere means such a strategy seems unlikely, at least in the first instance
  • Markets would start to factor in a possible resumption of QE once rates have been cut, leading gilts to richen and bull- flatten; expect gilts to outperform EGBs and USTs as they did in the run-up to previous QE
    • Favor 2s10s flatteners, selling 5Y-30Y breakevens, buying 5Y-30Y gilts on asset swap; expect narrowing spread between bunds and gilts
  • While the FTSE 100 would be relatively well isolated, the FTSE 250 would be more exposed
    • Pharma, food producers and tobacco would likely be the winners, while banks and insurers likely to underperform on any easing other than an enlarged Funding for Lending scheme
  • UBS’s central case is for a U.K. economy rebound in 2H
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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David Tinsley (UBS Asset Management Japan Ltd)
John Wraith (UBS Global Asset Management Japan Ltd)

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UUID: 7947283

HALISTER1: EU RATES ROUNDUP: Long Duration, Euro 5y5y, Flatteners

EU RATES ROUNDUP: Long Duration, Euro 5y5y, Flatteners

(Bloomberg) -- Most analysts like holding or adding to longs in bunds or Euro rates ECB QE, lack of long-end supply, scarcity issues, EU referendum risks.
  • Both Morgan Stanley and Citi recommend long euro 5y5y; most neutral on peripheral spreads ahead of Brexit vote
  • Barclays (strategists including Cagdas Aksu)
    • Bunds will continue to be resilient despite stabilization in risk assets given U.K. referendum, bleak inflation outlook, slowing long-end issuance, friendly EGB cash-flows, maturity extensions in Bundesbank buying
    • Stay neutral on peripheral spreads, “Leave” and “Remain” outcomes for the U.K. referendum roughly evenly priced
    • U.K. front end prices possibility of further easing; MPC could ease in exit scenario; however, given the slowdown in economy, policy easing may well take place irrespective of the referendum outcome
  • BNP (strategists including Patrick Jacq)
    • Bull flattening of 10s30s Japan through 1Q points to euro-zone, U.S. bull flattening; supported by the ECB’s PSPP, attractive differential to JPY curve, weaker pension funds
    • Investors should position for this outperformance through JPY/EUR 10s30s boxes (paying JPY leg)
    • 0% level in 10Y bunds market be reached soon, little scope for further rally in front-end; main long outright positioning in core, curve flatteners
  • Citi (strategists including Harvinder Sian)
    • Negative convexity effect of ECB buying has flattened curves; relative to past, recent correlation with ECB DV01, buying show curves are still too steep
    • Powerful momentum to latest rally; ramping up of QE, scarcity issues, hunt-for-yield, lack of heavy issuance all point to ongoing support for European fixed income.
    • Recoupling of rates to ECB DV01 impact can be catalyst to target of -15bps on Bunds, 0.75%/0.70% in EUR 5y5y swaps
    • High quality assets to remain supported into EU referendum; If “leave” wins, 10s could get to 1%, If “remain” wins (base case), 10s could move back above 1.5%
  • Deutsche Bank (strategists including Francis Yared)
    • European bond markets valuations are stretched, but still far from extremes observed in 1Q 2015; positioning still appears to be short, snap back unlikely for now
    • Given extent of recent moves, valuation metrics, exit France 10s30s flattener, reduce outright long-end flattening exposure, refrain from entering bearish trades until U.S. survey data improves, positioning changes, clear EU referendum outcome
      • Maintain BTP 10s30s flattener, 5Y BTP/Bund spread tightener
    • Recommend paid position in EUR 5s10s20s fly, which had cheapened as markets priced further QE driven flattening in 1Q 2015, also cheapened bund tantrum in 2Q 2015
  • JPMorgan (strategists including Fabio Bassi)
    • Scarcity, Brexit fears, lack of supply support bull- flattening; maintain 10s30s flatteners but with 3bps trailing stop
    • 20s30s Bund curve particularly has room to flatten, has barely flattened this year; continue to hold cheap intra-EMU Brexit hedges, where spreads are close to YTD tights
    • Turn tactically neutral on swap spreads, take profit on Sep 16 Schatz/Bund swap spread curve steepener
    • Medium term swap spreads widening supported by QE-driven scarcity premium, lack of swapped issuance activity over summer, though valuations are wide given crowded longs ahead of EU referendum
  • Morgan Stanley (strategists including Anton Heese)
    • Given global bullish duration bias, look to add duration longs in euro rates; 5s10s offers most value, still sits steeper than at the beginning of 2015
    • Eurozone may continue to “Japanify”, compared to JPY swap term structure, 5y5y portion of the curve shows the biggest difference; if eurozone inflation, growth environment stays low this curve will lose its curvature
      • Recommend receiving EUR 5y5y at 0.98%
    • Bond market indicators turn bullish, high correlation between U.S. and U.K. rates, makes sense for long duration in the U.K.
      • Recommend long 5Y U.K. as it has tendency to richen on curve in rally: MORE
  • RBS (strategists including Andrew Roberts)
    • Rally is unrelenting, risk/reward for long 10Y bunds into June event risk is significant, positioning is flat, Japanese flow is increasing, ECB is running out of bonds
      • Hold double weight 10Y bunds, 10Y Sweden (out of UK & France), along with 10s30s EMU flatteners
    • U.K. economics on the back burner with focus on politics, earnings data, buy U.K. front end (5 yrs), getting closer to unlocking next U.K. rate cut
    • Expect a Spanish govt to emerge from elections in the form of a PP-led coalition; as political concerns fade, so does supply
      • Do not like peripheral longs outright ahead of EU referendum, though prefer owning Spain 30Y vs Italy
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

People
Cagdas Aksu (Barclays PLC)
Andrew Roberts (Royal Bank of Scotland Group PLC)
Anton Heese (Morgan Stanley)
Fabio Bassi (JPMorgan Chase & Co)
Francis Yared (Deutsche Bank AG)

Topics
BFW EU Rates Analyst Wrap

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UUID: 7947283

HALISTER: Novel FedEx Drug-Shipping Case Left to Skeptical Judge at Trial

Novel FedEx Drug-Shipping Case Left to Skeptical Judge at Trial

Alert: HALISTER
Source: BN (Bloomberg News)

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FDX US (FedEx Corp)

People
Charles Breyer ((US)Dist Court:CA-Northern)
Cristina Arguedas (Arguedas Cassman & Headley)
Patrick Fitzgerald (FedEx Corp)
Stephen Breyer (United States Supreme Court)
Timothy Crudo (Latham & Watkins LLP)

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UUID: 7947283

HALISTER1: ECB’s Bank-Capital Position Is Credit Positive for AT1s: Moody’s

ECB’s Bank-Capital Position Is Credit Positive for AT1s: Moody’s

(Bloomberg) -- Ignazio Angeloni’s confirmation that the ECB’s SREP methodology will allow for splitting Pillar II capital expectations into requirements and guidance is credit positive for holders of additional Tier 1 bonds, Moody’s says in its Credit Outlook.
  • Only binding requirement would constrain the distribution of dividends and coupons, making risk of suspension of interest on AT1s more remote
  • Results of stress tests to inform guidance part, therefore not relevant in capping amount that banks can distribute
  • Banks can absorb shocks by eating into guidance component
  • Change is “particularly positive” for banks that currently have low headroom above capital buffers, incl. UniCredit SpA, BNP Paribas SA, Deutsche Bank AG, Moody’s says
  • Change broadly positive for bank credit “because it potentially reduces any pressure on the ECB to moderate the level of capital guidance to avoid any unintended consequences of an AT1 coupon suspension”
  • Still unclear how much binding requirement will fall
  • Still unclear “ whether and how the supervisory guidance component will be disclosed under the new approach. Any reduction in disclosures would negatively affect creditors’ ability to understand euro area banks’ complex capital architectures and fully assess their risks”
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)
UCG IM (UniCredit SpA)
BNP FP (BNP Paribas SA)
DBK GR (Deutsche Bank AG)

People
Ignazio Angeloni (European Central Bank)

Topics
Subordinated Debt

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UUID: 7947283

HALISTER: Inside Facebook’s Plan to Get Users to Buy Flowers in Messenger

Inside Facebook’s Plan to Get Users to Buy Flowers in Messenger

Alert: HALISTER
Source: BN (Bloomberg News)

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FB US (Facebook Inc)

People
Christopher McCann (1-800-Flowers.com Inc)
David Marcus (Facebook Inc)
David Wehner (Facebook Inc)
Gordon Borrell (Borrell Assoc)
Jan Dawson (Jackdaw Capital Llp)

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UUID: 7947283

HALISTER1: Morgan Stanley Says Buy 5Y Gilts Outright Ahead of Brexit Vote

Morgan Stanley Says Buy 5Y Gilts Outright Ahead of Brexit Vote

(Bloomberg) -- The pricing of U.K. rates increasingly only makes sense if the referendum causes the MPC to cut rates, suggesting the front end looks vulnerable if the U.K. votes to remain in the EU this month, Morgan Stanley analysts led by Matthew Hornbach write in client note on Friday.
  • Recommend buying 5Y UKT outright into Brexit; recommends buying Jan. 2021 gilt
    • No longer suggest owning gilts vs Treasuries
  • Key risk to the recommendation is a global rates sell-off, possibly on more hawkish than expected rhetoric from the Fed or BOJ, or because Brexit concerns subside
  • NOTE: Brexit risk priced by GBP/USD vol is extreme compared to any other market, BofAML said last week
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Matthew Hornbach (Morgan Stanley)

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HALISTER1: BANK OF E ASIA <23> Corporate Social Responsibility Report 2015

BANK OF E ASIA <23> Corporate Social Responsibility Report 2015

Alert: HALISTER1
Source: IIS (HKSE IIS (English language))

Tickers
23 HK (Bank of East Asia Ltd/The)

People
Bea Bea (Bank of East Asia Ltd)
Li Kwok Po (Bank of East Asia Ltd/The)

Topics
Corp. Responsibility Filings

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UUID: 7947283

HALISTER1: MAS Singapore Forms Dedicated Anti-Money Laundering Departments

MAS Singapore Forms Dedicated Anti-Money Laundering Departments

(Bloomberg) -- The Monetary Authority of Singapore to form dedicated department to streamline existing responsibilities for regulatory policies relating to money laundering and other illicit financing risks, regulator says Monday.
  • Dedicated supervisory team will also be set up to carry out onsite supervision of how financial institutions manage these risks
  • New structure will enhance supervisory focus: MAS
  • MAS will centralise and strengthen enforcement under new Enforcement Department; new department will continue to jointly investigate capital markets misconduct offences with the Commercial Affairs Department
  • New department responsible for enforcement actions arising from regulatory breaches of MAS’ banking, insurance and capital markets regulations.
”
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
MASP SP (Monetary Authority of Singapore)

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