Halister News

--JONES HAYDEN

(Bloomberg) -- Analysts retain bias toward lower bund yields; Citi, BNP and Deutsche Bank all recommend short SPGBs vs Italy, given recent tightening despite political risks.

• Citi (strategists including Harvinder Sian)
  • Much less long-end supply over near term, Belgium 10s30s is steepest on cross-market basis; recommend long-end flatteners in Belgium
  • Recommend receiving EUR swaps 3Y Fwd 2s5s10s at -5.2bps; motivation is high carry relative to directionality of the trade; use trade to replace 2Y forward starting version
  • Cross-market see scope for BTPs to outperform SPGBs due to the political event risk in Spain vs supportive cash flows for Italy in May
    • BTP/Bono spreads in 8Y-10Y sector have cheapened most; recommend long BTP 09/2024 vs SPGB 04/2024
  • BOE’s ‘appetite’ for a cut vs a hike not as symmetric as is currently priced, continue to expect a steepening in 2s5s GBP

• RBS (strategists including Andrew Roberts)
  • Semi-core EMU very tight to core, especially compared to periphery, yet very exposed to risk events, start fading
    • France is the most exposed major country if the U.K. votes to leave the EU
  • Still like Spain’s growth fundamentals, expect QE, TLTRO-II flows to be supportive, while problems are fiscal slippage, political uncertainty
  • Look for relative value on the curve, recommend paying belly of 10s15s30s fly, look for 10bps retracement
  • Reiterate GBP 5s30s volatility weighted steepener, looks attractive relative to fair-value, in context of perceived steepening pressures ahead of U.K. referendum on EU membership

• Barclays (strategists including Cagdas Aksu)
  • Supply/demand picture for bunds nowhere near as poor as April last year; still scope for further short-term bearish price action, despite recent selloff
    • Maintain indirectly bearish trades, short 10Y bunds vs USTs, short bund ASW vs EONIA
  • In EGBs, hold short 50% 7Y Belgium, Ireland vs Netherlands; short 6Y Belgium vs Austria; remain cautious on peripherals

• Morgan Stanley (strategists including Anton Heese)
  • General message from central banks was that more data is required before acting
    • Remain neutral duration overall, but hold short 10Y bund (RXM6) vs 5Y USTs (FVM6)
  • Continue to recommend long OATs vs BTPs as bond market indicators suggest tactical longs in semi-core vs periphery, reflective of weaker peripheral equities, worsening carry
    • Hold short 10Y BTP (IKM6) vs long OAT (OATM6)

• SocGen (strategists including Marc-Henri Thoumin)
  • Further rally in bunds should favor a steeper 10s30s in SPGBs given the inverse correlation
    • Long SPGB April 2026 vs SPGB Oct. 2046 at 62bp in ASW; target 69bp, stop 57bp
  • Expect issuance at the very long end to remain intense, at least as long as EUR yields remain close to recent lows: MORE

• Commerzbank (strategists including Christoph Rieger)
  • Use a rise in 10Y bund yields above 0.25% to scale back into longs with the historically high month-end index extension expected to provide additional support
  • Expect bunds to rise with duration-intensive issuance increasingly recycled and Fed risks receding
  • Curves should remain highly directional, expect 10s30s bund and IRS curves to resume their flattening trend with the bear-steepening/bull-flattening entrenched: MORE

• BNP (strategists including Patrick Jacq)
  • Rise in yields has already gone far enough, recommend long EUR 10Y via 3-month expiry risk reversals
    • Sell 0.84% (14bps OTM) 3m10Y payer vs buying 0.57% (12bps OTM) receiver at zero cost
  • Spain has outperformed Italy, despite parties failing to form a govt; supply/demand favored SPGBs over BTPs in April, but this will reverse in May
    • Enter SPGB/BTP 10Y wideners at 6bps, target 20bps, stop -2bps: MORE

• Deutsche Bank (strategists including Francis Yared)
  • Maintain existing macro trades, (tactical) France 10s30s flattener, long 10Y cash breakevens, long EUR 10Y real rate trade vs US, long 10Y UK cash breakevens
  • Recommend short 10Y Spain vs Italy; political situation in Spain resulting in fresh elections on June 26, not obvious polls will help reduce the political uncertainty

• Danske Bank (strategists including Anders Moller Lumholtz)
  • Close long Spain vs Italy, new general elections in Spain, budget risks, suggest short term risk for SPGB underperformance
  • Ireland continues to keep struggle even though upcoming Brexit referendum leaning in favor of remain; maintain long 10Y Ireland vs France

(Bloomberg) -- U.K. April PMI manufacturing est. 51.2 vs prev 51.0.

(Bloomberg) -- Emerging market investors may focus on inflation readings in CEEMA to gauge central banks policies while sustainability of China’s economic recovery will dominate the theme in Asia. Over in Latam, Brazil’s deepening political quagmire continues to hog the region’s limelight.

• MAIN RISKS

• CEEMA
• Deflation risks are strongest in Romania, Poland and Israel, which may mean inflation data across CEEMEA will be closely- watched in months ahead
  • Markets will look for confirmation that recent price downturns in typically-high inflation countries like Turkey, Russia and South Africa, are not one-off events
  • Hungary continues to surprise on monetary policy measures and central bank meeting on May 24 must be watched
• Commodity exporters like Russia and South Africa saw sharp gains in their currencies after the recent commodities rally, which may leave them vulnerable to corrections if commodity rally retrenches

• LATAM
• Latam FX remains tied to commodities and broad USD moves linked to investor’s stance on Fed’s next steps
• Argentina may lift final FX controls, bringing more liquidity to the market
• BCB continues as most significant BRL player; bank bought ~$1.63b in FX reverse swaps after BRL closed beyond 3.50, reinforcing view that level serves as trigger for FX intervention
• Brazil Senate likely to accept President Rousseff’s impeachment process on May 11-13, which will force her to step down from post and await trial
  • Major newspapers report that over 50 senators already said to vote in favor of Rousseff’s ousting, a good margin from the 41 required
  • Cloudy political skies begin to clear as VP Temer in talks with potential members of his future cabinet and Valor reports he can count on support of 400 lawmakers and 60 senators to pass initial measures
    • Confirmation of mkt friendly names for FinMin and BCB president positions is key for continued BRL appreciation

• ASIA
• China’s economy may benefit as yuan weakens faster over a broader measure than it is rising versus dollar; click here for chart of CFETS index against USD/CNY
  • April manufacturing PMI remained above 50.0, suggesting China growth is getting traction; could mean a delay to rate cuts
• Possibility of monetary easing in Malaysia may increase with the appointment of Muhammad Ibrahim as central bank governor successor to Zeti
  • If inflation continues to fall below expectations, it may compel BNM to cut overnight policy rate, analysts at DBS wrote on April 28; next CPI data due May 18 while BNM holds policy meeting following day

• CALENDAR (based on local dates)
• May 3: South Korea CPI; Turkey CPI and PPI
• May 5: Brazil minutes; Mexico rate decision; Colombia CPI; Chile IMACEC
• May 6: Malaysia trade balance and FX reserves; Brazil CPI; Chile CPI
• May 7: China foreign reserves
• May 8: China trade balance
• May 9: Taiwan exports; Mexico CPI
• May 10: China CPI; Turkey C/A balance; Hungary CPI
• May 11: Thailand central bank meeting
• May 12: India IP; Philippines central bank meeting
• May 13: Malaysia 1Q GDP; Bank of Korea meeting; Poland core CPI
• May 14: China IP; Singapore non-oil exports
• May 16: Thailand 1Q GDP
• May 17: Chile rate decision
• May 18: Malaysia CPI; South Africa CPI
• May 19: Malaysia and Indonesia central bank meetings; Singapore 1Q GDP final; Philippines 1Q GDP; Mexico minutes; South Africa rate decision
• May 20: Malaysia FX reserves; Mexico GDP
• May 23: Singapore CPI
• May 24: Thailand customs exports; Turkey central bank meeting; Hungary central bank meeting
• May 27: Taiwan 1Q GDP final; Colombia rate decision
• May 31: India 1Q GDP; Brazil Fiscal Data; Poland CPI

• NOTE: Mark Cudmore, Davison Santana and Mark Cranfield are strategists who write for Bloomberg. The observations they make are their own and are not intended as investment advice.

(Bloomberg) -- RBA’s decision to cut rates today is significant enough for there to be a realistic expectation that a further cut is likely, Bill Evans, Westpac’s chief economist writes in note today.

• June quarter inflation report won’t provide RBA with sufficient comfort, thus leading to another rate reduction; inflation has become the most important policy driver, says Evans
• Statement of monetary policy due on May 6, to give insight on new inflation approach
• NOTE: Australia cuts key rate to record low

(Bloomberg) -- Stena’s liquidity may be tight if co. doesn’t issue new financing next year, but it has sufficient means to repay a EU300m bond maturing in Feb., Danielle Ward, analyst at JPMorgan, writes in client note.

• Including vessel financing/other debt, Stena has SEK9.3b debt maturing across 2017-2018
• Believes that credit metrics will begin to deteriorate significantly in next 12-18 months as drilling contracts roll off from this summer
• Downside risks continue to outweigh upside, particularly after recent rally in spreads; 5Y CDS -4.5pts in April
• Reiterates underweight rating; says downgrade at Moody’s “strong possibility” in near-term
• NOTE: Stena has EU3.62b equivalent of debt outstanding, with EU436m maturing next year, Bloomberg data show

(Bloomberg) -- EUR rates gamma implied vols are now back to more attractive levels vs realized, especially in longer tenors, BNP Paribas strategist Camille de Courcel writes in client note.

• Recommends selling a 0.83% (14bp OTM) 3m10y payer and simultaneously buying a 0.57% (12bp OTM) 3m10y receiver at zero cost
• Upward correction in rates is close to an end; BNP expects increase in yields to be capped in mid-0.30% area on the 10y bund yield
  • Market positioning, economic and supply-demand backdrop, steepness of the curve and level of real yields suggest that potential for a further sell-off in core markets is limited