20140319-法国巴黎银行-Riding_the_Wave_of_Liquidity_Global_Strategy_Outlook_16页_467kb

Summary of "Riding the Wave of Liquidity Global Strategy Outlook"

Core Content Overview

This document outlines the global capital markets outlook for 2014, focusing on interest rates, foreign exchange (FX), credit, and equities. It highlights the impact of central bank policies, economic growth trends, and geopolitical risks on market dynamics and investment strategies.

Key Themes in Capital Markets

• Central Bank Policy and Liquidity:
  Central banks in the US, UK, Europe, and Japan are expected to maintain accommodative policies due to low inflation, which will keep front-end rates low and yield curves steep. This supports valuations in risky assets.

• Economic Growth Outlook:

  • Developed Markets (DM) are expected to see gradual recovery in growth.
  • Emerging Markets (EM) are likely to experience weaker growth, particularly for countries with twin deficits.
  • Global GDP is forecasted at 3.3% in 2014 and 3.5% in 2015.
  • Specific growth forecasts:
    • US: 2.5%
    • UK: 2.8%
    • Europe: 1.4%
    • China: 7.3%
    • Japan: 1%

• Policy Risks and Inflation:

  • A policy mistake in Europe could lead to a disinflationary spiral, prompting the ECB to implement a form of quantitative easing (QE).
  • Inflation in EM is expected to rise, increasing political instability and currency volatility.

• Risky Asset Valuations:

  • Valuations are seen as compressed or overbought, with a potential for further upside.
  • Volatility is considered cheap, suggesting the use of tail hedges via long volatility positions in rates, FX, and equities.

• Liquidity Risk:

  • A lack of secondary market liquidity is a key risk to the capital markets.

Key Views across Capital Markets: G10 Rates

US Rates

• US Treasury yields are expected to remain range-bound in the short term due to tapering and weak inflation.
• 10-year yields may rise to 3.25% by year-end.
• 2s10s steepener trades are recommended, with a target of 260bp.
• Swap spreads are expected to widen slightly, supporting US credit.

Europe Rates

• Bund yields are expected to stay contained at around 1.6% in Q2 and rise to 1.85% in H2.
• QE may push yields higher, but EM turbulence will keep them lower due to safe-haven demand.
• Peripheral sovereigns (Italy, Spain, Portugal) are expected to outperform with spreads compressing to Bunds by 60-80bp.
• Inflation swaps and forward inflation are seen as good tactical trades.

UK Rates

• UK growth is expected to continue improving, supporting gilt yields to rise to 2.95% in H1 and 3.20% by year-end.
• 5/30y curve may flatten further.
• Gilt/Bund spreads are expected to widen, with a target of 140bp in Q3.

Japan Rates

• The BoJ is unlikely to increase JGB purchases soon.
• 10-year JGB yields are expected to rise gradually, from 50bp in Q2 to 70bp by year-end.
• 30-year JGB issuance will increase, keeping the 10s30s steep.

Key Views across Capital Markets: FX

• USD: Expected to strengthen, especially against currencies with loose monetary policies like JPY and EUR.
• EUR: May remain strong in the short term, but a potential ECB QE could weaken it.
• GBP: Expected to strengthen against EUR and USD, driven by UK growth and higher yields.
• JPY: Limited yen weakness is expected due to BoJ's loose policy, but USDJPY may strengthen.
• RMB: Expected to appreciate slowly with two-way volatility; buying dips (6.15-6.20) is recommended.
• FX Volatility: Low volatility in EUR complex is expected to spike with ECB QE, suggesting long volatility positions in EUR crosses.

Key Views across Capital Markets: Credit

• Credit Valuations: Compressed, with upside mainly in carry.
• Event Risk: Rising due to M&A activity, especially in US, UK, and European HY names.
• Preferred Sectors/Assets:
  • US: Mid-single B and low BBB names.
  • Europe: Peripheral corporates with low EM exposure, Subordinated Financials, Corporate Hybrids, Leveraged Loans.
  • UK: Higher all-in yield supports UK credit.
• Risks: Institutions with EM exposure (e.g., Russian banks) may face pressure due to currency weakness and default risks.

Key Views across Capital Markets: Equities

• Global Equities: Expected to rise 5-10% by year-end, driven by strong flows and earnings growth.
• US Equities: Supported by low rates and improving growth, but valuations may become overbought.
• European Equities: Expected to outperform due to improving growth and potential ECB support, especially for banks.
• UK Equities: Strong support from growth and higher yields.
• Japanese Equities: Supported by fiscal boost and BoJ ETF buying; Nikkei 225 may reach 17000 but likely to finish at 16000.
• EM Equities: Expected to underperform due to weak growth and rising interest rates.

Key Views across Capital Markets: Emerging Markets

• Growth and Inflation: EM growth is weak, inflation is high, and political instability is rising.
• FX Volatility: Expected to spike before elections, with currencies like ZAR, RUB, TRY, BRL, and INR under pressure.
• Sovereign Debt: Most EM debt is in local currency, reducing the risk of default due to currency weakness.
• Hard Currency Debt: Vulnerable to repricing due to lack of prior adjustment and longer maturity.
• Corporate and Financial Credit: High risk of default due to currency weakness and EM exposure; Russian subordinated debt is underweight.

Some Key Tactical Trades

Rates

• Long 3y Italy and 3y Spain outright.
• Long 2s5s and 2s10s steepeners.
• Short 10y Gilt/Bund spread.

FX

• Short EURGBP, Long USDJPY.
• Long EUR forward volatility.
• Buy RMB on dips (6.17).

Credit

• Flatteners on 2s5s INR NDOIS and 2s10s THB IRS.
• Steepening pressures in Brazil, pay BRL DI Jan'15/Jan'21 spread.
• Buy 5y Russian CDS, short Russian banks with EM exposure.

Equities

• Long European financial stocks (SX7E).
• Buy 1.3x S&P500 (SPX) and Sell 1x Russell 2000 (RTY) via call options.
• Buy NKY call spread contingent on EURJPY < 140.

How to Access Research

• Visit www.GlobalMarkets.cnpparibas.com
• Contact salesperson for access to email lists, GlobalMarkets, or Bloomberg.

Disclaimer

• This document is a marketing communication and not independent investment research.
• It may be subject to conflicts of interest.
• BNP Paribas may have financial interests in mentioned issuers.
• No liability is accepted for losses arising from reliance on the report.
• The report is for professional clients only and not for retail clients.
• Information is subject to change without notice.