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Emerging markets macro and strategy Focus – Deutsche Bank

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 15, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Research Team at Deutsche Bank, suggests that in Asia, they expect BI to cut rates by 25bps points while Korea will remain on hold (for now).

    Key Quotes

    “In EMEA, we expect growth in Israel to remain resilient in Q4, while downside risks to inflation outlook have increased. In South Africa, inflation should reach the 6% target ceiling for the first time in 17 months. In LatAm, we expect BanRep to hike 25bp despite the increasing pressures on the inflation front. The recent volatility of the MXN has raised concerns about the policy alternatives for Banxico and MoF. We see increased probability of a rate hike.

    Strategy Focus: The re-pricing of global growth continues to favor lower risk fixed income markets (long end). The picture is less trivial in some of the front end as FX-pass through inflation pressures build up.

    FX: EM FX has remained resilient in this most recent risk-off episode, as broad dollar long liquidations have outweighed any potential negative implications for EM from weaker US growth. We, however, feel that fundamentals remain poor and keep our long USD/ZAR. We also think the shekel could come back into the spotlight as pressure builds on the BoI to combat the persistent deflation by easing; we therefore like USD/ILS topside both outright and via options. On the other hand, we believe that concerns on PLN are now overblown and remain constructive in the medium term. In LatAm, we closed our BRL/CLP recommendation but keep RUB/COP (buying RUB low strike vs COP low strike) and see the valuation in MXN as stretched.

    Rates: Valuation continues to support receivers in the front end of Brazil but the picture is less clear in the rest of LatAm. In Mexico, peso volatility is starting to weigh on the front end of TIIE while in IBR unraveling of inflation expectations and credit contamination are now weighing on front end flatteners where we take profit. We believe that the long ends of Chile and Mexico (5Y5Y) will continue to rally, however lagging the US due to the credit component. Lingering inflation continues to benefit linkers. In EMEA, we see value in the front end of Russia, Israel and South Africa. In the long-end we see room for the rally to continue particularly in South Africa and CEE although EM duration may still lag USTs.

    Credit: The establishment of a two-way market was proven short-lived, as the stress in the financial sector added to the plethora of risks that have roiled the global markets. Argentina bonds are supported by holdout progress but not immune from global risks. The time table for Venezuela bonds default has moved closer; the front end bonds are still expensive.”
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