EFTA00821734.pdf

From: 'Ens, Amanda" To: "Jeffrey [email protected]> Subject: MEGA AM: Risk Parity Scenario Tool Date: Tue, 09 Aug 2016 15:11:37 +0000 Inline-Images: 805518634.png; 1684421316.jpg; 1754324245.jpg; 486268078.jpg; 94382390.jpg; image001gif01D1F22E14C669E0.gif L;;cid:389 17479 Summary: We expect US nonfarm productivity to increase 0.6% qoq saar, up from -0.6% in 1Q. Japan: After a decent JGB auction jLyieldc decline further in the super long sector domestic investors cooking-positive yields could loco the last destination for their demand Global Equitaalatifity_Insights• Last week's sharp cell-off in JG.Rc renewed concerns of forced spillway risk panty funds We provide a simple scenario tool. UK: GBP traded below 1.3000, after comments from the BoE's Ian McCafferty and J-Curve worsens trade balance. Situation Rnom• We find that the ROE and ECB cornnrate bond QLgingrams are creating a lot of attractive relative value in the dollar market as Spanish lOy Bond Yields fall below 1% for the first time. In Gold we are still seeing further interest by investors to buy year-end upside. China: h& CPI inflation eased to 1.8% ygy from 1.0% in Jun on lower food inflation. The Reserve Bank of India held the repo rate unchanged in today pshcy meetingsang continued upside rinks to the 5% inflation target to be achieved by March 7017. We expect US nonfarm productivity to increase 0.6% qoq saar, up from -0.6% in 1Q. However, it would still result in the year-over-year rate slowing to 0.1% from 0.7% in 1Q. With productivity improving, unit labor costs likely slowed to a 2.1% pace from 4.5% in 1Q. This translates to a 3.1% year-over-year pace versus 3.0% in 1Q. Iapan• If yields decline further in the super long sector domestic investors seeking positive yields could lose the last destination for their demand Excessive easing by the central bank could end up depriving the market of lower risk assets and raising systemic risk. Japan: All eyes were on the 30V 3GB Auction and rates are stable post the results. The bid-to-cover ratio in the 30y 3GB auction was of 3.07 and stronger than prior 2.64. However, we are seeing very limited flows post auction results and no follow-through buying interests for now. While 10y 3GB yields fell after the auction, the 40y did not. In equities, TPX is down 1% MD but crowded defensive sectors are down 6% MD and unloved high beta sectors are up 3%. [d.j.:id:1852284626 Global Ftuntyygjaflights: Last week's sharp sell-off in 1GBc renewed concerns of forced sellingly_rjahmay funds. While the draw downs in US Treasurial,JaLaginnas and ultimately risk portfolios were small (j) leverage is still near max levels across a variety of rink gully parameteriratinnn (ii) bond allocations are historically elevated, and (iii) markets continue to be skeptical of a 2016 Fed hike. Hence we provide a simple scenario tool. For example, a •2% daily decline in the S&P S00 coupled with a -0.6% fall in lOy Treasury prices (poor diversification) could trigger a 25% deleveraging (of unlevered notional) today, whereas a -4% SPX drop and +1% bond rally (good diversification) would generate no selling pressure, underscoring the critical role played by bond•equity correlation in governing the severity of risk parity unwinds. d:1981083237 UK: GBP traded below 1.3000, after comments from the BoE's Ian McCafferty. In an op-ed in The Times, he noted that if the UK economy proves to have turned down in line with initial survey signals, he believes more easing would likely be required. At the same time he acknowledges that rates can be cut closer to zero and QE could be stepped up. The article goes on to say that the 8oE should follow a gradual approach in how it responds to &exit given information on the exact reaction is still very limited. While McCafferty was in favour of last week's rate cut, he was one of three officials to vote against more QE. UK: 3-Curve worsens the trade balance ,,:cid:709226104 Situation Room: We find that the BOE and ECB corncirate bond Qtpnagrams are creating a lot of attractive relative value in the dollar market Spanish 10y Bond Yields fall below 1% for the first time. '.[ ,;cid:1152287995 In Gold we are still seeing further interest by investors to buy year-end upsides, so sentiment still remains bullish but perhaps the timing for higher prices is now being put towards the back of the year, coinciding with the US presidential election. AUSTRALIAN JULY BUSINESS smniTInN4 FALLS TO 8 AUSTRALIAN JULY BUSINESS SMNFInENCE FALLS TO 4 A sharp drop in conditions but still above the S average. More in line with our expectation for a slower profile of growth to justify the rate cut last week. j" July CPI inflation eased to 1 8% jay from 1 9O/ in Jun nn lower fond inflation POI deflation narrowed to •1.7% yoy from -2.6%. Despite the recent softening trend in headline CPI inflation, t is still too early to worry about outright CPI deflation. We expect no further interest rate cuts in the rest of 2016 and 2017. The Reserve Bank of India held the repo rate unchanged in today:stalky menu:insulin continued upside risks to the 5% inflation target to be achieved by March 2017 The knee-jerk sell-off in the NDOIS market suggests that there may have been some hope for a rate cut. The market continues to price in a cut in the October policy meeting. On FX, we are unwinding our long USD/INR risk reversals. We believe there is limited upside in keeping a long USD/INR position. Greg Kaldor fhb message, and any attachments, afar the intended recommitsl cal‘ may contan information that is powileeed. confidernal and/or proprietary and 'Lncet to remnant terms and corditions available at If you are not the intended reciper!. p the message. ttp://rsch-bems- 2xtc38hcmsuY29tliwiY2x0WSOX2IkljoiNSOw0DASMDcy0DtyMzQyNTMx0jIwN0g2OTCKSESEIM09 this message. and any attachments, is for the intended recipient(s) only. may contain informxica that is pnnleged confidential and/or proprietary and subject to important terms and mediums available at if you are not the intended recipient. please et etc tn. message. EFTA00821734 WAvaRCCgAI7MapV6911hd5E2FtYWSkYSSIbnNAYStbC5Jb20JUQQAAAAARS171nRIbX8sYXRIljoaGVmYXVsdF9OZW1vAGFOZSIslmFldGhvciBlbWEr,0061mFkbWluQGNvbGRzcGFyaySjb20iLeluYWIlljoiMDgw0TA4MTMwNzktIMJUzMToyNIDQ40DlyWhOQTAJL CljbGlIbrtRfaWOJOIIILTA4MDkwODE:MOcSODI1PME6MJA00DgyMillTkEwinr Tim message, and any attachments. is Ice the intended rttipitnt(s) only, may conutn inforrnat,on that is punk-god. cceilbential andbx proprietary and subhast to important term:and coninbons and* at n you are not the nteneed reci .ont, ['kite Onto tic message.. 2 EFTA00821735