EFTA01195656.pdf

From: Paul Morris To: "'Jeffrey E."' <[email protected]> Subject: RE: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I] Date: Fri, 11 Sep 2015 23:02:14 +0000 Inline-Images: ATT00005.png; ATT00002.png; ATT00001.png; ATT00006.png; ATT00004.png; ATT00007.png; ATT00003.png; ATT00009.png; ATT00010.png; ATT00008.png Talk to you on Monday Original Message From: Jeffrey E. [jeevacation®gmail.corn] Sent: Friday, September 11, 2015 06:43 AM Eastern Standard Time To: Paul Moths Subject: Re: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I] what are the trades? do you see it? On Fri, Sep 11, 2015 at 12:20 PM, Paul Moths < > wrote: Not sure on the oil idea, he sent over other yesterday but seemed complicated and was planning to talk to him this am about it Original Message-- From: Jeffrey E. [jeevacation®gmail.com] Sent: Friday, September 11, 2015 04:21 AM Eastern Standard Time To: Paul Moths; Richard Kahn Subject: Fwd: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I] ???? what is he suggesting? Forwarded message From: Daniel Sabba Date: Fri, Sep 11, 2015 at 3:26 AM Subject: Re: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I] To: "[email protected]" <jeevacation®gmail.com> Classification: For Internal Use Only Ok. There are two trades I would like you to look at. One a cheap long term play in crude, other a play on global central bank liquidity coming down. From: Jeffrey E. [mailto:jeevacS@gmail com Sent: Thursday, September 10, 2015 04:21 AM To: Daniel Sabba Subject: Re: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I] speak later today I am in europe EFTA01195656 On Thu, Sep 10, 2015 at 4:48 AM, Daniel Sabba < > wrote: Classification: For Internal Use Only Thought provoking charts. From: Isin Sumengen-Ziel (DEUTSCHE BANK AG, LO) [mailto:[email protected]] Sent: Wednesday, September 09, 2015 10:09 AM Subject: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence Given the volatile price action in the EMEA high betas (TRY, RUB, ZAR), the below charts may be informative: 1) Stretchometer: Price action is certainly stretched (on the weaker side) across the board, but especially in MYR and BRL. TRY ZAR RUB price action is also stretched, but not as much as before the rally over the past two days. USD/EM FX Stretch-o-meter 5.0 4.5 - V u 4.0 - ic 3.5 - &I *: 3.0 2.5 - a Z0 2std dev bend — 1.5 lstd dev .g 1.0 bend — 0.5 0.0 - -0.5 - 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 c? 10_ "pi e ?P' ?'4)s- "Po0 r q, t "t. tt l:Pt -•• tt Looking specifically at USDTRY, price action is now stretched to the extent we saw earlier this year and more importantly at the start of 2014 (when the CBT undertook an emergency rate hike). EFTA01195657  3.25 - 3.5 3.00 - - 3.0 - 2.5 2.75 - - 2.0 2.50 - - 1.5 2.25 - - 1.0 - 0.5 2.00 - - 0.0 1.75 - - -0.5 1.50 - 1 4/ - -1.0 1.25 - - -1.5 2010 2011 2012 2013 2014 2015 - USDTRY Spot, Ills —'Stretch' (Standardized residual of spot vs 200dma), rhs The stretchometer for USDZAR is at 5-yr highs, but has retraced somewhat in the last 2 days (in line with the risk-on appreciation move observed across the EMEA high-yielders). 14 - - 10 13- - 2.5 12- I - 2.0 10 - - 1.0 9- - 0.5 8- - 0.0 - -0.5 6- -1.0 2010 2011 2012 2013 2014 2015 - USDZAR Spot, Ihs — 'Stretch' (Standardized residual of spot vs 200dma), rhs USDRUB price action is also stretched, but we are still far below the 'stretch' levels we have seen in the recent past. EFTA01195658  70 1 12.5 65 10.0 60 - 55 7.5 50 - 5.0 45 - 40 - - 2.5 35 - - 0.0 30 - 25 - -2.5 2010 2011 2012 2013 2014 2015 - USDRUB Spot, lhs — 'Stretch' (Standardized residual of spot vs 200dma), rhs 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): According to our short term 'financial fair value' metric, EM FX is cheap almost across the board, with ZAR being the the most undervalued currency. TRY is also cheap, while RUB less so. However, these results should be taken with a pinch of salt, as the short-term valuation metric provides a better picture when currencies are trading within relatively tight ranges, rather than trending strongly and breaking new ground (as is the case currently for many EM currencies) due to domestic factors/factors not captured by the model. Financial fair value (USD crosses): 5- EM FX Cheap -1 - lamb _m ev,p47),-0,9024.2c34/0ANoNoots tolesclef50,4,t(ceo+ EFTA01195659 As the charts below show, the extent of undervaluation (i.e. the magnitude of the model residual) is at 1y extremes for TRY and ZAR, but not for RUB. USDTRY: 3.1 3.0 2.9 2.8 2.7 2.6 2.5 2.4 2.3 2.2 2.1 2.0 To 0.100 3,33 0.000 2 -0.100 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2014 2015 — financial fair-value — spot +/-2 std dev band — residual mean — residual +/-2 std dev band USDZAR: EFTA01195660 I I 14.0 13.5 13.0 12.5 12.0 - 11.5 - 11.0 - 10.5 e D 0.4 To 0.0 \.,. •""r•Nare5"C-...,, -0.4 • • — Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2014 2015 —"financial fair value" — spot al +/-2 std dev band — residual — residual mean +/-2 std dev band USDRUB: EFTA01195661  SO 75 70 65 - 60 55 50 45 40 - 35 30 25 - 7.5 72 co <V 0.0 I- -7.5 rminomPar~e~i Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2014 2015 —financial fair value —spot +/-2 std dev band — residual mean — residual +/-2 std dev band Another point to highlight from the financial fair value metric, other than the cheapness of TRY and ZAR in particular, is the resilience of Central Europe (HUF, CZK, PLN, RON). We have been highlighting our bullish bias on the region (HUF and PLN in particular), and the financial fair value metric corroborates the fact that these currencies have been mostly immune to the recent sell-off in EM FX. They have the best performing EM currencies (vs USD) since the yuan deval. Over this period, there has certainly been differentiation within EMEA— weakening bias in the high yielders TRY RUB ZAR and resilience in Central Europe fx. This differentiation is also evident in the chart below, which indicates that the average correlation between the EMEA fx currencies (USD crosses) has come down sharply in the past few months. EFTA01195662  Average correlation within EMEA FX (daily changes) 0.8 0.7 - 0.6 - 0.5 - e 0.4 - 0.3 - 0.2 - 0.1 - 0.0 I 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Best, Gautam Gautam Kalani, EconomisUStrategist Deutsche Bank AG. Filiale London Emerging Markets Research Winchester House 1 Great Winchester Street. EC2N 2DB London, United Kingdom Tel. Email This e-mail may contain confidential and/or privileged information. If you are not the intended recipient (or have received this e-mail in error) please notify the sender immediately and delete this e-mail. Any unauthorized copying, disclosure or distribution of the material in this e-mail is strictly forbidden. Please refer to http://www.db.com/en/content/eu disclosures.htm for additional EU corporate and regulatory disclosures and to http://www.db.com/unitedkingdom/contentlprivacy.htm for information about privacy. EFTA01195663  This has been prepared solely for informational purposes. It is not an offer, recommendation or solicitation t o buy or sell, nor is it an official confirmation of terms. It is based on information generally available to the public from sources believed to be reliable. No representation is made that it is accurate or complete or that a ny returns indicated will be achieved. Changes to assumptions may have a material impact on any returns de tailed. Past performance is not indicative of future returns. Price and availability are subject to change witho ut notice. Additional information is available upon request. This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. please note The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of WE Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to [email protected], and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. please note The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of WE EFTA01195664  Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to [email protected], and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. please note The information contained in this communication is confidential, may be attorney-client privileged, may constitute inside information, and is intended only for the use of the addressee. It is the property of JEE Unauthorized use, disclosure or copying of this communication or any part thereof is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by return e-mail or by e-mail to [email protected], and destroy this communication and all copies thereof, including all attachments. copyright -all rights reserved This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. EFTA01195665