GLOBAL MARKETS STRATEGY OUTLOOK
A world of higher yields
GLOBAL MARKETS - CORPORATE & INSTITUTIONAL BANKING
ROBERT MCADIE - GLOBAL MARKETS HEAD OF RESEARCH AND STRATEGY
DECEMBER 2016 - BNP PARIBAS LONDON BRANCH
Please refer to important information at the end of the report
Prepare for take off
CONTENTS
1
GLOBAL MARKET OVERVIEW
3
2
TRADE RECOMMENDATIONS
7
3
G10 RATES
11
4
G10 FX
20
5
EMERGING MARKETS
28
6
EQUITIES
35
7
CREDIT
41
8
COMMODITIES
45
2
1
GLOBAL MARKET OVERVIEW
Robert McAdie
Global Markets Head of Research and Strategy
3
Global market themes for 2017
Global markets head into 2017 with an elevated level of uncertainty, which
we see as having been created by:
1.
Shifting global political agendas, with a new policy direction in the US, a
change of leadership in China, the start of the UK’s negotiations to leave the
EU and elections in the major eurozone economies.
2.
Changes in major central bank policy: The Fed raising rates and the ECB
tapering its quantitative easing programme. China’s foreign currency reserves
to decline.
3.
Macroeconomic uncertainty, as Trump’s policies impact on trade, and US
fiscal stimulus boosts GDP at a time when the labour market appears to be at
full capacity. Furthermore, 2017 could be the year for fiscal stimulus with the
potential for expansionary fiscal programmes in Japan, UK and Europe.
Volatility is on the rise, but in our view this means opportunities for the diligent,
disciplined and prepared investor. As such our key themes for the start of 2017
are:

Theme 1: Global yields to rise along with uncertainty, causing the
unwind of the global carry trade
Table 1: Risky assets have further to fall in 2017
Source: BNP Paribas
Chart 1: Rising real yields mark the end of ‘hunt for yield’
The search for yield environment, fuelled by global central bank liquidity, that
dominated markets for most of 2016 is coming to an end. We expect global yields
to continue to rise (both nominal and real), driven by the US. With higher rates in
the major bond markets, the relative attractiveness of equities and credit will
continue to fade, especially with equity valuations appearing stretched and credit
spreads so narrow.
In our view the improvement from strong US growth will not be enough to offset
the impact of higher yields, especially in European and EM assets. So far, the
risky correction has been relatively muted (Table 1), but as real yields rise and
political risk increases, we expect a more marked correction in risky asset classes
overall. A move in USD real yields up to and beyond 50bp will consolidate a
broader risk-off shift.
Source: BNP Paribas
4
Global market themes for 2017
Chart 2: Correlation between equity sectors is declining

Theme 2: Dispersion to rise across sectors and markets
Across and within asset classes we expect dispersion to rise as the
dependency on central bank liquidity weakens, political risk factors rise,
rates rise and the macroeconomic outlook adjusts to a world of higher
inflation. Dispersion will rise and correlation will fall as the focus on
carry shifts to fundamentals. For example, Chart 2 shows the recent
sharp decline in the correlation across the S&P sectors.
Even commodity prices, which in the past have been very highly
correlated, have dispersed in recent months, driven by the expected
infrastructure spending programmes of the US and China. As a result,
investors will have to conduct deeper analysis in 2017 when making
investment decisions especially in equities, commodities and credit.
Name, asset and sector selection will be key.

Theme 3: Higher rates to impact US and eurozone assets
differently: eurozone risk premium is rising
Rates are rising in the US because of higher growth and inflation, but in
Europe rates are rising because of higher yields elsewhere and rising
sovereign credit risk.
The divergence of fundamentals is likely be seen most in credit
markets, where US companies will be able to withstand higher yields
without a marked impact on credit metrics. In Europe, earnings growth
will be softer and corporates more sensitive to rising yields. Moreover,
heightened political risk in Europe, coupled with potential tapering of
asset purchases by the ECB will push up peripheral and semi-core risk
premia. This in turn will put further pressure on European banks and
pressure on peripheral stocks and credits.
Source: BNP Paribas
Chart 3: Rising eurozone risk premia to weigh on financials
140
Fin CDS
FR, IT and Sp 10y spread vs Germany
120
100
80
60
Nov-15
Feb-16
May-16
Aug-16
Source: BNP Paribas
5
Global market themes for 2017
Chart 4: Higher US yields to weigh on EM assets
Theme 4: US headwinds for emerging markets - tight USD liquidity
Higher US real rates and a stronger broad trade weighted USD will lower USD
liquidity globally, which in turn will tighten EM financial conditions. As such EM
will struggle in 2017. The low yielding Asian currencies (SGD, TWD and KRW)
appear particularly at risk in response to tightening USD liquidity, a
depreciating CNY and the threat of changes to US trade policies. Currencies
and assets of the large current account deficit economies (Turkey and South
Africa) will suffer from tighter USD liquidity. Moreover, the implementation of
trade isolationist policies by the US administration will only exacerbate issues
for EM. As with developed market equities and credit, we see a rise in
dispersion across EM, where an emphasis on shifting fundamentals will drive
valuations. For example, in spite of the expected headwinds in EM, we think
Brazil and Indonesia could provide opportunities in 2017.
Source: BNP Paribas
Theme 5: USD to break to new highs
Chart 5: USD appears overvalued, but not unusually so
The tightening stance of the Federal Reserve versus ongoing accommodation
by the ECB and BoJ will be supportive for the USD in 2017. The USD already
appears slightly expensive on long-term valuation metrics, but in the 1980s,
US President Reagan’s policies illustrated that when the US becomes
decoupled from the rest of the world, valuation does not constrain USD
performance. As a result, we expect EURUSD to reach 1.00 and USDJPY 128
in 2017.
USD index based on
end-17 forecasts
1.20
1.00
Meanwhile, a strong USD environment will constrain commodity prices,
especially oil and gold.
0.80
Robert McAdie
BNP Paribas London Branch
0.60
1981
1986
1991
BNP Paribas FEER
Source: BNP Paribas
1996
2001
2006
2011
2016
USD G10 Trade-Weighted Index*
BNPP FEER (Fundamental Equilibrium Exchange Rate) is the value of a currency if all
economies were operating at full capacity with sustainable current account balances.
6
2
TRADE RECOMMENDATIONS
7
Q1 2017 Trade recommendations
G10 rates

10y EUR swap payer
The US election means the US will see increased fiscal stimulus,
which is bearish for bonds globally, including EUR 10-year yields.
Target: 1.0%. Stop: 0.48%. Current: 0.64%. Horizon: 3m.

Sell 10y US Treasury
Following the US election, we expect a regime shift to higher
rates, higher vol, higher term and inflation risk premia.
Target: 3.00%. Stop: 2.00%. Current: 2.31%. Horizon: 3m

Short 5y JGB
Once the market becomes more used to the idea that the IOER
rate is unlikely to be cut further, the IOER-5y curve should
become positively sloped.
Target: -0.06%. Target entry: -0.12%. Current: -0.10%. Stop:
-0.21%. Horizon 6m.

2s10s GBP swap steepener
Switch out of 2y/5y GBP swap steepener into a 2y/10y position on
reduced fiscal tightening, low rates, rising headline inflation and
the global bond sell-off.
Target: 90bp. Stop: 56bp. Current: 68bp. Horizon: 3m.
G10 FX

Long USDJPY
Policy divergence between the US and Japan is likely to
accelerate. Meanwhile, BNP Paribas FX Positioning Analysis
suggests there is substantial room for USDJPY long positions to
be built up further as rate differentials widen.
Target: 128.00. Stop: 110.00. Current: 112.50. Horizon: 12m.

Long GBPJPY
Both the GBP and the JPY are vulnerable to rising global price
pressures in the context of ongoing quantitative easing. However,
the Bank of Japan yield curve targeting framework leaves the
yen more vulnerable, as rising inflation should push real yields
deeper into negative territory. Our FX models suggests there is
significant upside in this cross.
Target: 160. Stop: 135. Current: 141. Horizon: 12m.

Short NZDUSD
Commodity bloc currencies outperformed in the initial stages of
the USD’s post-election rally, supported by strong equity market
gains and an improving risk environment. However, we see these
currencies as vulnerable to a loss of yield support relative to the
USD and would expect them to catch up with other currencies’
losses against the USD if the risk environment becomes less
friendly. NZDUSD also stands out as overvalued to our
CLEER ™ medium-term fair-value model.
Target: 0.65. Stop: 0.7180. Current: 0.71. Horizon 12m.
8
Q1 2017 Trade recommendations
Emerging markets


Buy protection on CDX EM.
The recent rates backup and steepening in the yield curve have
hurt EM credit spreads in a similar way to the taper tantrum and
April 2015 moves, and there is further to go.
Target: 90 (c.325bp spd). Stop: 93.5. Current: 92.25. Horizon:
3m
Short SGD vs IDR via 12m NDF
Indonesian fundamentals do not warrant a large devaluation of
the rupiah, in our view. With the NDF market already pricing in
10% depreciation there is a fair amount of cushion. We would
fund this out of SGD, which is likely to depreciate on the back of
broad USD strength and weakness in RMB.
Target (12m NDF) 9500, stop 10750, current 10250. Horizon
12m.
 Long BRL against EUR, AUD, CLP
Equities

Long global fiscal spend basket.
A thematic equally-weighted custom basket of 40 stocks.
Target +15%. Stop -5%. Horizon: 1-year.

Long US small caps vs large caps.
After lagging since 2013, US small caps (Russell 2000 Index RTY) may face more favourable fundamental trends than their
larger peers under Trump administration.
Target +10%. Stop -5%. Horizon: 1-year.

Long eurozone equities, short EM equities
EM positioning still looks crowded. We expect a stronger dollar
and steeper yield curve to drive further EM underperformance.
Target +17%. Stop -5%. Horizon: 1-year.
Brazil will continue to push an ambitious fiscal reform agenda,
which will translate into a reduction of the domestic risk premium.
The unwind of the central bank’s FX intervention tools should
reinforce the BRL appreciation trend.
Target: +10%. Stop: -5%. Current: 198.59/3.604/2.5396.
Horizon: 6m.
 Receive rates in Jan-25 in Brazil
The convergence of inflation towards the central bank’s target and
approval of fiscal reforms will allow the BCB to cut rates by more
than the market is currently pricing. This will translate into an
improvement in domestic debt dynamics and a reduction in the
risk premium embedded into the long end of BRL rates curve.
Target: 11.36%. Stop: 12.62%. Current: 12.13%. Horizon: 3m.
9
Q1 2017 Trade recommendations
Global Credit


Trade: Short iBoxx HY Index/Long Leveraged Loans (S&P/LSTA
US Leveraged Loan 100 index; investors may consider ETFs/TRS
to gain exposure to these products). Investors agreeing with our
view might consider the following trade: Short $25mn US HY bonds
(Ref. HYG price 85.73; spread 529bp), partially hedged with long
$15mn 5Y UST (Ref. 1.85), and Long $25mn US Leveraged Loans
(Ref. BKLN price 23.07; spread 593bp).
Rationale: We expect fixed rate assets to underperform floating rate
assets in 2017. Higher rates and inflation in 2017 could end the ‘hunt for
yield’ environment. Hence, we think that US HY Corporate bonds and
EM bonds are most vulnerable. The implied spread of iBoxx HY index
looks tighter than the implied spread of the Leveraged Loan 100 index
and we expect the spread differential to move wider through 2017.
Target: 0bp. Stop: -84bp. Current: -64bp. Horizon: 4M.
Volatility. Next year will present ample event risk, most particularly in
Europe. Consequently, investors should look at establishing convex
strategies and Long Gamma positons via Long Payers in iTraxx Main
and Fin Sen.
Commodities
Oil: Buy downside protection, as excess supply will remain a key
feature of the oil market through H1 2017, even if OPEC cuts supply.
By mid-2017, the impact of consecutive capex reductions on future
supply is likely to be discounted by the market. Longer-dated prices
must rise to re-incentivise investment. We recommend going short
Brent time spreads, as competing light-sweet oil supply from Nigeria
and Libya is likely to recover over the first half of 2017.
 Long WTI Jun’17 40 puts: USD 2.03/bbl with Jun’17 futures at
USD 48.85/bbl at the time of writing.

Long WTI Jun’17 40 puts / Short WTI Jun’17 55 calls: -USD
0.53/bbl with Jun’17 futures at USD 48.85/bbl at the time of
writing.

Long Brent Dec’18 65 call: USD 4.11/bbl with Dec’18 futures at
USD 51.45/bbl at the time of writing.

Long Brent Dec’18 65 call: / Short Dec’18 35 put: USD
2.40/bbl with Dec’18 futures at USD 51.45/bbl at the time of
writing.
Gold: Sell upside as the downward trend in gold is likely to be
entrenched by a stronger dollar environment. Also, given the
prospective fiscal policy in the US, yields will rise, increasing the
opportunity cost of holding gold relative to other assets.

Short Jun’17 1350 calls: USD 10.80/oz with Jun’17 futures at
USD 1195.80/oz at the time of writing.

Short Dec’17 1300 calls: USD 45.10/oz with Dec’17 futures at
USD 1204.30/oz at the time of writing.
10
3
G10 RATES
US
EUROPE
JAPAN
UK
AUSTRALIA
INFLATION
IR Strategy team
11
US rates: Regime shift to higher rates, BEI and vol
10y US Treasury yield to rise to 3.00% in 2017, levels last seen during
2013’s taper tantrum. We expect significant fiscal stimulus under the new
administration to generate above-trend growth and inflation which will
engrain a regime shift to higher US rates and term premia. Using both a
(i) nominal rate decomposition and (ii) a term premium framework, we find
10y US Treasury yields 150-200bp too low.
Nominal and real yields and breakeven inflation to revive
Term and inflation premia to rise from low levels. At close to zero, the
10y US term premium, as calculated by the Federal Reserve’s ACM
model, is up to 300bp below ‘normal’ levels. A rise in term and inflation
premia will increase yields and steepen the 2/10y swap and bond
curves.
Realised inflation and return of inflation risk premium to see 10y US
TIPS breakeven rise to 2.25% by end-2017. Headline and core inflation
to rise above 2.5% y/y by 2018 – much higher than in recent years with
faster wage growth. This is not priced into TIPS. 10y US real rates
should rise to 0.75%, but by less than nominal yields.
Fiscal stimulus will result in a faster pace of Fed rate hikes as
monetary conditions remain very accommodative and inflation will rise.
The money market is pricing in less than our economists’ call for a 25bp
hike per quarter from Q3 2017 through 2018. A rise in term premia and
market pricing in of Fed dots would see the 2y UST yield at around
1.40%.
Source: Macrobond, BNP Paribas
Term premium to recover across the curve
Interest rate volatility to rise sharply. Under the new administration,
uncertainty is rising with a greater distribution of potential outcomes and
rates as the policy mix changes and rates rise further.
MBS basis to widen with higher interest rate volatility, rich valuations and
risk of early tapering of the Fed’s MBS reinvestments.
Shahid Ladha, Timothy High, Daniel Totouom-Tangho, Sarah Hu
BNP Paribas Securities Corp
Source: Macrobond, BNP Paribas
12
European rates: Headwinds in 2017
We expect yields at the long end of the bond curve to rise in 2017 due
to upward pressure from a rise in US yields and rising fear of ECB tapering
in 2018. We expect the ECB to extend its quantitative easing from March
2017 for six to nine months with a cut in monthly purchases from
EUR 80bn to EUR 60bn and a removal of the deposit rate constraint.
Our models’ fitted values for 10y Bund yield have risen
Curve to steepen. We expect a removal of the depo floor to allow a
decline in the average maturity of QE purchases, This would lead to an
end to the 30y’s scarcity premium, reinforcing steepening of curves. We
recommend a strategic short on the BUXL ASW targeting the low 20s.
Widening pressure on sovereign spreads will be capped by PSPP
purchases during H1 2017, but will persist during H2 and beyond due
to increased political risk, higher core yields and volatility, and further
speculation about ECB tapering. We expect BTPs to outperform SPGBs
after the dust from the Italian referendum settles; we favour a 3/10s
BTP/SPGB box narrower.
Source: BNP Paribas
Current credit ratings slope (vs 10y ASW) vs min and max
EUR implied vols should remain well supported due to further rise in
yields, risk events in Europe and likely drop in QE purchases. We expect
shorter-expiry implied volatility to rise further relative to longer expires,
while the smile could flatten more. Rise in yields could see callable
issuance fall boosting vega: favour 3-5y expiries.
Eric Oynoyan, Patrick Jacq, Ioannis Sokos, Camille de Courcel
BNP Paribas London Branch
10y ASW vs Ratings Score
Today
July 2012: 59bp per notch
Jan-07
600
Jul-12
Mar-15 QE Start
500
400
10y ASW
EURUSD xccy basis to widen at the front end as US and ECB
monetary policies diverge further. In longer tenors, however, our credit
strategists’ expectation that USD credit will outperform EUR credit may
prevent the basis from widening further as funding costs become less
favourable in EUR, relative to USD.
700
POR
300
Today: 26bp per notch
200
SPA
ITA
Mar-15: 12bp per notch
IRE
100
FRA BEL
FIN AUS
0
NET
GER
-100
0
1
AAA
Jan 2007: 7bp per notch
2
3
4
5
6
A‐
7
8
9
BBB‐
10
11
12
13
Average Rating between S&P / Moody's / Fitch
Source: BNP Paribas
13
Japanese rates: Impact of prospect of no IOER cut
5y JGB yield may rise above IOER rate
The short- to medium-term sector of the JGB yield curve could
become positively sloped. The Bank of Japan is no longer mandated to
meet its 2% inflation rate target by a particular date; the negative interest
on excess reserves (IOER) rate has proved extremely unpopular
politically. This means the short- to medium-term sector of the yield curve
could become positively sloped, especially in late 2017 as the market
starts to focus on the likely policy regime when governor Haruhiko
Kuroda’s term in office comes to an end in March 2018.
5y JGB yield could rise above -0.1%. JGBs such as the 2y and T-bills
see particular demand from foreign investors on a USD asset-swapped
basis. However, the 5y is too long a maturity as most such investors have
a cash-investment mandate and as Japan’s sovereign credit is not
attractive long term. We recommend going short the 5y JGB at a yield
level below -0.12% and short the 5y swap spread above L-17bp.
Japanese investors now take on risk in overseas rates as much as they do
in the JPY market, as a way to escape from too-low or even negative
yields in yen. When overseas rates rise, Japanese investors temporarily
withdraw from the market but they have greater incentive to return.
Japanese investors can afford the high cost of USD funding when US
rates are high. Therefore, we think the short end of the USD/JPY crosscurrency basis will also be driven by the slope in overseas curves.
10-30y sector to bear steepen. The 0% yield targeting on the 10y JGB
and a gradual reduction of outright JGB purchases should lead to a
gradual bear steepening of the 10-30y JGB curve.
Reiko Tokukatsu
BNP Paribas Securities (Japan)
0.04
-0.01
bp
5y JGB yield (LHS)
%
5y swap spread (RHS)
-8
-10
-0.06
-0.11
-12
-0.16
-14
-0.21
-0.26
-16
-0.31
-18
-0.36
-0.41
Apr-16
-20
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
Source: BNP Paribas
Japanese mega banks’ dv01 risk in non-yen bonds
16
15
14
13
12
11
10
9
8
7
6
JPY bn
risk in non yen dv01
(LHS)
Proportion vs. risk on
JPY rates (RHS)
65%
60%
55%
50%
45%
40%
35%
Source: BNP Paribas
14
UK rates: The real effect
Bank of England to keep rates on hold for the foreseeable future.
With the 15%+ collapse in the GBP in 2016, inflation will probably rise
above the BoE’s 2% target. Whilst this would normally provide reason for
policymakers to consider hiking interest rates, the BoE forecasts GDP
growth will average just 1.5% in coming years. Consequently, we expect it
to keep rates on hold for the foreseeable future to provide some support to
economic activity.
Curve to steepen. Curve spreads remain close to their flattest levels
since the financial crisis (see chart). While quantitative easing (QE) has
driven the curve flatter in the past, and purchases under the Asset
Purchase Facility will continue (until the end of January 2017), we do not
expect any further QE to be announced. The resultant reduction of any QE
risk premium in bond prices should see the curve steepen. In addition, the
curve looks too flat for the level of Bank rate – we see the 2s10s sector as
offering the greatest steepening potential.
Higher nominal and real yields ahead. Breakevens have risen to
expensive levels to price in the expected rise in the rate of inflation,
pushing nominal yields up. Meanwhile, real yields remain very low (see
chart). With RPI inflation expected to rise well above 2.5% in 2017, LPI
limits will be reached, which may drive less inflation and more nominal
rates hedging flows. Together with our expectation of a significant rise in
Gilt funding needs in coming years and our forecast of a rise in global
bond yields, this suggests both real and consequently nominal UK yields
will face significant upward pressure. We expect 10y Gilt yields to rise
to 1.90% by end-2017.
Yield curve has been very flat since financial crisis and QE
Source: BNP Paribas
BEI anticipates rise in CPI inflation, but real yield is low
Parisha Saimbi
BNP Paribas London Branch
Source: BNP Paribas
15
Australian rates: Rising tide
AU curve has room to steepen further
Curve steepening to continue before flattening in H2 2017. At odds
with the forwards which forecast the steepening to have already run its
course, the dichotomy between ongoing risks to the domestic economy
and a repricing of term premia globally means we expect the recent curve
steepening to continue in H1 2017 to a cycle high of 110bp as the front
end stays relatively anchored. As the market begins to anticipate the start
of a tightening cycle, a switch to bear flattening in 2018 should see the
2-10y curve flatten back down to 70bp.
We forecast AU 10y yields to rise to 3.20% by end-2017 and to 3.50%
by end-2018. Near-term underperformance in AU against the US is likely
as structural long positions at the long end are unwound and term premia
are priced back in. We currently recommend paying 5y5y AU-US targeting
a move back to 90bp with the swap space favoured versus bonds given
supply dynamics over the year end.
However, as US Fed rate hikes begin in earnest while the RBA stands pat,
the AU market should start to outperform again in H2 2017; we expect a
return of offshore flows on the back of a weaker currency and wider longend interest rate differentials to narrow the 10y AU–US spread back to
new lows heading into 2018.
Altaz Dagha
BNP Paribas Singapore Branch
bp
150
bp
350
300
100
250
200
50
150
0
100
50
-50
AU 2-10y curve (LHS)
US 2-10y curve (RHS)
-100
2002
0
-50
2004
2006
2008
2010
2012
2014
2016
Source: BNP Paribas
AU-US 5y5y has lagged the curve steepening
100
AU-US 5y5y (bp)
Reserve Bank of Australia (RBA) to remain on hold throughout the
forecast period. While downside risks to the domestic economy persist,
the recent rally in commodity prices and improved outlook for global
growth suggest the monetary policy easing cycle is probably over.
However, we do not expect the RBA to be in any hurry to tighten policy.
90
R² = 0.52, daily readings, 1yr
80
70
60
Current
50
40
40
50
60
70
80
90
3-10yr Curve (bp)
Source: BNP Paribas
16
Inflation: Higher breakevens and real rates
Global real yields to rise as monetary policy turns less
accommodative and due to the prospect of stronger growth as a result of
fiscal stimulus (in the US). We expect a reduction of ECB QE bond
purchases to remove a major support for negative EUR real yields. We
target a move to 0.75% on 10y US real yields and -0.50% on 10y
DBRei real yields by end-2017.
Real yields to rise everywhere
Global inflation expectations to rise as headline inflation increases as a
result not only of base effects and energy prices, but also of a sustained
increase in core inflation. Fiscal easing and deregulation in the US should
keep US inflation well above target. In the UK, currency dynamics and
fiscal support will allow rich UK breakevens to stay elevated. US
breakevens to rise the most in 2017.
USD: Fiscal stimulus and deregulation to allow above-potential growth
and above-target inflation – BNP Paribas expects headline and core
inflation to run at 2.4% by end-2017 and higher in 2018. We expect 10y
TIPS breakevens to rise to 2.25% in 2017 as a result of reflation
expectations, and rising nominal rates to fuel demand for TIPS.
Source: BNP Paribas
TIPS breakevens to rise on higher headline and core inflation
EUR: 5y5y EUR inflation forward may find some support with core inflation
set to rise in 2017. The sharp rise in EUR breakevens since July despite
limited sign of current inflation, and the big negative carry in January
suggest there will be better opportunities to buy, especially if the ECB
announces a slowdown in its PSPP purchases. Wait to reconsider long
positioning in cash breakevens at better levels with better carry.
UK: Inflation assets look very expensive with the 10y BEI having risen
70bp since the Brexit vote. We favour short real rates positioning in
2017, given rich levels, less Bank of England accommodation, rising Gilt
funding needs and reduced inflation hedging as LPI limits are reached.
Shahid Ladha, Parisha Saimbi
BNP Paribas Securities Corp, BNP Paribas London Branch
Source: BNP Paribas
17
BNP Paribas G10 rate forecasts
Rates
US
Fed Funds
2y
5y
10y
30y
GER
EONIA
2y
5y
10y
30y
JGB
Call rate
2y
5y
10y
30y
UK
Bank Rate
SONIA
2y
5y
10y
30y
AUD
Cash rate
2y
5y
10y
Jun-17
MarketForecast
implied
vs spot
forward
Spot
BNPP
forecast
0.41
1.11
1.82
2.34
3.00
0.50-0.75
1.60
2.25
2.75
3.40
+49
+43
+41
+40
1.46
2.10
2.48
3.10
-0.35
-0.78
-0.48
0.19
0.83
-0.35
-0.60
-0.20
0.50
1.20
+18
+28
+31
+37
-0.05
-0.16
-0.10
0.01
0.57
-0.10
-0.10
-0.05
0.05
0.65
+6
+5
+4
+8
0.25
0.21
0.09
0.58
1.37
2.03
0.25
0.21
0.20
0.75
1.65
2.20
+11
+17
+28
+17
0.17
0.80
1.57
2.10
1.50
1.74
2.24
2.70
1.50
1.80
2.30
2.90
+6
+6
+20
1.96
2.34
2.80
Forecast
BNPP
vs
forecast
forward
Dec-17
MarketForecast
implied
vs spot
forward
+14
+15
+27
+30
1.00-1.25
1.90
2.50
3.00
3.55
+79
+68
+66
+55
1.78
2.30
2.58
3.16
-0.88
-0.41
0.33
0.87
+28
+21
+17
+33
-0.35
-0.60
-0.10
0.70
1.40
+18
+38
+51
+57
-0.15
-0.09
0.04
0.58
+5
+4
+1
+7
-0.10
-0.05
0.00
0.15
0.85
+11
+10
+14
+28
+3
-5
+8
+10
0.25
0.21
0.20
0.90
1.90
2.40
+11
+32
+53
+37
0.34
0.96
1.70
2.15
-16
-4
+10
1.50
2.20
2.60
3.20
+46
+36
+50
2.16
2.52
2.91
Forecast
BNPP
vs
forecast
forward
Dec-18
MarketForecast
implied
vs spot
forward
Forecast
vs
forward
+12
+20
+42
+39
2.00-2.25
2.50
3.00
3.50
4.00
+139
+118
+116
+100
2.45
2.67
2.77
3.28
+5
+33
+73
+72
-0.92
-0.34
0.41
0.91
+32
+24
+29
+49
-0.35
0.00
0.60
1.20
1.70
+78
+108
+101
+87
-0.83
-0.14
0.55
0.98
+83
+74
+65
+72
-0.15
-0.09
0.06
0.59
+10
+9
+9
+26
-0.10
-0.05
0.00
0.15
0.95
+11
+10
+14
+38
-0.12
-0.06
0.11
0.61
+7
+6
+4
+34
-14
-6
+20
+25
0.25
0.21
0.40
1.20
2.15
2.65
+31
+62
+78
+62
0.77
1.27
1.94
2.23
-37
-7
+21
+42
+4
+8
+29
1.50
2.80
3.10
3.50
+106
+86
+80
2.56
2.87
3.13
+24
+23
+37
Source: BNP Paribas Spot rates as at 28 November
18
BNP Paribas G10 rate forecasts
Curves
US
2s10s
10s30s
2s5s10s
2s10s30s
GER
2s10s
10s30s
2s5s10s
2s10s30s
JGB
2s10s
10s30s
2s5s10s
2s10s30s
UK
2s10s
10s30s
2s5s10s
2s10s30s
AUD
2s10s
2s5s10s
Forecast
BNPP
vs
forecast
forward
Dec-17
MarketForecast
implied
vs spot
forward
Forecast
BNPP
vs
forecast
forward
Dec-18
MarketForecast
implied
vs spot
forward
Forecast
vs
forward
Spot
BNPP
forecast
123
67
20
56
115
65
15
50
-8
-2
-5
-6
102
62
25
41
13
3
-10
9
110
55
10
55
-13
-12
-10
-1
81
58
24
23
29
-3
-14
32
100
50
0
50
-23
-17
-20
-6
32
51
11
-20
68
-1
-11
+70
96
64
-36
32
110
70
-30
40
+14
+6
+6
8
121
55
-27
66
-11
+15
-3
-26
130
70
-30
60
+34
+6
+6
+28
132
50
-18
82
-2
+20
-12
-22
120
50
0
70
+24
-14
+36
38
138
43
0
95
-18
+7
+0
-25
17
55
-5
-39
15
60
-5
-45
-2
+5
+0
-6
19
54
-7
-35
-4
+6
+2
-10
20
70
-10
-50
+3
+15
-5
-11
20
53
-9
-32
-0
+17
-1
-18
20
80
-10
-60
+3
+25
-5
-21
23
50
-10
-27
-3
+30
+0
-33
128
66
-30
62
145
55
-35
90
+17
-11
-5
28
139
53
-14
86
+6
+2
-21
+4
170
50
-30
120
+42
-16
-0
+58
135
45
-12
90
+35
+5
-18
+30
175
50
-15
125
+47
-16
+15
63
117
30
-15
88
+58
+20
+0
+37
96
4
110
-10
14
-14
85
-7
+25
-3
100
-20
+4
-24
76
-3
+24
-17
70
-10
-26
-14
57
4
+13
-14
Spreads to Germany
France
Italy
Spain
Jun-17
MarketForecast
implied
vs spot
forward
Spot
0.53
1.87
1.32
Jun-17
Forecast vs spot
BNPP forecast
0.40
1.60
1.35
-13
-27
+3
Dec-17
Forecast vs spot
BNPP forecast
0.40
1.80
1.55
-13
-7
+23
Dec-18
Forecast vs spot
BNPP forecast
0.40
1.80
1.55
-13
-7
+23
Source: BNP Paribas Spot levels as at 28 November
19
4
G10 FX
USD
EUR
JPY
FX COMMODITY BLOC
GBP
CHF, SEK & NOK
FX Strategy team
20
USD: Appreciation is just starting
We continue to be bullish on the USD following the US presidential
election. President-elect Donald Trump’s proposed expansionary fiscal
policy is likely to push US yields up and steepen the yield curve. As a
result, USD strength has further to run, in our view, although the speed of
its rise is likely to differ versus the different G10 currencies. We believe
USDJPY has the most upside while other pairs, such as NZDUSD, have
room to catch up.
Policy divergence between the US and the rest of the G10 is likely to
accelerate. Particularly notable is the divergence with the Bank of Japan
(BoJ) as we expect the BoJ to maintain its current 10-year yield targeting
of around zero. Sharply wider US/Japanese yield differentials, combined
with expectations of USDJPY appreciation, should encourage Japanese
investors to decrease hedge ratios on foreign bond purchases. Consistent
with this view, our medium-term CLEER™ model signals that USDJPY
should rise above 120 during 2017.
BNP Paribas Positioning Analysis signals USD longs have risen but
remain some way below recent peaks. At +22 (on our scale of +/-50),
the net long exposure stands well below January 2015’s peak of +36.
USD’s greatest upside is versus the JPY
Source: Macrobond, BNP Paribas
BNPP Positioning Analysis indicates USD is under-owned
Another element of the Trump platform that could prove supportive of the
USD is possible changes to the US corporate tax code to encourage
repatriation of earnings currently retained offshore as part of a broader
reform. Flows could be significant, though potentially spread over a long
time, and it would be difficult for markets to price in this possibility until
more information is available regarding the prospects and details of such a
change.
Steven Saywell, Daniel Katzive
BNP Paribas London Branch, BNP Paribas Securities Corp
Source: Macrobond, BNP Paribas
21
EUR: Heading to parity versus the USD
The EUR has already fallen sharply, but we see scope for it to decline
further in 2017. We target EURUSD at 1.00 at the end of 2017 as, after
finally delivering a 25bp rate hike at its December meeting, we expect
the US Federal Reserve to hike rates further in 2017 and 2018.
EURUSD continues to be very sensitive to real 2-year interest rate
spreads which we believe will shift further in favour of the US as the
market prices in further Fed tightening.
With regard to ECB policy, our economists expect quantitative easing
(QE) to be extended beyond March 2017 by six or nine months but
with the run rate cut from the current EUR 80bn to EUR 60bn and further
steps down to come with QE ending by June 2018. This combination of
significant Fed tightening and ECB easing, but gradual tapering, will
produce only a limited further fall in EURUSD to parity by the end of 2017.
When QE ends in 2018, EURUSD should start to rebound towards our
end-2018 target of 1.09.
The EUR is still an ideal choice as an FX funder; our favoured short
trade throughout 2017 is EURUSD. However, the eurozone's large current
account surplus (2.7% of GDP in 2016) means outflows on the financial
account, in particular portfolio flows, need to be strong and persistent for
the EUR to continue to weaken. These outflows cannot be taken for
granted and are likely to be sensitive to the broader risk environment and
monetary policy outlook. The EUR will become sensitive to changes to the
QE programme throughout 2017.
2-year real yield spreads drive EURUSD down
Source: Macrobond, BNP Paribas
QE has facilitated recycling on the current account surplus
Steven Saywell
BNP Paribas London Branch
Source: Macrobond, BNP Paribas
22
JPY: USDJPY is the favoured long USD trade
USDJPY has started to rise in line with our expectation but we see
significant further upside to 128 at the end of 2017. Policy divergence
between the US and the rest of the G10 is likely to accelerate and should
be particularly notable versus the Bank of Japan (BoJ) as we expect the
BoJ to maintain its current 10-year yield targeting of around zero. Our rate
strategists’ forecast for US 10-year yields to reach 3% in 2017 is a key
reason for USDJPY to rally further.
Japanese investors step up demand for foreign securities (JPY trn)
Sharply wider US-Japanese yield differentials, combined with expectations
of USDJPY appreciation, should encourage Japanese investors to
decrease hedge ratios on foreign bond purchases. Japanese investors
have been net buyers of foreign bonds in 2016 but the failure of the JPY to
fall ahead of the US election suggests FX hedges have been very high.
Consistent with this view, our medium-term BNP Paribas CLEER™ model
signals that USDJPY should rise above 120 during 2017.
Although USDJPY has already risen considerably, market positioning is
not extreme and leaves considerable room for more longs to be built up.
BNP Paribas Positioning Analysis suggests that overall USDJPY
positioning switched only from 10 November to the first long position in
2016. At +29 (on a scale of +/-100), the net long exposure stands well
below November 2014’s peak of +73.
Source: Macrobond, BNP Paribas
BNPP Positioning Analysis signals light USDJPY long exposure
Steven Saywell, Daniel Katzive
BNP Paribas London Branch, BNP Paribas Securities Corp
Source: Macrobond, BNP Paribas
23
FX commodity bloc: Stay long USD versus G10 commodity FX
Top-down factors continue to dominate commodity bloc
performance, with the AUD and the NZD particularly sensitive to
global equity performance. BNP Paribas STEER™ indicates that global
equities have remained the key driver of the G10 commodity bloc
throughout 2016, with AUDUSD, NZDUSD and CADUSD having betas to
global equities of 0.89, 0.94 and 0.37, respectively (see chart). Therefore,
these currencies will be very vulnerable to any weakening in the risk
environment as the US Fed hikes rates faster than the market is
expecting. By end-2017, we forecast NZDUSD and AUDUSD falling to
0.65 and 0.70, respectively, while USDCAD is projected to rise to 1.39.
Rates markets are not pricing in policy easing by any commodity
bloc central banks. Our economists agree with market expectations and
also see commodity bloc central banks on hold for 2017. In an
environment where the Fed is likely to tighten policy and commodity bloc
currencies are likely to weaken, there is less pressure on the RBA, BoC
and RBNZ to ease further.
BNP Paribas STEER™ – global equities key commodity bloc driver
Source: BNP Paribas
US has non-commodity trade surplus with Canada
There are many reasons to be bullish USDCAD, but NAFTA
renegotiation is not one of them. Canada is not a net exporter of lowcost manufactured goods to the US (see chart). Moreover, the energy
policies of the incoming US administration should be supportive for
exports of Canadian heavy crude. In addition, Canada’s economy remains
geared to the US, and fiscal stimulus which boosts US short-term growth
should have positive spill-over effects on Canada. USDCAD call spreads
are an attractive way to position for USDCAD upside while CAD risk
reversals are excessively bearish, in our view.
Steven Saywell
BNP Paribas London Branch
Source: BNP Paribas
24
GBP: Valuations now reflect ‘hard Brexit’
Sterling continues to be driven by two opposing forces. On the one hand,
the market is adjusting to the potential reality of a ‘hard Brexit’,
which is expected to be negative for the UK’s balance of payments
due to a moderation (or even a reversal) of inward foreign direct
investment and portfolio investment. On the other hand, valuations and
positioning are becoming increasingly extreme.
Our medium-term CLEER™ model indicates that the Brexit vote lowered
GBPUSD’s fair value from 1.50 to 1.35 assuming a deterioration in the
broad basic balance of payments (BBBoP) to -10% of GDP (see chart).
Longer term, our calculation of GBPUSD’s FEER (fundamental equilibrium
exchange rate) stands at 1.64, with the lower bound of the valuation range
at 1.41. On these valuation measures, the GBP appears very cheap at
current levels (for more details see Chart 4 on pages 9-10 of Global FX
Plus, published 13 October).
As the Bank of England has signalled that it is unlikely to ease policy
further, it is political developments that are likely to provide the
catalyst for a recovery in the GBP. The market is likely to respond
positively to any indications that Brexit will be less ‘hard’ than anticipated,
especially regards the maintenance of access to the EU single market. Net
flows into the UK have held up well so far, so positive political
developments should boost sentiment towards the GBP.
GBP falls to very undervalued levels
1.90
1.80
Best-case (BBBoP
unchanged at +12%, mild
impact from QE)
1.70
1.60
1.50
1.40
1.30
1.20
Jan 10
Worst-case (BBBoP= -10%
& large impact from QE)
Jul 11
Jan 13
Jul 14
BNP Paribas GBPUSD CLEER™
Source: Macrobond, BNP Paribas
Jan 16
Jul 17
GBPUSD
UK current account easily financed by FDI and portfolio inflows
In addition, market positioning in the GBP is extreme. BNP Paribas FX
Positioning Analysis signals that the short GBP exposure currently stands
at -34 (on a scale of +/- 50), leaving the currency susceptible to short
squeezes if the UK news flow gradually becomes more balanced.
Steven Saywell
BNP Paribas London Branch
Source: Macrobond, BNP Paribas
25
CHF, SEK & NOK: SEK is our favoured European currency
EURCHF to grind higher. The Swiss National Bank (SNB) remains an
active buyer of EURCHF – according to our calculations using official FX
reserve data, we estimate an average monthly run rate of CHF 6-7bn in
2016. EURCHF continues to hold in a relatively tight range, with falls
below 1.08 proving short-lived, and we expect SNB intervention to prevent
a sustained fall in EURCHF. The CHF remains very expensive according
to our long-term fair value model, BNP Paribas FEER™. We target a
gradual rise in EURCHF to 1.12 by the end of 2017.
We think that current SEK valuations already reflect a very dovish
Riksbank outlook; our valuation models signal EURSEK is likely to
decline towards 9.00 by the end of 2017. Furthermore, eurozone growth is
holding up very well, with the eurozone composite PMI at a high for 2016
and the German manufacturing PMI at its highest level since the ECB
started its QE programme. Considering how significant these areas are for
Swedish exports – Germany is Sweden’s largest single-country trading
partner, accounting for 11% of Sweden’s exports – the SEK should benefit
from stronger growth in its trading partners (see chart).
SEK is undervalued versus fundamentals
Source: Macrobond, Bloomberg, BNP Paribas
The deterioration in Norway’s BBBoP is significant
The NOK has recently been supported by a more-hawkish-thanexpected Norges Bank in response to high inflation and stronger oil
prices. We think EURNOK is likely to continue to trend downwards in
2017, declining to 8.80 by the end of 2017. However, we think the risks
around our central scenario lie to the downside for the NOK, as the
currency would be vulnerable to any decline in the price of oil or softening
in domestic data. Norway’s broad basic balance of payments has declined
significantly (see chart).
Steven Saywell
BNP Paribas London Branch
Source: Macrobond, BNP Paribas
26
BNP PARIBAS END-QUARTER FX FORECASTS
USD Bloc
EURUSD
USDJPY
USDCHF
GBPUSD
USDCAD
AUDUSD
NZDUSD
USDSEK
USDNOK
EUR Bloc
EURJPY
EURGBP
EURCHF
EURSEK
EURNOK
EURDKK
Spot*
1.06
113
1.01
1.25
1.35
0.75
0.71
9.21
8.57
Spot
119.77
0.85
1.07
9.77
9.10
7.44
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q4 2018
1.04
1.02
1.02
1.00
1.09
115
120
125
128
135
1.04
1.08
1.10
1.12
1.06
1.24
1.24
1.24
1.25
1.43
1.36
1.36
1.37
1.39
1.40
0.71
0.71
0.70
0.70
0.69
0.68
0.67
0.66
0.65
0.64
9.33
9.41
9.31
9.40
8.81
8.61
8.73
8.68
8.80
8.53
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q4 2018
120
122
128
128
147
0.84
0.82
0.82
0.80
0.76
1.08
1.10
1.12
1.12
1.15
9.70
9.60
9.50
9.40
9.60
8.95
8.90
8.85
8.80
9.30
7.46
7.46
7.46
7.46
7.46
USD index
Spot
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q4 2018
DXY
101.26
102.36
104.45
105.10
106.75
99.47
Source: BNP Paribas
* Spot rate as at 24 November 2017
27
5
EMERGING MARKETS
OVERVIEW
ASIA
CEEMEA
LATAM
EM CREDIT
EM Strategy team
28
Emerging market overview
0.0
USDbn / %
10
0.5
-10
-0.5
-30
-1.0
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Source: IIF, Bloomberg, BNP Paribas
EM FX performance since US election (rebased)
3
0
-3
-6
-9
Source: Bloomberg, BNP Paribas. Move since 7 November
29
PEN
ARS
CLP
COP
BRL
MXN
ILS
RUB
CZK
LatAm
EGP
RON
HUF
PLN
ZAR
TRY
THB
TWD
INR
CEEMEA
CNY
Asia
-12
SGD
Wike Groenenberg
BNP Paribas London Branch
1.0
IDR
CEE is also unlikely to be significantly affected, but we note that the region
has performed poorly following the US elections on concerns over the impact
of Russia on the area.
30
1.5
PHP
The outperformers will likely be Brazil and India. Brazil, for example,
virtually no longer runs a current account deficit and its NIIP is more modest.
The Indian economy will have the distinction of expanding by around 8% next
year, as central bank policy easing in 2015/16 and the Modi administration’s
investment-oriented reforms deliver results. Twin deficits, while always a
concern, are likely to remain modest. While scope for further rate cuts and
rupee appreciation is probably limited, India is likely to be resilient in the face
of rising USD rates.
50
IIF total debt flows (3-month average, USDbn)
(rhs)
2.0
MYR
In our view, Turkey, South Africa and Colombia are the most vulnerable.
Turkey and South Africa have large current account deficits and a large buildup in foreign currency corporate borrowing. In Latam, Colombia is vulnerable,
as it runs a 4-5% of GDP current account deficit and has a large negative net
international investment position (NIIP). Oil prices and the fiscal outlook will be
key.
US 5y5y real rate (lhs)
2.5
KRW
However, the impact on individual markets will vary, depending on their
USD funding need, their trade relations with the US and their dependence on
commodity prices. Some EM countries are now benefitting from higher
commodity prices, but ultimately higher USD funding costs will dominate the
market performance.
US 5y5y real rates, EM portfolio flows and EM asset returns
%
EM assets have already suffered in the past few weeks and we see
potential for further deterioration, with US real interest rates and breakeven
inflation rates expected to rise. Expected US fiscal expansion and the outlook
for tighter monetary policy will lead to a further strengthening of the USD
versus EM FX, steeper yield curves and widen credit spreads.
China
Policy divergence vs Fed could lead to more RMB depreciation
China continues to face macroeconomic challenges, with slowing growth,
rising leverage, asset price bubbles and capital outflows. Fiscal policy is likely to
remain the key support for growth. Space for monetary policy easing is very
limited, given the likely rate hikes by the Federal Reserve and worries about RMB
depreciation.
%
5
2Y bond yield diff (local-US) -LHS
5.6
USDCNY (inverted, RHS)
4
6.1
3
6.6
2
Ongoing liberalisation is likely to lead to the inclusion of China in major
global bond indices in the next 1-2 years. The China Interbank bond market
(CIBM) has created a new route for international investors to access onshore
government and credit bonds. Foreigner investor uptake is likely to be slow in the
near term (3-6 months), but should grow significantly in the medium-term (1-2
years).
US-China relations are at a critical point. Any rise in trade-related friction will
be a negative catalyst for risky assets globally. However, a negotiated settlement
with the US on trade issues should not be ruled out, which could trigger a
substantial relief rally in risky assets.
1
7.1
0
7.6
-1
-2
8.1
-3
-4
Mar-05
Mar-08
Mar-11
8.6
Mar-17
Mar-14
Source: BNP Paribas
China capital outflows continue to deplete FX reserves
Mirza Baig
BNP Paribas Singapore Branch
China's BOP, USDbn
200
150
Q3
100
50
0
-50
-100
-150
-200
-250
Jan-10
all other net capital flows
Net FDI
CA Balance
Chg in reserves (BoP basis)
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Source: BNP Paribas
30
Rest of Asia
Reserve adequacy metrics highlight relative vulnerability
Emerging Asia fixed income will face significant headwinds in 2017. Market
timing and relative allocations are likely to be critical for generating performance.
We expect domestic inflation to pick up moderately and US rates to rise.
Currencies are likely to depreciate as the regional ‘anchors’ - the yen and the
yuan – slip further.
Domestic policy easing is largely off the table. Central banks in some
countries may allow money market rates to harden to forestall currency
depreciation pressure. Explicit rate hikes are possible, but unlikely.
Asian fixed income will continue to offer favourable real returns over US
Treasuries, given the differences in domestic inflation and nominal bond yields.
Indonesia is by far the most attractive on this basis, and interestingly, India the
least attractive now after the massive rally in 2016.
IMF reserves adequacy ratio, BNP estimate
250.0
Jun-16
Dec-13
200.0
recommended range
150.0
100.0
50.0
0.0
PH
IN
TW
TH
CH
KR
Indonesia remains a high beta EM market, but improvement in terms of trade,
rising FDI, high real rates and better reserve adequacy metrics warrant a solid
overweight exposure for indexed investors.
Source: BNP Paribas
The strategy of funding high yielders (INR, IDR) versus low yielders (SGD,
KRW) should perform well, although Asian currencies are likely to remain under
pressure, we believe.
Projected real yields vary significantly
5.0
ID
MY
Current 10Y yield less projected Q4 2017 CPI, %
4.0
Mirza Baig
BNP Paribas Singapore Branch
3.0
2.0
1.0
0.0
-1.0
IDR
PHP
MYR
CNY
KRW TWD
SGD
THB
USD
INR
Source: BNP Paribas
31
CEEMEA: Tighter funding conditions
FX liabilities have significantly increased
BNP Paribas expects the USD to continue to strengthen, and a steeper
curve, both of which are unsupportive for CEEMEA FX/IR. With almost
USD 3trn lent to EM since 2009, the USD is becoming a barometer of risk, and
a proxy for capital flows and risk appetite in EM.
30
Expected USD strength will mainly affect countries with large USD
liabilities, and/or those with large capital inflows. Turkey rates will remain
under bear flattening pressure and we expect the TRY to weaken further. In
South Africa we expect USDZAR to rise above 15.00. There is a risk of a
negative loop between weaker FX and wider CDS, similar to that seen in
2014-15.
10
Further steepening in Poland and Hungary is likely. FX liabilities in CEE
have fallen since the Lehman collapse, but the expected steepening of the
EUR curve is unsupportive for low yielding duration CEE.
We expect the RUB to weaken in line with the forwards.
In Turkey, we are bearish on financial assets and expect a further
weakening in the currency and wider credit spreads, due to the
expectation of continued political noise during 2017 and an external
environment that is less favourable for emerging markets. We also expect
Fitch to downgrade Turkey's rating in the first quarter, which would lead to a
lower capital adequacy ratio in local banks, thereby introducing a further
tightening in financial conditions. This could lead to even more expansionary
monetary and fiscal policies, putting upside pressure on credit spreads and
long-term interest rates, as well as downside pressure on the currency.
Change in corporate debt 2007-2014 (% of GDP)
25
20
15
5
0
-5
-10
-15
-20
Source: BNP Paribas
USD strength + high FX liabilities = depreciation pressure
3.50
USDTRY
105
DXY, rhs
3.25
100
3.00
95
2.75
2.50
90
2.25
Piotr Chwiejczak, Hasan Erkin Isik
BNP Paribas London Branch, Turk Ekonomi Bank A.S.
85
2.00
80
1.75
1.50
Jan 13
75
Jul 13
Jan 14
Jul 14
Jan 15
Jul 15
Jan 16
Jul 16
Source: BNP Paribas
32
Latam: Differentiation is key
Brazil: Lower risk premium should bode well for risk assets
In Brazil, we expect the government to continue to push an ambitious fiscal
reform agenda in 2017, including social security reform. This, in turn, will
allow the Brazilian central bank to continue cutting policy rates by more than is
currently priced by markets.
The reduction in risk premium from the stabilisation of debt dynamics
should bode well for Brazilian assets and the BRL. We believe the real will
continue to outperform other currencies in 2017, and therefore like going long the
BRL in relative value terms (carry is still >10% per annum). The lower premium
should also benefit the long end of the DI curve: we favour receiving rates
targeting a yield compression of 200bp.
Nominal FX Rate (USDBRL)
4.40
540
CDS 5y (lhs)
460
3.80
380
3.20
300
2.60
220
2.00
In Mexico, the risk is that an eventual reduction in bilateral relations
translates into a worsening of Mexican balance of payments, although it is
still uncertain how the outcome of the US election will translate into actual
policies. Conversely, local currency debt will continue to embed this premium as it
remains the main source of funding. As the effect of implemented reforms fades,
inflation will remain pressured to the upside. In this environment, we favour realrate bonds (UDIBonos).
In Argentina, the legislative elections will be pivotal for the government to
continue pushing its agenda. While USD inflows from agricultural exports will
be a supportive factor for the currency through H1 2017, the ARS has already
over-appreciated. Nominal and real rate bonds are pricing in the best case
scenario. We do not see attractive valuations in local or USD instruments.
Pay rates in Chile, trade Colombia tactically. We suggest paying rates in Chile
as the premium to UST yields is at historical lows. We will recommend tactical
trades in Colombia in 2017, conditional on oil price dynamics and the potential
approval of fiscal reforms.
140
1.40
Sep-06
Sep-08
Sep-10
Sep-12
Sep-14
60
Sep-16
Source: BNP Paribas
Mexico: Structural challenges ahead
150
70
100
60
50
50
40
0
30
-50
20
-100
-150
Feb-00
10
0
Aug-02
Feb-05
Aug-07
Feb-10
Aug-12
Feb-15
Trade balance with the US (USD bn)
Trade balance with the rest of the world (USD bn)
Foregin participation into Mbonos (% of total, RHS)
Gabriel Gerzstein, Gustavo Mendonca, Samuel Castro
Banco BNP Paribas Brasil S.A
Source: BNP Paribas
33
EM credit: Higher rates, lower returns
EM credit issuance & maturities (USD bn)
Given the expected rates move, we expect EM credit to see 0% to
slightly positive returns in 2017, with carry offsetting the moves in
rates and spreads, both of which will be wider next year. The crucial
factor will be the size and speed of the rates move.
ASIA Issuance
CEEMEA Redemptions
500
ASIA Redemptions
LATAM Issuance
CEEMEA Issuance
LATAM Redemptions
400
Issuance is
likely to fall
closer to
2015 levels
300
200
USDbn
Higher maturities next year (USD 317bn) will help support the asset
class, whilst issuance will likely decline closer to 2015 levels due to
higher overall yields; many issuers have prefunded as well. These
technicals will be supportive.
600
100
-100
-200
We believe CEE $ bonds will act as a safe haven amid market
volatility due to ongoing buybacks and very limited issuance (with
issuers preferring to issue in EUR) - Slovenia is the top pick here.
The GCC region should also outperform (Qatar is our top pick), with
spreads already wide for current ratings and due to local demand;
however, issuance (Saudi Arabia and Kuwait) and oil prices remain key
risks.
Asia should also act as a safe haven; the region benefits from a
strong local bid (particularly in corporates and banks, with recent new
issues indicating around 70–80% local ownership).
-400
2020
2018
2016
2014
2012
2010
2008
Source: Bond Radar, BNP Paribas
Regional sovereign bond average Z-spd (4y duration) vs ratings
500
450
400
350
300
250
200
150
100
50
0
SSA
MENA
Latam
CIS
Asia
CEE
8
Mahesh Bhimalingam, Andrew MacFarlane, Muhammet Sevim
Banco BNP Paribas Brasil S.A
2006
-500
2004
We are also cautious on high-beta credits going into 2017, for
example in Africa (Ghana, South Africa and other SSA credits), which
will be hurt by outflows and weak trading liquidity.
-300
Average Z-Spread
Countries reliant on foreign flows, such as Turkey and South
Africa, are highly vulnerable, and we note the particularly cheap CDS
basis in Turkey, making buying Turkey CDS an attractive trade.
9
10
11
12
13
14
Average rating number
Source: BNP Paribas. Rating numbers: 8 = BBB+, 11 = BB+, 14 = B+
34
6
EQUITIES
GLOBAL
EUROPE
US
JAPAN
EMERGING MARKETS
Equity Strategy team
35
Global equities: Yields and volatility repression
2016 equity sell-off to reverse?
Yield curves will largely determine global equity direction in 2017:
We expect a hawkish Federal Reserve, tapering from the ECB and high
tolerance for ‘temporary inflation’ in the UK to drive real yields higher
across Europe and the US. Higher real yields could drive an equity
correction and will favour allocation out of bond-like equities such as
Staples, Utilities and Telecoms into
pro-cyclical equities such as
Financials, Industrial and Mining in 2017.
Fiscal spending to boost defence and infrastructure: Falling sovereign
debt service costs, approaching legislative elections and a move away
from austerity policies could favour spending on defence and infrastructure
in Europe and the US in 2017. The rise in anti-establishment sentiment in
Europe will likely put pressure on ruling parties to abandon austerity ahead
of the 2017 elections. We also expect the other developed markets to
move away from monetary stimulus to fiscal stimulus.
US fiscal policy could drive small cap outperformance: After lagging
since 2013, US small caps (Russell 2000 Index - RTY) may face more
favourable fundamental trends than their larger peers. The RTY has an
overweight concentration in financials – a sector which has been
historically correlated with higher inflation expectations. Additionally, RTY
sales are biased toward a domestic revenue mix. On balance, US
financials outperformed broader equities after the US election in
November.
Value beats low vol in rising rate environment: Low volatility monofactor indices and ETFs have benefited enormously from the campaign of
volatility repression by central banks globally. But this policy is
undermined by rising bond and FX volatility. The seemingly perennial
underperformance of value looks ripe for a turnaround as rates rise.
Edmund Shing
BNP Paribas London Branch
Source: Bloomberg, BNP Paribas
End-2017 BNP equity index targets
Spot
Q4 17
Return
SPX
2,198
2,250
2%
SX5E
3,033
3,300
9%
FTSE100
6,778
7,100
5%
10,685
11,600
9%
847
780
-8%
18,163
20,400
12%
9,666
11,000
14%
DAX
MXEF
NKY
HSCEI
Source: Bloomberg, BNP Paribas
36
Europe finally to outperform in 2017
Euro STOXX drag from financials starts to reverse
Political calendar to the fore: A highly-charged election calendar in Europe
next year will refocus minds towards voter concerns over security and
employment growth, risking multiple volatility spikes in 2017. BNP Paribas
Risk Indicator (ILUVGPRI Index on Bloomberg) already shows elevated levels
of risk. We expect the ECB to taper its quantitative easing programme and to
end it by 2018 and continued pressure for reform momentum in Europe,
particularly after the UK Brexit vote.
Can banks and insurance reverse some of their marked lag? Since early
2015, banks and insurance sectors have weighed heavily on European equity
indices, contributing to much of their relative underperformance versus the US
+ Asia ex. Japan. With steeper yield curves, depressed valuations and better
fundamental performance post-restructuring, there has been a nascent
reversal which could continue well into 2017, in our view. Risks to this view
comes from the re-emergence of a eurozone banking crisis as the result of
higher political risk driving spreads wider.
Source: Bloomberg, BNP Paribas
Long-term convexity is expensive
DAX and OMX industrial country indices to outperform: We see potential
for strong relative earnings and price momentum in German and Swedish
equity indices on the back of: (i) sustained economic growth in the US and
Asia ex. Japan, particularly in manufacturing; (ii) buoyant domestic economic
conditions; and (iii) relatively weak currencies (particularly the SEK in
Sweden).
Implied volatility is cheap but convexity is expensive: While-at-the-money
short-term volatility looks cheap on the Euro STOXX 50, it remains expensive
when looking at the volatility ‘wings’ via long-term convexity. We think the
VSTOXX volatility index could trend higher in 2017.
Edmund Shing
BNP Paribas London Branch
Source: BNP Paribas
37
US Trump card
Improved EPS outlook, but issuance and multiples in question. With
an improved earnings per share outlook on tax reform, nominal GDP, and
firmer energy prices, SPX adjusted earnings growth could top 5% next
year after a lacklustre 2016. However, a more hawkish Federal Reserve,
higher real rates and the return of equity issuance could drive multiples
down – muting upside potential in SPX prices.
Sector rotation well underway. After the US election, US financials (IXM
<Index>) and small caps (RTY <Index>) broke out from multi-year
channels of underperformance, with potential for further upside given
sector-specific factors (deregulation, interest rates etc). On the downside,
the rapid appreciation of S&P 500 Industrials (IXI <Index>) could be
premature. Potential trade disruption, a stronger USD, and a weakening of
the EM complex may outweigh the benefits of private-sector-led
infrastructure spending.
Repatriation upside for shareholder returns. In 2004, Congress
implemented a 5.25% tax holiday on foreign profits for US multinationals
which resulted in USD 362bn being brought on onshore. This led to
dividend + buyback growth of +46%/+26% in 2005/2006 on top of adjusted
EPS growth of just +12%/+15% over the same period. Markets have
started to price the potential for a repatriation tax holiday as a part of
corporate tax reform. Our sector-constrained custom reference basket,
BNPBOCSH, of companies with a high proportion of cash held overseas,
has outperformed the S&P 500 (SPX) by around 1% since the US
election.
Stewart Warther
BNP Paribas Securities Corp
US non-financial issuance at an inflection point?
Source: BNP Paribas, Federal Reserve Board Flow of Funds Accounts
Cash repatriation key to equity upside (BNPBOCSH <Index>)
5.4
Overseas cash (BNPBOCSH <Index>) / SPX price ratio
5.2
5.0
4.8
4.6
4.4
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Source: BNP Paribas
38
Japan
Japan faces fewer upcoming political risk events than the US or
Europe. This should provide a lower risk premium for equities.
The Bank of Japan has given up on a quick victory over inflation. The
new monetary framework with ‘yield curve control’ aims to remain flexible
on its quantitative target and emphasise control over the interest rates
yield curve. We believe the BoJ has decided to wait for a ‘tailwind’ and
implement measures designed to increase inflation expectations once
inflationary pressure starts to build.
ETF purchase adjustments: have seen the BoJ increase its
proportion of ETF purchases in Topix-related ETFs. BoJ ETF
purchases have previously been skewed towards the NKY index, which
was a source of market dislocation. The annual purchase of JPY 5.7trn of
ETFs will now be split between JPY 2.7trn tracking the Topix index and
JPY 3trn tracking the other three major indices (the Topix index, the Nikkei
225 index and the JPX-Nikkei 400 index). Floating shares will be reduced
due to BoJ ETF purchases.
FX and equity investor positioning: There has been a USDJPY short
squeeze since the election of Donald Trump. Foreign investors have been
net sellers of Japanese equities since June 2015, but domestic institutional
flows also decelerated to USD 4bn in Q2 2016 and USD 6bn in Q3 2016
after inflows of USD 20bn in Q1 2016; domestic investors have been
relatively inactive over the year. USD 3.76bn of foreign inflows returned to
Japanese equities as of 11 November following the US election, and we
think long-only investors will need to chase Japanese equities, given the
recent outperformance.
Japanese equities index target: Our H1 2017 NKY target is set at
19,300 and our year-end 2017 target is set at 20,400.
Guillaume Derville, Winner Lee
BNP Paribas Hong Kong Branch
Foreign investors turned to net buyers after Trump victory
(USD b)
Weekly foreign fund flows
USD12b outflow
in 2Q&3Q
Inflow of USD7.7b
in 4Q
7
5
3
1
(1)
(3)
(5)
(7)
USD32b
(9)
outflow
(11)
USD43b outflow in 1Q16
(13)
(15)
Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16
Sources: Bloomberg, BNP Paribas
Bloomberg consensus current year PE (FY Mar-17)
(x)
Bloomberg Consensus Current Year PE
24.0
22.0
+2
20.0
+1
18.0
mean
16.0
-1
-2
14.0
12.0
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Sources: Bloomberg, BNP Paribas
39
China: Going with the flow
The macroeconomic picture has steadily improved. Economic activity
in October continued to keep growth stable, suggesting that the central
bank’s stability policy has worked. A key component of growth is fixed
asset investment (FAI), which gained momentum in October due to
improving infrastructure and property investment.
Shenzhen-Hong Kong Stock Connect to come into focus. Market
participants are waiting for the launch date (probably in early December)
of the Shenzhen-Hong Kong Stock Connect to be announced. The Stock
Connect is the most appropriate channel for outbound investment;
onshore investors can buy Hong Kong-listed equities to avoid RMB
depreciation. The China Insurance Regulatory Commission (CIRC)
announced in early September that it would allow Chinese insurers
(assets under management of RMB 12.6trn) to buy Hong Kong-listed
equities via Stock Connect. Southbound flows decelerated after the
national week holiday in October, as the uncertain global investment
atmosphere put a short-term brake on southbound flows.
The RMB remains an anchor in emerging markets. The CNY has
depreciated 1.5% against the greenback since Trump’s victory, remaining
one of the most stable currencies in EM, and one that has not depreciated
versus the CFETS basket. With its foreign reserves at USD 3.1trn, China
should be able to withstand any external shock.
HSCEI 2017 index target. H-shares are trading at an average 24%
discount to A-shares; HSCEI valuations remain attractive at 8x PE, 0.87x
P/B and 3.68% DY in FY17. Our HSCEI H1 2017 target is 10,500 and the
year-end 2017 target 11,000.
Southbound flows (Daily net inflow)
(CNY b)
Southbound net buy/sell
7.0
4Q15: Rmb30b inflow
YTD16: Rmb240b inflow
6.0
5.0
4.0
3.0
2.0
1.0
0.0
(1.0)
4-Jan-16
14-Apr-16
20-Jul-16
31-Oct-16
Sources: Bloomberg, BNP Paribas; data as of 22 November 2016
CNY remains an anchor in the EM currency world
% change since Trump's victory
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
-10.0%
RUB
CNY
THB
CNH
TWD
ADXY
INR
IDR
SGD
NZD
KRW
MYR
AUD
JPY
BRL
TRY
MXN
-12.0%
Winner Lee
BNP Paribas Hong Kong Branch
Sources: Bloomberg, BNP Paribas; data as of 22 November 2016
40
7
CREDIT
US
EUROPE
ASIA
Credit Sector Specialists
41
US credit: banks and energy to outperform
We have a neutral view on US credit.
IG Cash Spread History (bp)
 US cash credit to be range-bound in H1 2017: initial focus on the
positives: cash repatriation, tax cuts, fiscal stimulus, deregulation
vs. medium-term uncertainty regarding trade, dollar headwinds,
higher rates and the related impact on EM growth
 Cyclical sectors (i.e. financials, energy, commodities) to
outperform the defensive sectors (i.e. staples, utilities). High
beta (B and lower) to underperform low beta (BBB and BB).
 Financials to outperform industrials: they remain cheap and will
benefit from higher rates, steeper yield curve and deregulation.
 Decompression CDX HY vs CDX IG over the medium term due
to rates but compression in Q1 due to energy/oil price as CDX IG
index will have limited upside from any oil-induced rallies (Energy
credits are expected to contribute about 2-2.5bp of tightening in the
index if oil rallies towards $50-$55). We expect IG27 to trade inside
of 70bp by the March Roll (i.e. a 5-6bp rally from current levels). We
expect a similar performance in HY27 (i.e. 15-20bp tighter by the
March Roll).
 US Credit to underperform US equities: A fiscal stimulus has a
bigger positive impact on Equities rather than Credit, while the lower
monetary support and higher rates hurt Credit more than Equities.
Hence, in a fiscal-induced risk-on environment, we think that the
CDX IG index would tighten at a much smaller beta to Equity
markets. However, in a risk-off scenario, we expect Credit to sell-off
at a higher beta to Equity markets.
 Curves: 10s30s cash spread curve to flatten as the rate curve is
expected to steepen over time.
 Cash/CDS basis to
performance in 2016.
underperform
following
significant
260
240
220
200
180
160
140
120
Last: 131.36bp
100
80
2010
2011
Source: BNP Paribas, Yieldbook
2012
2013
2014
2015
2016
HY Cash Spread History (bp)
1,000
900
800
700
600
500
Last: 494.80bp
400
300
2010
2011
2012
2013
2014
2015
2016
Source: BNP Paribas, Yieldbook
42
European credit: systemic risk and vol rising
We have a bearish view on European Credit, which we expect to underperform US
Credit.
 Credit to reprice due to rising yields and rates volatility (contagion from the US)
not being accompanied by significant inflation or growth meaning that financial
conditions are tightening.
 IG vs. HY: HY benefited in 2016 from the carry trade and as such is more
vulnerable from asset reallocation and outflows. However, IG is still benefiting
from the CSPP but total returns are also impacted by the rates move.
 Banks: higher rates and steeper curve are good for bank earnings, but
systemic risk predominant.
 IG and BB+ at risk of potential ECB tapering
 Tapering (reduction in purchases) is a risk that will be progressively priced in.
 However, corporate purchases will continue via likely extension of the CSPP
programme until at least September 2017. Hence, still a strong technical.
 Cautious Banks as most exposed to rising systemic risk
 Elections in a number of key European countries where the populism
movement is growing.
 Repricing of sovereign debt brings back debt sustainability concerns.
 Other: Brexit, EM exposure.
 Otherwise, banks fundamentally improving (deleveraging) even if execution
risk remains on some Italian banks’ recapitalisation.
 Credit fundamentals stable but more sector and name dispersion
 Improving: Metals & Miners, Aerospace/Defence, Utilities; Deteriorating:
Autos, Chemicals/Pharma, Infrastructure, Retail; Stable: TMT, Oil and Gas.
 Corporate Hybrids to outperform HY: especially for hybrids with shorter calls
(high resets). Potential negative impact of tapering for HY.
 AT1: attractive asset class for the carry considering the positive momentum on
earnings. Investors should hedge systemic risk with iTraxx SEN FIN but should wait
for a better entry point.
 Insurance: cautious outlook given the rates and political environment.
 Cash vs. CDS: Basis to underperform as it has substantially performed in 2016 and
Cash technicals will weaken; CDS should outperform over the course of the year but
the trade is Short Volatility and we would rather be Long Volatility for now.
Increase in systemic risk: higher spreads EGB/DBR
iTraxx Fin Sen has underreacted (tight vs. EGB/DBR)…
… but already wide vs. Banks’ equities
Source: BNP Paribas, Bloomberg – All charts
43
Asia credit: haven within EM
Likes: HY China Property, China Strategic SOEs, Chinese Bank T2s, Chinese
AMC Seniors, Indonesian Property.
Dislikes: Japan Shipping/Steel, Korea, Indonesian/Philippine sovereigns and
quasi-sovereigns, South East Asia International Corporates.
Less vulnerable politically/economically

Governments in Asia more politically coherent.

Popular support for trade, globalisation, reforms.

Central banks ready and able to take countermeasures.

Less reliant on US trade pacts, can leave US out of TPP.

RMB to depreciate more if not supported.

Tariffs on China to see retaliation on Republican districts.

WTO cases against China can drag on for years.

UST holders – Asia has the largest and second largest.

US step-back from trade could benefit China.

Pragmatism and realpolitik to moderate risks to Asia/China.
More resilient technically

EM portfolios mostly Overweight LATAM and Underweight Asia, rotation to
Neutral favours Asia over LATAM.

High resilience post UK Referendum – fully recovered in 1.5 days.

More segregated: mainly owned by Asian investors (holds c.81%/72%/72%
of HY/IG/Banks), less impacted by sentiment in Europe (c.13%/14%/16/%)
and US (c.6%/15%/13%).

Chinese real money: exclusive focus on/support for Chinese bonds, grew
rapidly in two years to make up a third of real money in Asia (holds
c.50%/43%/37% of HY/IG/Banks).

Private bank clients: cash-rich, first generation wealth, high risk appetite,
strong holding ability, consistent buyers on dips to build price floors, owns
c.27%/11%/8% of HY/IG/Banks.

Captive: most funds in Asia are captive to Asia by mandate, preference,
capability – mostly total return, not benchmarked, not experienced outside
Asia and do not reallocate inter-regionally.
Olivia Frieser and Team
BNP Paribas London Branch
Holders of Asia Credit – by Geography
Source: BNP Paribas, Bloomberg. Average new issue allocation, all Asian deals 2015-2016.
Holders of Asia Credit – Real Money and Private Bank Clients
Source: BNP Paribas, Bloomberg. Average new issue allocation, all Asian deals 2015-2016.
44
8
COMMODITIES
OIL
GOLD
Commodities Strategy team
45
Oil: OPEC needs to deliver
Benchmark crude oil prices
OPEC’s credibility is on the line. The details of its collective production cut
are set to be ironed out at the next official OPEC meeting in Vienna on 30
November. An OPEC output range of 32.5 mb/d to 33.0 mb/d is likely, but
some countries (Libya, Nigeria, Iran) are exempt from participating in
production cuts, while others have expanded their market share (Iraq) and
could be reluctant to give it back. The output adjustment burden will thus fall
on Saudi Arabia and its Gulf cohorts.
Non-OPEC producer help is not forthcoming. Russia is willing to
participate in producer action, but its official position has morphed from
supply cuts to production freezes only. In the meantime, US shale oil supply
has proven remarkably resilient.
Financial headwinds and execution risks abound. While we expect
OPEC to deliver an output cut in Vienna on 30 November for the sake of its
political viability, any eventual reduction is likely to prove insufficient to
address excess supply on the market over the next six months. Combined
with dollar strength, this postpones the prospect of a sustainable recovery in
oil prices as far as late 2017. OPEC execution risk, even in the event of an
agreement on 30 November, presents downside risk to the spot oil price.
Over the next three to six months, we suggest buying downside
protection. Downside risk on the prompt price also suggests short Dec/Dec
time spreads, in particular, in Brent, with the expectation of rising supply of
competing light-sweet crude output emerging from Nigeria and Libya.
Longer-term price upside suggests paying premium and buying out-of-the
money calls on Dec’18.
USD/bbl
5
USD/bbl
80
WTI‐Brent (rhs)
70
0
60
‐5
Brent
50
‐10
40
WTI
‐15
30
20
Jan 15
‐20
Apr 15
Jul 15
Oct 15
Jan 16
Apr 16
Jul 16
Oct 16
Source: Bloomberg, BNP Paribas
OPEC production, changes in the big three
2.0
Cumulative oil supply growth from Jan‐11 (mb/d)
Saudi Arabia
1.5
1.0
projection
Iraq
0.5
0.0
‐0.5
We see WTI and Brent averaging respectively USD 49/bbl and USD
50/bbl in 2017, up from USD 42/bbl and USD 44/bbl in 2016.
‐1.0
Harry Tchilinguirian
‐1.5
Jan‐11
Iran
Jan‐12
Jan‐13
Jan‐14
Jan‐15
Jan‐16
Jan‐17
BNP Paribas London Branch
Source: IEA (history), BNP Paribas (projection)
46
Gold: Fading glitter
Gold price and volatility
The dollar is set to rise further and the opportunity cost of gold will rise –
both of which are negative for gold prices. After the election of Donald
Trump, the economic outlook for the US has shifted and the President-elect’s
proposed fiscal programme will support a higher yield environment. Combined
with increased expectations of Federal Reserve rate hikes, we expect the USD
to strengthen and the opportunity cost of gold to rise.
However, this price correction could soften. Investor demand has not shown
significant signs of incremental growth in recent months, following an upswing
in the first half of 2016. If the Federal Reserve hikes rates in December, some
of this year’s accumulated long positions may be unwound, leaving private
wealth managers to buy into dips, softening the ensuing price correction.
We do not expect official sector demand for gold to be particularly strong,
as dollar strength will be a key feature of financial markets over the coming
months. This leaves the jewellery sector to prop up gold demand, but import
hurdles in India and weaker economic growth conditions in China and the
Middle East do not suggest this segment of demand will support a rise in gold.
Gold options are showing 25 delta risk reversals coming down on a threemonth and one-year horizon, as the Federal Reserve moves closer to hiking
rates. Considering that the opportunity cost of holding gold will likely rise and
the spot price progressively erode, option skew will need to continue to shift
accordingly. However, for the skew to flip sustainably, we may well have to wait
for gold to trade consistently below USD 1200/oz, as was the case in 2015. In
the meantime, we retain our negative bias on the gold price for 2017.
We see gold averaging respectively USD 1255/oz and USD 1130/oz in
2016 and 2017
Harry Tchilinguirian
BNP Paribas London Branch
Gold (lhs)
USD/oz Front‐month ATM implied volatility (rhs)
%
35
1400
30
1300
Front month ATM implied volatility (rhs)
25
20
1200
15
10
1100
5
Gold price (lhs)
1000
Jan 14
0
Jul 14
Jan 15
Jul 15
Jan 16
Jul 16
Source: Bloomberg, BNP Paribas
Gold risk reversals
%
3
25 Delta 3M RR
2
1
Positive call skew
0
‐1
25 Delta 1 Year RR
‐2
‐3
‐4
Positive put skew
‐5
‐6
Jan 13
Jul 13
Jan 14
Jul 14
Jan 15
Jul 15
Jan 16
Jul 16
Source: Bloomberg, BNP Paribas
47
BNP Paribas commodity price forecasts*
Issue date
2016f
2017 f
NYMEX WTI (USD/bbl)
(22/08/16)
42
49
ICE Brent (USD/bbl)
(22/08/16)
44
Dubai (USD/bbl)
(22/08/16)
NYMEX RBOB (USc/gal)
Q1 2017 f
Q2 2017 f
Q3 2017 f
Q4 2017 f
45
46
44
50
55
50
46
47
46
51
57
40
47
43
43
43
48
54
(24/08/16)
136
152
131
143
150
155
157
NYMEX No.2 (USc/gal)
(24/08/16)
133
152
145
150
140
150
171
ICE gasoil (USD/t)
(24/08/16)
387
447
417
432
410
447
499
Gold (USD/oz)
(09/11/16)
1255
1130
1245
1185
1205
1110
1025
Silver (USD/oz)
(09/11/16)
17.45
16.30
18.55
17.35
17.55
15.85
14.45
Source: BNP Paribas Commodity Markets Strategy
Q4 2016 f
*Period average
48
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49
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is associated with are identified above in this document,
In addition, there is a mitigation measure to manage conflicts of interest for each transaction with
controls put in place to restrict the information flow, involvement of personnel and handling of client
relations between each transaction in such a way that the different interests are appropriately
protected. Gifts and Entertainment policy is to monitor physical gifts, benefits and invitation to events
that is in line with the firm policy and Anti-Bribery regulations. BNP Paribas maintains several policies
with respect to conflicts of interest including our Personal Account Dealing and Outside Business
Interests policies which sit alongside our general Conflicts of Interest Policy, along with several
policies that the firm has in place to prevent and avoid conflicts of interest.
BNP Paribas and/or its affiliates as a matter of policy do not permit issuers to review or see
unpublished recommendations.
The remuneration of the producer of the investment recommendation may be linked to trading or any
other fees in relation to their global business line received by BNP Paribas and/or affiliates.
The date and time of the first dissemination of this investment recommendation by BNP Paribas or an
affiliate is addressed above.
Where this investment recommendation is communicated by Bloomberg chat or by email by an
individual within BNP Paribas or an affiliate, the date and time of the dissemination by the relevant
individual is contained in the communication by that individual disseminator.
The disseminator and producer of the investment recommendations are part of the same group, i.e.
the BNP Paribas group. The relevant Market Abuse Regulation disclosures required to be made by
producers and disseminators of investment recommendations are provided by the producer for and on
behalf of the BNP Paribas Group legal entities disseminating those recommendations and the same
disclosures also apply to the disseminator.
If an investment recommendation is disseminated by an individual within BNP Paribas or an affiliate
via Bloomberg chat or email, the disseminator’s job title is available in their Bloomberg profile or bio. If
an investment recommendation is disseminated by an individual within BNP Paribas or an affiliate via
email, the individual disseminator’s job title is available in their email signature.
For further details on the basis of recommendation specific disclosures available at this link (e.g.
valuations or methodologies, and the underlying assumptions, used to evaluate
financial instruments or issuers, interests or conflicts that could impair objectivity
recommendations or to 12 month history of recommendations history) are available at
https://globalmarkets.bnpparibas.com/gmportal/private/globalTradeIdea. If you are unable to
access the website please contact your BNP Paribas representative for a copy of this
document.
54
DISCLAIMER - SECTOR SPECIALISTS
This document constitutes a marketing communication and has been prepared by a
Sales and Trading function within BNP Paribas for, and is directed at, (a) Professional
Clients and Eligible Counterparties as defined by the European Union Markets in
Financial Instruments Directive (2004/39/EC) (“MiFID”), and (b) where relevant, persons
who have professional experience in matters relating to investments falling within Article
19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005,
and at other persons to whom it may lawfully be communicated (together “Relevant
Persons”). Any investment or investment activity to which this document relates is
available only to and will be engaged in only with Relevant Persons. This document is
not intended for Retail Clients as defined by MiFID and should not be passed on to any
such persons. Any person who is not a Relevant Person should not act or rely on this
document or its content.
This Commentary is prepared by persons within the Trading function (which includes
Sector Specialists) within the BNP Paribas group of companies (collectively “BNPP”).
This is not a research report and has not been prepared by the BNPP Research
Department and the views expressed herein may differ from those of the BNPP
Research Department. This Commentary should not be considered objective or
unbiased. BNPP may engage in transactions in a manner inconsistent with the views
expressed in this material. BNPP trades as principal in the instruments (or related
derivatives), does have proprietary positions in the instruments (or related derivatives),
and will likely make markets in the instruments (or related derivatives) discussed herein.
The author of this Commentary will know the nature of firm trading positions and
strategies. Marketing and Trading personnel are indirectly compensated based on the
size and volume of their transactions. This material is based upon information that BNPP
considers reliable as of the date hereof, but BNPP does not represent that it is accurate
and complete. Any reference to past performance should not be taken as an indication of
future performance. All estimates and opinions included herein are made as of the date
of publication. Unless otherwise indicated specified in this publication there is no
intention to update it.
This material is for the general information of BNPP’s clients and is a general solicitation
of derivatives business for the purposes of, and to the extent it is subject to, §§ 1.71 of
the U.S. Commodity Exchange Act. In providing this document, BNP Paribas offers no
investment, financial, legal, tax or any other type of advice to, nor has any fiduciary
duties towards, recipients. This material should not be construed as an offer to sell or
the solicitation of an offer to buy any security in any jurisdiction where such an offer or
solicitation would be illegal. The securities described herein may not be eligible for sale in
all jurisdictions or to certain categories of investors.
This material does not constitute a personal recommendation for the purposes of MiFID
or take into account the particular investment objectives, financial conditions, or needs of
individual clients. Certain transactions or securities mentioned herein, including derivative
products, give rise to substantial risk, including currency and volatility risk, and are not
suitable for all investors.
BNPP transacts business with counterparties on an arm’s length basis and on the
assumption that each counterparty is sophisticated and capable of independently
evaluating the merits and risks of each transaction and that the counterparty is making
an independent decision regarding any transaction. The author(s) attest that the views
expressed in their attached commentary accurately reflect their personal views about any
of the subject securities, issuers, or markets; and that no part of their compensation
was/is/will be directly or indirectly related to the expressed recommendation or views.
To the fullest extent permitted by law, no BNP Paribas group company accepts any
liability whatsoever (including in negligence) for any direct or consequential loss arising
from any use of, or reliance on, material contained in this publication even where advised
of the possibility of such losses.
This document was produced by a BNP Paribas group company. This document is for
the use of intended recipients and may not be reproduced (in whole or in part) or
delivered or transmitted to any other person without the prior written consent of BNP
Paribas. By accepting this document you agree to this.
UK: In the UK, this document is being communicated by BNP Paribas London Branch.
10 Harewood Avenue, London NW1 6AA; tel: +44 20 7595 2000; fax: +44 20 7595 2555www.bnpparibas.com. Incorporated in France with Limited Liability. Registered Office: 16
boulevard des Italiens, 75009 Paris, France. 662 042 449 RCS Paris. BNP Paribas
London Branch is lead supervised by the European Central Bank (ECB) and the Autorité
de Contrôle Prudentiel et de Résolution (ACPR). BNP Paribas London Branch is
authorised by the ECB, the ACPR and the Prudential Regulation Authority and subject to
limited regulation by the Financial Conduct Authority and Prudential Regulation Authority.
Details about the extent of our authorisation and regulation by the Prudential Regulation
Authority, and regulation by the Financial Conduct Authority are available from us on
request. BNP Paribas London Branch is registered in England and Wales under no.
FC13447.
55
DISCLAIMER
France: This report is produced and/or is distributed in France by BNP Paribas SA
and/or BNP Paribas Arbitrage. BNP Paribas SA is incorporated in France with Limited
Liability (Registered Office: 16 boulevard des Italiens, 75009 Paris, France, 662 042 449
RCS Paris, www.bnpparibas.com) is authorized and supervised by European Central
Bank (ECB) and by Autorité de Contrôle Prudentiel et de Résolution (ACPR) in respect of
supervisions for which the competence remains at national level, in terms of Council
Regulation n° 1024/2013 of 15 October 2013 conferring specific tasks on the ECB
concerning policies relating to the prudential supervision of credit institutions. BNP
Paribas Arbitrage is an unlimited liability company, whose registered office is 160/162
boulevard Mac Donald 75019 Paris, registered with the Paris Trade and Companies
Registry under number 394 895 833. It is authorised and supervised by the Autorité de
Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers in France.
Germany: This report is being distributed in Germany by BNP Paribas S.A.
Niederlassung Deutschland, a branch of BNP Paribas S.A. whose head office is in Paris,
France. 662 042 449 RCS Paris, www.bnpparibas.com). BNP Paribas Niederlassung
Deutschland is authorized and lead supervised by the European Central Bank (ECB) and
by Autorité de Contrôle Prudentiel et de Résolution (ACPR) and is subject to limited
supervision and regulation by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) in
respect of supervisions for which the competence remains at national level, in terms of
Council Regulation n° 2013/1024 of 15 October 2013 conferring specific
tasks on the ECB concerning policies relating to the prudential supervision of credit
institutions as well as Council Directive n° 2013/36/EU of 26 June, 2013 and Section 53b
German Banking Act (Kreditwesengesetz - KWG) providing for the principles of shared
supervision between the national competent authorities in case of branches and
applicable national rules and regulations. BNP Paribas Niederlassung Deutschland is
registered with locations at Europa Allee 12, 60327 Frankfurt (commercial register HRB
Frankfurt am Main 40950) and Bahnhofstrasse 55, 90429 Nuremberg (commercial
register Nuremberg HRB Nürnberg 31129).
Belgium: BNP Paribas Fortis SA/NV is authorized and supervised by European Central
Bank (ECB) and by the National Bank of Belgium, boulevard de Berlaimont 14, 1000
Brussels, and is also under the supervision on investor and consumer protection of the
Financial Services and Markets Authority (FSMA), rue du congrès 12-14, 1000 Brussels
and is authorized as insurance agent under FSMA number 25789 A
Ireland: This report is being distributed in Ireland by BNP Paribas S.A., Dublin Branch.
BNP Paribas is incorporated in France as a Société Anonyme and regulated in France by
the European Central Bank and by the Autorité de Contrôle Prudentiel et de Résolution.
Netherlands: This report is being distributed in the Netherlands by BNP Paribas Fortis
SA/NV, Netherlands Branch, a branch of BNP Paribas SA/NV whose head office is in
Brussels, Belgium. BNP Paribas Fortis SA/NV, Netherlands Branch, Herengracht 595,
1017 CE Amsterdam, is authorised and supervised by the European Central Bank (ECB)
and the National Bank of Belgium and is also supervised by the Belgian Financial
Services and Markets Authority (FSMA) and it is subject to limited regulation by the
Netherlands Authority for the Financial Markets (AFM) and the Dutch Central Bank (De
Nederlandsche Bank).
Portugal: BNP Paribas – Sucursal em Portugal Avenida 5 de Outubro, 206, 1050-065
Lisboa, Portugal. www.bnpparibas.com. Incorporated in France with Limited Liability.
Registered Office: 16 boulevard des Italiens, 75009 Paris, France. 662 042 449 RCS
Paris. BNP Paribas – Sucursal em Portugal is lead supervised by the European Central
Bank (ECB) and the Autorité de Contrôle Prudentiel et de Résolution (ACPR). BNP
Paribas - Sucursal em Portugal is authorized by the ECB, the ACPR and Resolution and
it is authorized and subject to limited regulation by Banco de Portugal and Comissão do
Mercado de Valores Mobiliários. BNP Paribas - Sucursal em Portugal is registered in
C.R.C. of Lisbon under no. NIPC 980000416. VAT Number PT 980 000 416.”
Spain: This report is being distributed in Spain by BNP Paribas S.A., S.E., a branch of
BNP Paribas S.A. whose head office is in Paris, France (Registered Office: 16 boulevard
des Italiens, 75009 Paris, France). BNP Paribas S.A., S.E., C/Ribera de Loira 28, Madrid
28042 is authorised and supervised by the European Central Bank (ECB) and the
Autorité de Contrôle Prudentiel et de Résolution (ACPR) and subject to limited regulation
by the Bank of Spain.
United States: This report may be distributed (i) by BNP Paribas Securities Corp. to U.S.
persons who qualify as an institutional investor under FINRA Rule 2210(a) (4), or (ii) by a
subsidiary or affiliate of BNP Paribas that is not registered as a US broker-dealer only to
U.S. persons who are considered “major U.S. institutional investors” (as such term is
defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended). U.S.
persons who wish to effect transactions in securities discussed herein must contact a
BNP Paribas Securities Corp. representative unless otherwise authorized by law to
contact a non-US affiliate of BNP Paribas. BNP Paribas Securities Corp. is a broker
dealer registered with the Securities and Exchange Commission (“SEC”) and the
Commodity Futures Trading Commission (“CFTC”) and member of FINRA, SIPC, NFA,
NYSE and other principal exchanges.
56
DISCLAIMER
Brazil: This report was prepared by Banco BNP Paribas Brasil S.A. or by its subsidiaries,
affiliates and controlled companies, together referred to as "BNP Paribas", for information
purposes only and do not represent an offer or request for investment or divestment of
assets. Banco BNP Paribas Brasil S.A. is a financial institution duly incorporated in Brazil and
duly authorized by the Central Bank of Brazil and by the Brazilian Securities Commission to
manage investment funds. Notwithstanding the caution to obtain and manage the information
herein presented, BNP Paribas shall not be responsible for the accidental publication of
incorrect information, nor for investment decisions taken based on the information contained
herein, which can be modified without prior notice. Banco BNP Paribas Brasil S.A. shall not
be responsible to update or revise any information contained herein. Banco BNP Paribas
Brasil S.A. shall not be responsible for any loss caused by the use of any information
contained herein.
Israel: BNP Paribas does not hold a licence under the Investment Advice and Marketing Law
of Israel, to offer investment advice of any type, including, but not limited to, investment
advice relating to any financial products.
Bahrain: This document is being distributed in Bahrain by BNP Paribas Wholesale Bank
Bahrain, a branch of BNP Paribas S.A. whose head office is in Paris, France (Registered
Office: 16 boulevard des Italiens, 75009 Paris, France). BNP Paribas Wholesale Bank
Bahrain is licensed and regulated as a Registered Institution by the Central Bank of Bahrain –
CBB. This document does not, nor is it intended to, constitute an offer to issue, sell or
acquire, or solicit an offer to sell or acquire any securities or to enter into any transaction.
South Africa: BNP Paribas Securities South Africa (Pty) Ltd (Registration number
1996/009716/07) is a licensed member of the Johannesburg Stock Exchange and an
authorised Financial Services Provider (FSP 29451) in terms of the Financial Advisory and
Intermediary Services Act, 37 of 2002. Any view or opinion expressed in this report does not
constitute advice and the recipient should obtain their own advice prior to making any
decision or taking any action whatsoever based hereon.
Japan: This report is being distributed to Japanese based firms by BNP Paribas Securities
(Japan) Limited or by a subsidiary or affiliate of BNP Paribas not registered as a financial
instruments firm in Japan, to certain financial institutions defined by article 17-3, item 1 of the
Financial Instruments and Exchange Law Enforcement Order. BNP Paribas Securities
(Japan) Limited is a financial instruments firm registered according to the Financial
Instruments and Exchange Law of Japan and a member of the Japan Securities Dealers
Association and the Financial Futures Association of Japan. BNP Paribas Securities (Japan)
Limited accepts responsibility for the content of a report prepared by another non-Japan
affiliate only when distributed to Japanese based firms by BNP Paribas Securities (Japan)
Limited. Some of the foreign securities stated on this report are not disclosed according to the
Financial Instruments and Exchange Law of Japan.
Hong Kong: This report is being distributed in Hong Kong by BNP Paribas Hong Kong Branch,
a branch of BNP Paribas whose head office is in Paris, France. BNP Paribas Hong Kong
Branch is registered as a Licensed Bank under the Banking Ordinance and regulated by the
Hong Kong Monetary Authority. BNP Paribas Hong Kong Branch is also a Registered
Institution regulated by the Securities and Futures Commission for the conduct of Regulated
Activity Types 1, 4 and 6 under the Securities and Futures Ordinance.
Singapore: BNP Paribas Singapore Branch is regulated in Singapore by the Monetary
Authority of Singapore under the Banking Act, the Securities and Futures Act and the Financial
Advisers Act. This report may not be circulated or distributed, whether directly or indirectly, to
any person in Singapore other than (i) to an institutional investor pursuant to Section 274 of the
Securities and Futures Act, Chapter 289 of Singapore ("SFA"), (ii) to an accredited investor or
other relevant person, or any person under Section 275(1A) of the SFA, pursuant to and in
accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant
to, and in accordance with the conditions of, any other applicable provisions of the SFA.
South Korea: Branch: BNP Paribas Seoul Branch is regulated by the Financial Services
Commission and Financial Supervisory Service for the conduct of its financial investment
business in the Republic of Korea. This report does not constitute an offer to sell to or the
solicitation of an offer to buy from any person any financial products where it is unlawful to
make the offer or solicitation in South Korea.
Securities: BNP Paribas Securities Korea is registered as a Licensed Financial Investment
Business Entity under the FINANCIAL INVESTMENT SERVICES AND CAPITAL MARKETS
ACT and regulated by the Financial Supervisory Service and Financial Services Commission.
This report does not constitute an offer to sell to or the solicitation of an offer to buy from any
person any financial products where it is unlawful to make the offer or solicitation in South
Korea.
Taiwan: BNP Paribas Taipei Branch is registered as a licensed bank under the Banking Act
and regulated by the Financial Supervisory Commission, R.O.C. This report is directed only at
Taiwanese counterparties who are licensed or who have the capacities to purchase or transact
in such products. This report does not constitute
an offer to sell to or the solicitation of an offer to buy from any person any financial products
where it is unlawful to make the offer or solicitation in Taiwan.
57
DISCLAIMER
Australia: This material, and any information in related marketing presentations (the
Material), is being distributed in Australia by BNP Paribas ABN 23 000 000 117, a branch
of BNP Paribas 662 042 449 R.C.S., a licensed bank whose head office is in Paris, France.
BNP Paribas is licensed in Australia as a Foreign Approved Deposit-taking Institution by
the Australian Prudential Regulation Authority (APRA) and delivers financial services to
Wholesale clients under its Australian Financial Services Licence (AFSL) No. 238043 which
is regulated by the Australian Securities & Investments Commission (ASIC).The Material is
directed to Wholesale clients only and is not intended for Retail clients (as both terms are
defined by the Corporations Act 2001, sections 761G and 761GA). The Material is subject
to change without notice and BNP Paribas is under no obligation to update the information
or correct any inaccuracy that may appear at a later date.
Some or all of the information contained in this document may already have been
published on https://globalmarkets.bnpparibas.com
© BNP Paribas (2016). All rights reserved.
IMPORTANT DISCLOSURES by producers and disseminators of investment
recommendations for the purposes of the Market Abuse Regulation:
Although the disclosures provided herein have been prepared on the basis of information
we believe to be accurate, we do not guarantee the accuracy, completeness or
reasonableness of any such disclosures. The disclosures provided herein have been
prepared in good faith and are based on internal calculations, which may include, without
limitation, rounding and approximations.
BNP Paribas and/or its affiliates may be [are] a market maker or liquidity provider in
financial instruments of the issuer mentioned in the recommendation.
BNP Paribas and/or its affiliates may provide such services as described in Sections A and
B of Annex I of MiFID II (Directive 2014/65/EU), to the Issuer to which this investment
recommendation relates. However, BNP Paribas is unable to disclose specific
relationships/agreements due to client confidentiality obligations.
Section A and B services include A. Investment services and activities: (1) Reception and
transmission of orders in relation to one or more financial instruments; (2) Execution of
orders on behalf of clients; (3) Dealing on own account; (4) Portfolio management; (5)
Investment advice; (6) Underwriting of financial instruments and/or placing of financial
instruments on a firm commitment basis; (7) Placing of financial instruments without a firm
commitment basis; (8) Operation of an MTF; and (9) Operation of an OTF. B. Ancillary
services: (1) Safekeeping and administration of financial instruments for the account of
clients, including custodianship and related services such as cash/collateral management
and excluding maintaining securities accounts at the top tier level; (2) Granting credits or
loans to an investor to allow him to carry out a transaction in one or more financial
instruments, where the firm granting the credit or loan is involved in the transaction; (3)
Advice to undertakings on capital structure, industrial strategy and related matters and
advice and services relating to mergers and the purchase of undertakings; (4) Foreign
exchange services where these are connected to the provision of investment services; (5)
Investment research and financial analysis or other forms of general recommendation
relating to transactions in financial instruments; (6) Services related to underwriting; and (7)
Investment services and activities as well as ancillary services of the type included under
Section A or B of Annex 1 related to the underlying of the derivatives included under points
(5), (6), (7) and (10) of Section C (detailing the MiFID II Financial Instruments) where these
are connected to the provision of investment or ancillary services.
BNP Paribas and/or its affiliates do not, as a matter of policy, permit pre-arrangements with
issuers to produce recommendations. BNP Paribas and/or its affiliates as a matter of policy
do not permit issuers to review or see unpublished recommendations.
BNP Paribas and/or its affiliates acknowledge the importance of conflicts of interest
prevention and have established robust policies and procedures and maintain effective
organisational structure to prevent and avoid conflicts of interest that could impair the
objectivity of this recommendation including, but not limited to, information barriers,
personal account dealing restrictions and management of inside information.
58
DISCLAIMER
BNP Paribas and/or its affiliates understand the importance of protecting confidential
information and maintain a “need to know” approach when dealing with any confidential
information. Information barriers are a key arrangement we have in place in this regard.
Such arrangements, along with embedded policies and procedures, provide that
information held in the course of carrying on one part of its business to be withheld from
and not to be used in the course of carrying on another part of its business. It is a way of
managing conflicts of interest whereby the business of the bank is separated by physical
and non-physical information barriers. The Control Room manages this information flow
between different areas of the bank where confidential information including inside
information and proprietary information is safeguarded. There is also a conflict clearance
process before getting involved in a deal or transaction.
In addition, there is a mitigation measure to manage conflicts of interest for each
transaction with controls put in place to restrict the information flow, involvement of
personnel and handling of client relations between each transaction in such a way that
the different interests are appropriately protected. Gifts and Entertainment policy is to
monitor physical gifts, benefits and invitation to events that is in line with the firm policy
and Anti-Bribery regulations. BNP Paribas maintains several policies with respect to
conflicts of interest including our Personal Account Dealing and Outside Business
Interests policies which sit alongside our general Conflicts of Interest Policy, along with
several policies that the firm has in place to prevent and avoid conflicts of interest.
The remuneration of the individual producer of the investment recommendation may be
linked to trading or any other fees in relation to their global business line received by
BNP Paribas and/or affiliates.
IMPORTANT DISCLOSURES by disseminators of investment recommendations for
the purposes of the Market Abuse Regulation:
The BNP Paribas disseminator of the investment recommendation is identified above
including information regarding the relevant competent authorities which regulate the
disseminator. The name of the individual producer within BNP Paribas or an affiliate and
the legal entity the individual producer is associated with are identified above in this
document,
The date and time of the first dissemination of this investment recommendation by BNP
Paribas or an affiliate is addressed above.
Where this investment recommendation is communicated by Bloomberg chat or by email
by an individual within BNP Paribas or an affiliate, the date and time of the dissemination
by the relevant individual is contained in the communication by that individual
disseminator.
The disseminator and producer of the investment recommendations are part of the same
group, i.e. the BNP Paribas group. The relevant Market Abuse Regulation disclosures
required to be made by producers and disseminators of investment recommendations
are provided by the producer for and on behalf of the BNP Paribas Group legal entities
disseminating those recommendations and the same disclosures also apply to the
disseminator.
If an investment recommendation is disseminated by an individual within BNP Paribas or
an affiliate via Bloomberg chat or email, the disseminator’s job title is available in their
Bloomberg profile or bio. If an investment recommendation is disseminated by an
individual within BNP Paribas or an affiliate via email, the individual disseminator’s job
title is available in their email signature.
For further details on the basis of recommendation specific disclosures available at this
link (e.g. valuations or methodologies, and the underlying assumptions, used to evaluate
financial instruments or issuers, interests or conflicts that could impair objectivity
recommendations or to 12 month history of recommendations history) are available at
https://globalmarkets.bnpparibas.com/gmportal/private/globalTradeIdea. If you are
unable to access the website please contact your BNP Paribas representative for a copy
of this document.
59