EMEA Weekly - Danske Bank


Dec 12, 2013 - ...

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Investment Research — General Market Conditions

12 December 2013

EMEA Weekly Three EMEA FX top trades for 2014 Three EMEA FX top trades Earlier this week we published our FX Top Trades for 2014. Among our 10 top trades three were EMEA FX trades. In general we think that the need for further monetary easing, particularly in the Central and Eastern European countries, will put pressure on CEE currencies in the coming months. This is why we favour trades where we are short particularly the Polish zloty and the Czech koruna. On the other hand, the continued decline in oil prices is likely to be helpful to the Turkish lira – particularly against the euro. In contrast, the South African rand is likely to continue to suffer on the back of declining commodity prices.

Contents Calendar ............................................................... 2 EMEA FX scorecard overview ................ 3 Currency forecasts, EMEA ....................... 4

CNB likely to do more – buy EUR/CZK The Czech central bank has put a ‘floor’ under EUR/CZK at 27 to curb deflationary pressure in the Czech economy. While we believe this will help curb downward price pressures, we also believe more is needed. Consequently we expect the CNB to move the floor up even further in 2014. As a direct consequence of this, we recommend buying EUR/CZK via a 6M 1:2 ratio forward strategy.

Global growth but lower oil price – buy TRY/DKK Following a sharp correction this year, the Turkish lira no longer looks overvalued. We therefore like what 2014 has to offer for TRY. Overall, the global positive supply shock creates a beneficial environment for the currency. Furthermore, we like what the prospects of an Iran nuclear deal would mean for the lira. Finally, being long TRY/DKK offers good carry.

Long RON/PLN on divergent growth and monetary policy The Polish economy is still weak, inflation is well below target and the Polish central bank (NBP) remains behind the curve. The likelihood of the ECB stepping up monetary easing is increasing, which would put pressure on the NBP. The weak economy and inflation well below target are likely to weigh on the PLN. While we expect the PLN to remain under pressure next year, the RON is set to get some support from improving economic activity and even though this trade does not provide much carry, we nonetheless believe that RON should outperform PLN.

Three monetary policy decisions – no major changes expected Next week we have three monetary policy decisions. The Hungarian, Czech and Turkish central banks will all announce their monetary policy decisions on Tuesday. We do not expect any surprises compared with consensus expectations. That means a 20bp interest rate cut in Hungary, unchanged rates in Turkey and the Czech central bank likely to reaffirm its commitment to the ‘floor’ under EUR/CZK at 27. Inflation has come down significantly recently in all three countries on a combination of declining commodity prices and weak domestic demand. Both Hungarian and Czech inflation are now dangerously close to zero or even deflation. If anything, we would be positioned for more dovish signals from all three central banks (both particularly for CNB and MNB) than what is priced by the markets. Chief Analyst Lars Christensen +45 45 12 85 30 [email protected]

Important disclosures and certifications are contained from page 6 this report.

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Calendar EMEA Data and Events in Week 51 EMEA FX scorecard overview ................3 All EM research is available on 2013 Bloomberg DMEM Monday, December 16,

Calendar RUB -

Industrial production (16-17 Dec)

5Period y/y

Nov

Danske Bank Consensus Previous -0.3%

-0.1%

TRY

9:00

Unemployment rate

%

Sep

CZK

9:00

PPI

y/y

Nov

0.1%

0.1%

0.0%

PLN

14:00 Core inflation

y/y

Nov

1.4%

1.4%

1.4%

Tuesday, December 17, 2013 RUB

-

PPI (17-18 Dec)

9.8%

Period y/y

Danske Bank Consensus Previous

Nov

3.0%

2.0%

4.50% 0.05%

0.05%

4.50% 0.05%

TRY 13:00 Turkish central bank to announce rate decision CZK 13:00 Monetary policy meeting

% %

PLN

14:00 Wages

y/y

Nov

2.7%

2.9%

3.1%

PLN

14:00 Employment

y/y

Nov

-0.1%

0.1%

-0.2%

3.00%

3.00%

3.20%

HUF 14:00 Central Bank meeting (rate decision)

%

Wednesday, December 18, 2013

Period

Danske Bank Consensus Previous

PLN

14:00 Industrial production

y/y

Nov

1.7%

4.4%

PLN

14:00 Producer prices

y/y

Nov

-1.1%

-1.3%

Thursday, December 19, 2013

Period

Danske Bank Consensus Previous

RUB

-

Disposable income (19-20 Dec)

y/y

Nov

2.3%

4.9%

RUB

-

Real wages (19-20 Dec)

y/y

Nov

4.3%

4.1%

RUB

-

Retail sales (19-20 Dec)

y/y

Nov

3.3%

3.5%

-

Unemployment (19-20 Dec)

%

Nov

5.5%

y/y

Nov

RUB LVL

12:00 Producer prices

Friday, December 20, 2013

5.5% 1.2%

Period

Danske Bank Consensus Previous

EEK

7:00

Producer prices

y/y

Nov

4.2%

LTL

9:00

Current account

LTL m.

3rd quarter

1.5

Note: The editors do not guarantee the accuracy of the figures, hours or dates stated above All release times are CET Source: Danske Bank Markets

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EMEA Weekly

EMEA FX scorecard overview Score – PLN

Score – HUF

5.0

5.0

2.5

2.5

EMEA FX scorecard outline

0.0

Valuation

Macro

Total

Valuation

Global

Technical

Macro

Carry

-5.0

-5.0

Source: Danske Bank Markets calculations

Source: Danske Bank Markets calculations

Score – CZK

Score – TRY

2.5

Total

Carry

Macro

Source: Danske Bank Markets calculations

Source: Danske Bank Markets calculations

Score – ZAR

Score – RON

5.0

5.0

2.5

2.5

Valuation

Global

Carry

Macro

Total

Valuation

Com

Global

Source: Danske Bank Markets calculations

Source: Danske Bank Markets calculations

Score – ILS

Score – total 5.0

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Total

Valuation

0.0

Macro

Total

-5.0 Valuation

-5.0

Global

-2.5 Carry

-2.5 Technical

0.0

Macro

0.0

Source: Danske Bank Markets calculations

Valuation: calculates whether currencies are over/undervalued compared with the long-term trend in the real effective exchange rate (REER). The trend is adjusted for external imbalances, i.e. an imbalance-adjusted REER. The scores are calibrated to reflect the short-term impact of the valuation on FX.

2.5

Global

0.7

Carry

2.5

Technical

5.0

Total

-0.1

-2.5

-5.0 Carry

Macro

-5.0

Technical

-2.5

Carry: calculates the momentum in local three-month rates, carryto-risk, spread versus EUR or USD three-month rates and spread versus peers. Global: consists of a global growth score based on leading global indicators, a liquidity score based on G3 real rates and a sentiment score based on performance in global equity markets and traditional funding currencies.

0.0

-0.4

Technical

0.0

Total

-5.0

Valuation

-5.0

0.2

Macro

-2.5 Valuation

-2.5 Global

0.0

Technical

0.0

Global

0.3

Carry

2.5

Macro: calculates the growth momentum in different monthly macro indicators. Technical: calculates the momentum in different volatility measures, short- and longer term moving averages and the level of the relative strength index.

5.0

Technical

5.0

Total

-0.2

-2.5 Global

-2.5

Carry

-0.5

Technical

0.0

All scores are computed on a scale from +5 to -5. A score is then derived by combining the different sub-scores.

Source: Danske Bank Markets calculations

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Currency forecasts, EMEA Currency forecasts, EMEA

Source: Bloomberg, Danske Bank Markets

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Emerging markets contacts Emerging Markets Research Lars Christensen

+45 45 12 85 30

[email protected]

Flemming Jegbjærg Nielsen

+45 45 12 85 35

[email protected]

Violeta Klyviene

+370 5 2156992

[email protected]

Stanislava Pravdová-Nielsen +45 45 12 80 71

[email protected]

Narayani Sritharan

+45 45 12 85 48

[email protected]

Vladimir Miklashevsky

+358 10 546 7522

[email protected]

Stig Hansen

+45 45 14 60 86

[email protected]

Flemming Winther

+45 45 14 68 24

[email protected]

Global Retail SME, FX

Trading FX, Fixed Income, Danske Bank Markets Frank Sandbæk Vig

+45 45 14 67 96

[email protected]

Thomas Manthorpe

+45 45 14 69 68

[email protected]

Markku Anttila

+358 10 513 8705

[email protected]

Perttu Tuomi

+358 10 513 8738

[email protected]

Danske Bank Poland, Warsaw Maciej Semeniuk

+48 22 33 77 114

[email protected]

Bartłomiej Dzieniecki

+48 22 33 77 112

[email protected]

Danske Bank Markets Baltics Howard Wilkinson

+358 50 374 559

[email protected]

Martins Strazds

+371 6707 2245

[email protected]

Giedre Geciauskiene

+370 5215 6180

[email protected]

Rainer Änilane

+372 675 2471

[email protected]

ZAO Danske Bank, St. Petersburg Treasury Department Maria Lenina Rautonen

+7 921 797 57 80

[email protected]

Vladimir Biserov

+7 812 332 73 04

[email protected]

Irina Voronova

+7 812 332 73 04

[email protected]

All EM research is available on Bloomberg DMEM

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Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’). The author of this research report is Lars Christensen, Chief Analyst. Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst’s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts’ rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in Danske Bank’s research policies. Employees within Danske Bank’s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank’s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors on request. Risk warning Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. Expected updates This publication is updated on a weekly basis. Date of first publication See the front page of this research report for the date of first publication.

General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) (‘Relevant Financial Instruments’). The research report has been prepared independently and solely on the basis of publicly available information that Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report.

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The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgement as of the date hereof. These opinions are subject to change and Danske Bank does not undertake to notify any recipient of this research report of any such change nor of any other changes related to the information provided in this research report. This research report is not intended for retail customers in the United Kingdom or the United States. This research report is protected by copyright and is intended solely for the designated addressee. It may not be reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank’s prior written consent.

Disclaimer related to distribution in the United States This research report is distributed in the United States by Danske Markets Inc., a U.S. registered broker-dealer and subsidiary of Danske Bank, pursuant to SEC Rule 15a-6 and related interpretations issued by the U.S. Securities and Exchange Commission. The research report is intended for distribution in the United States solely to ‘U.S. institutional investors’ as defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for this research report in connection with distribution in the United States solely to ‘U.S. institutional investors’. Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence of research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are not registered or qualified as research analysts with the NYSE or FINRA but satisfy the applicable requirements of a non-U.S. jurisdiction. Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial Instrument may do so only by contacting Danske Markets Inc. directly and should be aware that investing in nonU.S. financial instruments may entail certain risks. Financial instruments of non-U.S. issuers may not be registered with the U.S. Securities and Exchange Commission and may not be subject to the reporting and auditing standards of the U.S. Securities and Exchange Commission.

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