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Extraction Summary
1
People
4
Organizations
6
Locations
4
Events
0
Relationships
3
Quotes
Document Information
Type:
Financial strategy report
File Size:
Summary
This document is page 14 of a 'Global Cross Asset Strategy – Year Ahead' report dated November 30, 2016, produced by Bank of America Merrill Lynch. It analyzes currency markets, specifically recommending trades involving USD/CNH, EUR/SEK, and RUB/ZAR based on geopolitical factors like the US elections, Chinese trade rhetoric, and South African politics. The document bears a 'HOUSE_OVERSIGHT_014445' stamp, indicating it was produced as part of a congressional investigation, likely related to financial records.
People (1)
| Name | Role | Context |
|---|---|---|
| President Zuma | President of South Africa |
Mentioned in the context of a 'no confidence vote' affecting the RUB/ZAR currency trade.
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Organizations (4)
| Name | Type | Context |
|---|---|---|
| Bank of America Merrill Lynch |
Creator of the Global Cross Asset Strategy report.
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| Bloomberg |
Source of data for the currency charts.
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| Riksbank |
Mentioned regarding monetary policy in Sweden.
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| House Oversight Committee |
Implied by the 'HOUSE_OVERSIGHT' bates stamp.
|
Timeline (4 events)
2016-11-30
Locations (6)
| Location | Context |
|---|---|
|
Mentioned regarding elections and USD.
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Mentioned regarding trade rhetoric, currency manipulation, and CNY/CNH.
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Mentioned regarding its economy relative to the Eurozone.
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Economic region compared against Sweden.
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Mentioned regarding upcoming presidential elections.
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Mentioned regarding politics and the RUB/ZAR trade.
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Key Quotes (3)
"Today we add a CNH put (expressed as a USD/CNH call at 7.6 strike) partly because it fits with our positive USD call but also because it is a potential hedge against the trade rhetoric of the new administration descending into something more meaningful."Source
HOUSE_OVERSIGHT_014445.jpg
Quote #1
"Given the stated intent to declare the Chinese as currency manipulators... it is not impossible to imagine a much weaker CNY/CNH should the Chinese authorities allow a free float."Source
HOUSE_OVERSIGHT_014445.jpg
Quote #2
"The latest no confidence vote against President Zuma underlines how tricky South African politics are at the moment."Source
HOUSE_OVERSIGHT_014445.jpg
Quote #3
Full Extracted Text
Complete text extracted from the document (2,529 characters)
Chart 23: AUD fell post US elections...
0.8
0.78
0.76
0.74
0.72
0.7
0.68
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
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AUD/USD
0.8
0.78
0.76
0.74
0.72
0.7
0.68
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
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AUD/USD
Chart 24: ...GBP has held up so far but article 50 looms in Q1
1.55
1.5
1.45
1.4
1.35
1.3
1.25
1.2
1.15
Oct-15
Nov-15
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Apr-16
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GBP/USD
1.55
1.5
1.45
1.4
1.35
1.3
1.25
1.2
1.15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
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GBP/USD
Source: Bloomberg
Source: Bloomberg
Source: Bloomberg
Today we add a CNH put (expressed as a USD/CNH call at 7.6 strike) partly because it fits with our positive USD call but also because it is a potential hedge against the trade rhetoric of the new administration descending into something more meaningful. Given the stated intent to declare the Chinese as currency manipulators and the concern that our currency strategists already have about the amount of reserves the Chinese hold, it is not impossible to imagine a much weaker CNY/CNH should the Chinese authorities allow a free float. We see this as a sensible hedge against our long EM equity position.
Chart 25: CNH continues to weaken, risk of more on trade tensions?
6.9
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6.2
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Nov-15
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CNH/USD
6.9
6.8
6.7
6.6
6.5
6.4
6.3
6.2
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
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May-16
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CNH/USD
Chart 26: RUB/ZAR choppy on oil and SA politics
0.25
0.24
0.23
0.22
0.21
0.2
0.19
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
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RUB/ZAR
0.25
0.24
0.23
0.22
0.21
0.2
0.19
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
RUB/ZAR
Source: Bloomberg
Source: Bloomberg
Source: Bloomberg
We have two other standalone currency trades, short EUR/SEK and long RUB/ZAR. The former has dropped as the EUR has weakened against the USD. We continue to think that the Swedish economy is more robust than the Eurozone and that the Riksbank will sooner or later have to adjust monetary policy accordingly. We see a lot more room for this pair to move in 2017, particularly if there are political concerns ahead of the French presidential elections as these will likely weigh on the EUR.
RUB/ZAR has been quite erratic since we re-established the trade, reflecting both volatility in the oil price and developments in South African politics. The latest no confidence vote against President Zuma underlines how tricky South African politics are at the moment. Concerns will remain on the economic progress of the country until the political situation becomes clearer. In the meantime we expect a higher risk premium to be associated with the currency.
14 Global Cross Asset Strategy – Year Ahead | 30 November 2016
Bank of America Merrill Lynch
HOUSE_OVERSIGHT_014445
Bank of America Merrill Lynch
HOUSE_OVERSIGHT_014445
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