global macro strategy - wikileaks · 2014-01-14 · -4-financial conditions in us, eu, uk and japan...

Global Macro Strategy

Chartpack for Weekly Views and Trade Ideas

Citigroup Global Markets Limited

See the Disclosure Appendix

Jeremy Hale+44 207 986 9465

[email protected]

18 March 2011

CGMS <GO>

-2-

All the Good News Priced on Growth?

Source: Bloomberg and Citi

-150

-100

-50

0

50

100

2007 2008 2009 2010 2011

G10 ESIEM ESI

30

35

40

45

50

55

60

91 93 95 97 99 01 03 05 07 09 11

GDP WEIGHTED PMI

-3-

When Oil Spikes By 50%+, Recessions Follow

Sources: Reuters EcoWin

-4-

Financial Conditions in US, EU, UK and Japan

Sources: Bloomberg, Reuters EcoWin and Citi

Financial Conditions Index (FCI) aims to capture impact of financial conditions on GDP growth relative to trend. FCI incorporates equity price changes, credit spreads, long-term real interest rates and real effective FX rates.

Latest CompleteData Point*:

0.201

* Forecast assumes latest spot values of inputs stay unchanged

CIGMFCG4 Index on Bloomberg

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

99 00 01 02 03 04 05 06 07 08 09 10 11 12

-6

-4

-2

0

2

4

6

Aggregated FCI (G4)

Forecast Aggregated FCI (G4)Aggregated GDP Growth (G4) RHS

-5-

What if the Data Turns Softer?

Sources: Citi and Bloomberg

Positive US ESI Runs vs. S&P 500 ReturnsUS ESI vs. S&P 500

-200

-150

-100

-50

0

50

100

150

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-110.6

0.7

0.8

0.9

1

1.1

1.2US ESISPX / 6m average

0

20

40

60

80

100

120

140

160

Jan-09 Jul-09 Jan-10 Jul-10 Jan-110%

5%

10%

15%

20%

25%

30%

35%Positive Consecutive Days in US ESI

SPX Return since positive ESI start (RHS)

-6-

Kobe 1995: JPY, NKY and JGB

Nikkei, 225, Index, JPY Spot Rates, USD/JPY

Jan94

Apr Jul Oct Jan95

Apr Jul Oct Jan96

Apr Jul Oct14000

15000

16000

17000

18000

19000

20000

21000

22000

23000

80

85

90

95

100

105

110

115

120

125

Government Benchmarks, Bid, 10 Year, Yield, JPYSpot Rates, USD/JPY

Jan94

Apr Jul Oct Jan95

Apr Jul Oct Jan96

Apr Jul Oct2.25

2.50

2.75

3.00

3.25

3.50

3.75

4.00

4.25

4.50

4.75

5.00

80

85

90

95

100

105

110

115

120


-7-

USDJPY Fell 20% After Kobe

JPY Kobe Earthquake =100 JPY Sendai Earthquake Tsunami = 100

Jan10

Mar May Jul Sep Nov Jan11

Mar May Jul Sep Nov80

85

90

95

100

105

110

115

120


USD/JPY Nominal and Real USDJPY

Real $/JPY (Adj for Relative CPI Movements)Japan, Spot Rates, USD/JPY, Close

72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 1075

100

125

150

175

200

225

250

275

300

325

$/JPY low of 79, CPI Adjusted 53.5 Equivalent Today

-8-

AUD/CAD vs. Relative Commodity Prices and Rates

Sources: Bloomberg

Black: AUD/CADBlue: 1y1y swap rate differenceRed: Copper/ Oil Price

-9-

EUR Supported by Yields and Oil

EUR/USD, Close Euro Less USD 10y Swap Rates

Jun09

Aug Oct Dec10

Feb Apr Jun Aug Oct Dec11

Feb1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

-0.8

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

Oil, Light Crude Spot Price (WTI)United States, Spot Rates, EUR/USD, Close

Jan07

May Sep Jan08

May Sep Jan09

May Sep Jan10

May Sep Jan11

30

40

50

60

70

80

90

100

110

120

130

140

150

1.24

1.29

1.34

1.39

1.44

1.49

1.54

1.59


-10-

LIBOR Rates Markets Rally

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Sep-10

Sep-11

Sep-12Sep

-13Sep

-14Sep-1

5Sep

-16Sep-17Sep

-18Sep

-19Sep

-20

17-Mar-1117-Feb-1117-Sep-10

Sources: Bloomberg

USD

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Sep-10

Mar-11

Sep-11

Mar-12

Sep-12Mar-

13Sep-13Mar-1

4Sep-1

4Mar

-15Sep

-15

17-Mar-1117-Feb-1117-Sep-10

GBP

-11-

Developed Markets Rates

Sources: Bloomberg and Citi

Target Hikes in Implied Rate 12m Citi ImpliedTarget 12m (bp) in 12m Econ Fcst* 12m View**

US 0.25% 18 0.43% 0.25% NeutralEuro Zone 1.00% 71 1.71% 1.75% NeutralUK 0.50% 67 1.17% 1.50% PayJapan 0.10% -2 0.08% 0.10% NeutralAustralia 4.75% 20 4.95% 5.25% PayNew Zealand 2.50% 38 2.88% 3.00% NeutralCanada 1.00% 58 1.58% 2.00% PaySwitzerland 0.25% 28 0.53% 1.00% PaySweden 1.50% 158 3.08% 2.75% Receive* End Q1 2012; ** +-25bp = neutral

0

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US

Eur

o Zo

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Japa

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New

Zea

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Can

ada

Switz

erla

nd

Sw

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C it i E c o n o m i s ts Fo re c a s t W h a t 's Pr ic e d In

-12-

Emerging Markets Rates


Hikes in Implied Rate 12m Citi Implied*Target 12m (bp) in 12m Econ Fcst 12m View

ASIAIndia 6.75 -4 6.71 7.00 PayMalaysia 2.75 52 3.27 3.25 NeutralKorea 3.00 49 3.49 3.75 PayThailand 2.50 79 3.29 3.50 NeutralCEEMEACzech Rep. 0.75 93 1.68 1.25 ReceiveHungary 6.00 20 6.20 6.00 NeutralPoland 3.75 98 4.73 4.50 NeutralIsrael 2.50 120 3.70 3.50 NeutralTurkey 6.25 126 7.51 7.75 NeutralSouth Africa 5.50 145 6.95 6.50 ReceiveLATAMBrazil 11.75 114 12.89 12.75 NeutralMexico 4.50 117 5.67 5.00 ReceiveChile 4.00 289 6.89 5.50 Receive

* +-25bp = neutral

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Indi

a

Mal

aysi

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Pola

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Isra

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Turk

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Sou

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frica

Bra

zil

Mex

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Chi

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Citi Economists Forecast What's Priced In

-13-

Global Energy Use and Electricity Generation by Fuel

Sources: International Energy Administration

World marketed energy use by fuel type,1990-2035 (quadrillion Btu)

World electricity generation by fuel,2007-2035 (trillion kilowatthours)

-14-

Brent Oil Trend ($/bl)

Sources: Bloomberg

-15-

Uranium and Uranium-Related Companies Have Fallen Sharply, Following Strong Rallies

* Basket shown includes (equally weighted): Cameco Corp, Denison Mines, Energy Fuels Inc, Laramide Resources Ltd, Paladin Resources, Uranium One, Uranium Participation Corp, Uranium Resources Inc and USEC Inc.

Source: Bloomberg, MF Global Energy and Citi

708090

100110120130140150160170180190200210220230240250

Jan-

10

Feb-

10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-

10

Aug

-10

Sep-

10

Oct

-10

Nov

-10

Dec-

10

Jan-

11

Feb-

11

Mar

-11

38

42

46

50

54

58

62

66

70

74Uranium Companies Equity Performance* (Jan10=100)

S&P 500 (Jan10=100)

Uranium Spot (MF Global Mid U308 Price, USD/lb, RHS)

-16-

S&P 500 Current and Previous Corrections


100

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Mar-09 Sep-09 Mar-10 Sep-10 Mar-11

S&P 50025

12

2

5

3

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1

1

0 5 10 15 20 25

0 to 1%

1 to 2%

2 to 3%

3 to 4%

4 to 5%

5 to 6%

6 to 7%

7 to 8%

8 to 9%

9 to 10%

10 to 11%

11 to 12%

12 to 13%

13 to 14%

14 to 15%

15 to 16%

Size

of C

orre

ctio

n

Number of Corrections

Current correction

Apr/May 2010 Correction

-17-

DAX Current and Previous Corrections


100

120

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Mar-09 Sep-09 Mar-10 Sep-10 Mar-11

DAX 18

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0 to 1%

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9 to 10%

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11 to 12%

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13 to 14%

14 to 15%

15 to 16%

Size

of C

orre

ctio

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Number of Corrections

Current correction

Apr/May 2010 Correction

-18-

Interesting Technical Pattern in VIX – Even Higher Equity Vols Soon?


-19-

Valuation the Main Factor Behind Bigger Sell-Off Following 1995 Kobe Earthquake

Sources: CIRA, IBES, MSCI, Factset and Citi

Japan 12m fwd P/E relative to Global P/E

Nikkei Sendai Earthquake =100 Nikkei Kobe Earthquake = 100

Jan10

Mar May Jul Sep Nov Jan11

Mar May Jul Sep Nov

Inde

x

75

80

85

90

95

100

105

110

115

-20-

Japanese Construction Stocks to Benefit?


TPCONT / TPXrebased to earthquake=100

95

100

105

110

115

120

125

Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11

After KobeNow

Earthquake=10

-21-

EM Stocks Have Stopped Underperforming


MSCI EM / DM in USDMSCI EM / DM in Local CCY

-22-

Japanese Corporate Spreads Widen Sharply


60

80

100

120

140

160

180

Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11

iTraxx MainCDX IGiTraxx Japan

-23-

Credit vs. Equities: US and Japan


y = -0.1217x + 238.64R2 = 0.5691

70

90

110

130

150

950 1050 1150 1250 1350 1450SPX

CD

X IG

Data since Jan 2010

y = -0.0555x + 164.88R2 = 0.0252

80

100

120

140

160

180

700 800 900 1000 1100TOPIX

iTra

xx J

apan

Data since Jan 2010

-24-

Global Macro Strategy Portfolio


Open Current P&L In profit?Buy TPNBNK / Sell SX7P (8 Oct09) 0.625 0.563 -4.24% NStructural Long in EM Equity (MSELEGF) vs. DM Hedge (US, Europe) (11 Jan) 100.0 99.2 -0.77% NBuy GPBUSD fwd to 15Jun11. Sell EURGPB fwd to 15Jun11. Equal GBP Notional. Stop: -3.5% (20 Jan) 100.0 99.0 -1.03% NBuy 2m USDJPY ATMF put (strike 81.78). Sell 6m USDJPY 2% OTMF put (strike 80.00) (14 Mar) -0.68 -0.78 -0.10% NSell AUDCAD fwd to 15Jun11 (16 Mar) 0.968 0.968 0.03% YSell USDCNY fwd (NDF) to 4 March 2013 (3 Mar) 6.279 6.346 -1.07% NUS 1y fwd 2s5s Swaps Flattener (14 Feb) 1.245 1.241 0.00% Y3m2y EUR Swap Risk Reversal: Buy 2.06 Receiver, Sell 2.56 Payer (1 Mar) -3.40 -1.70 0.02% Y

FI Sell OAT 3.5 4/20, Buy 1/3: DBR 2.25 9/20, NETHER 3.5 7/20, RFGB 3.375 4/20. Stop (avg spr): 10bp (29 Sep) 22.50 16.33 -0.32% NPay KRW and MYR 5y vs. Receive USD 5y. Stop: -1% P&L (2 Mar) 1.823 1.815 -0.11% NBuy protection on iTraxx SovX CEEMEA 5y. Stop 180bp (11 Jan) 211.0 202.0 -0.77% NBuy 140-180 12Dec11 Brent call spread (underlying COF2) (17 Mar) 2.14 2.48 0.34% YNumber of open trades 12In profit 4In loss 8Success rate 33.3%Number of closed trades 350In profit 232In loss 118Success rate 66.3%Overall Success Rate 65.2%

TRADE SUMMARY as of 06:55 London Time, 18 March 2011

EQFX

-25-

Market Commentary DisclaimerThis communication has been prepared by a member of the Sales and Trading Department of Citi which distributes this communication by or through its locally authorized affiliates (collectively, the “Firm”). Sales and Trading personnel are not research analysts and the information in this communication is not intended to constitute “research” as that term is defined by applicable regulations. Compensation of Sales and Trading personnel includes consideration of the performance of this Department’s activities. The views expressed herein may change without notice and may differ from those views expressed by other Firm personnel.You should assume the following: The Firm may be the issuer of, or may trade as principal in, the financial instruments referred to in this communication or other related financial instruments. The author of this communication may have discussed the information contained herein with others within the Firm and the author and such other Firm personnel may have already acted on the basis of this information (including by trading for the Firm’s proprietary accounts or communicating the information contained herein to other customers of the Firm). The Firm performs or seeks to perform investment banking and other services for the issuer of any such financial instruments. The Firm, the Firm’s personnel (including those with whom the author may have consulted in the preparation of this communication), and other customers of the Firm may be long or short the financial instruments referred to herein, may have acquired such positions at prices and market conditions that are no longer available, and may have interests different or adverse to your interests.This communication is provided for information and discussion purposes only. It does not constitute an offer or solicitation to purchase or sell any financial instruments. The information contained in this communication is based on generally available information and, although obtained from sources believed by the Firm to be reliable, its accuracy and completeness is not guaranteed. 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Therefore, prior to entering into any transaction, you should determine, without reliance on the Firm, the economic risks or merits, aswell as the legal, tax and accounting characteristics and consequences of the transaction and that you are able to assume these risks.Financial instruments denominated in a foreign currency are subject to exchange rate fluctuations, which may have an adverse effect on the price or value of an investment in such products. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Investors should obtain advice from their own tax, financial, legal and other advisors, and only make investment decisions on the basis of the investor’s own objectives, experience and resources.This communication is not intended to forecast or predict future events. Past performance is not a guarantee or indication of future results. Any prices provided herein (other than those that are identified as being historical) are indicative only and do not represent firm quotes as to either price or size. You should contact your local representative directly if you are interested in buying or selling any financial instrument, or pursuing any trading strategy, mentioned herein. No liability is accepted by the Firm for any loss (whether direct, indirect or consequential) that may arise from any use of the information contained herein or derived herefrom. Although the Firm is affiliated with Citibank, N.A. (together with its subsidiaries and branches worldwide, “Citibank”), you should be aware that none of the other financial instruments mentioned in this communication (unless expressly stated otherwise) are (i) insured by the Federal Deposit Insurance Corporation or any other governmental authority, or (ii) deposits or other obligations of, or guaranteed by, Citibank or any other insured depository institution. 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global macro strategy - wikileaks · 2014-01-14 · -4-financial conditions in us, eu, uk and japan...

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