Market Mover - BNP PARIBAS - Investment Services India

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This section is classified as non-objective researchanything, the improvement in the near term US growthoutlook has prompted our economists to postpone theirtiming for a 25bps BoC rate cut from December to thebeginning of 2012. In contrast, our US economics teambelieves the Fed is on the verge of embarking on anew forward looking guidance based on acceptableranges for CPI and the jobless rate to peg expectationsof zero interest rate policy (ZIRP). Should this come topass as early as next week’s FOMC meeting, our fixedincomecolleagues point out the potential for a sharp50+bp rally in the belly of the US treasury curve. Chart3 suggests that USD-CAD 5Y spreads are rather wideeven if we allow for a 25bp rate cut from the BoC inearly 2012.However, another factor that would indirectly supportthe CAD is the continued demand for Canadian bonds,an inflow that has picked up ever since the Fedembarked on QE. Canada has healthy fiscal metricsjust as the universe of AAA rated sovereigns isdiminishing. Just recently, S&P affirmed its “AAA/A-1+”long- and short-term sovereign credit ratings onCanada. Given our assumption that the Fed iseventually forced to pull the trigger on QE3, theseinflows could be re-invigorated, suggesting anotherpillar supporting CAD strength (Chart 3).CAD long positioning has been almost completelyeliminated with IMM positioning now net short for thepast couple of weeks. However, unfortunately, thesharp risk rally after the EU Summit has seen spotmove substantially, and we would look for a pull backbetween 1.00 and 1.01 to consider short USDCAD spotpositions looking for an eventual move down to 0.9600on a one-to-two month horizon. Meanwhile, given stillelevated risk reversals, the options market offersattractive opportunities to put on short USDCADpositions.Options Structures for Short USDCADRecommendationSpot Ref: 0.9950Idea 1: Ratio Risk Reversal 3mth USDCAD (sell 2 xUSD 1.0400 call buy 0.9930 USD Put) - Zero CostThis strategy takes advantage of the relatively high riskreversal which is still trading around 3.00% (mid) atpresent. In the 12 months until the recent Euro-zonecrisis this traded between a 0.50% -1.50% range. Thescenario that this trade plays is spot moving lower withoil higher into the winter months accompanied by aquelling of market fears on the Euro-zone. Thisstrategy should benefit from both with the risk reversalselling off as risk premiums fall and CAD appreciatingwith Oil.Risk: This strategy is predicated on the crisis fearsabating over the next few months. If we see similarevents to those of September both spot and the riskreversal are going to rally rapidly.Idea 2: Buy a 2mth USDCAD RKI put 1.0150 KI 0.9400- Cost: 1.51% USD Notional (TV: 1.76% / Vanilla:3.18%)The payout at KI is approximately 5 x, with potential forfurther gain.As noted above the skew is trading at high levelscheapening down side barriers meaning this is tradingat a 0.25% discount to TV. The strategy looks to getinto the USDCAD move at yesterday's spot (1.0150)should we see our Q4 target of 0.9400 come to fruition.The two month horizon encompasses a lot ofdata/events increasing the chance of at least a spikedown to 0.9400. We expect next week's FOMC (Nov2nd) to be quite dovish- bullish for US bonds andbearish the USD. Events further down the road suchas Nov-22 FOMC minutes, could be USD negative andthere is the Dec-13 FOMC decision too.Risk: As with the above if the Euro-zone crisis isn'tsatisfactorily resolved then it is unlikely we'll see0.9400 in the next two months.Joe Nash+44 (0)20 7595 8384Chart 4: IMM PositioningSource: Reuters Ecowin, Bloomberg, BNP Paribas, CFTCFX Strategy / Kiran Kowshik 27 October 2011Market Mover68www.GlobalMarkets.bnpparibas.com
Economic Calendar: 28 Oct - 4 NovGMT Local Previous Forecast ConsensusFri 28/10 23:01 00:01 UK Gfk Consumer Confidence : Oct23:30 08:30 Japan CPI National y/y : Sep 0.2% 0.0% 0.1%23:30 08:30 Core CPI National y/y : Sep 0.2% 0.2% 0.2%23:30 08:30 CPI Tokyo y/y : Oct -0.2% -0.5% -0.5%23:30 08:30 Core CPI Tokyo y/y : Oct -0.1% -0.4% -0.4%23:30 08:30 Household Consumption y/y : Sep -4.1% -4.0% -3.5%23:30 08:30 Unemployment Rate (sa) : Sep 4.3% 4.4% 4.5%23:50 08:50 Industrial Production (Prel, sa) m/m : Sep 0.8% -2.0% -2.1%(27/10)06:45 08:45 France Retail Sales m/m : Sep 0.2 -0.7 0.0%06:45 08:45 Retail Sales y/y : Sep 0.3 -1.3 -0.7%07:00 09:00 Norway Unemployment Rate : Oct 2.5% 2.7% 2.5%07:00 09:00 Spain HICP Flash y/y : Oct 3.0% 2.9% 2.9%07:00 09:00 Unemployment Rate : Q3 20.9% 20.8% 20.9%07:15 09:15 Sweden Consumer Confidence (sa) : Oct -5.8 -6.4 -6.407:30 09:30 Retail Sales (sa) m/m : Sep -0.3% 0.3% 0.3%07:30 09:30 Retail Sales (nsa) y/y : Sep 0.2% 0.3% -0.2%07:30 09:30 Eurozone Eurocoin : Oct 0.0 -0.1 n/a08:10 10:10 Retail PMI : Oct 49.6 49.3 n/a08:00 10:00 Italy Wages m/m : Sep08:00 10:00 Wages y/y : Sep09:30 11:30 Switzerland KoF Leading Indicator : Oct 1.2 0.9 1.012:30 08:30 US Personal Income m/m : Sep -0.1% 0.5% 0.3%12:30 08:30 Personal Spending m/m : Sep 0.2% 0.4% 0.6%12:30 08:30 Employment Cost Index q/q : Q3 0.7% 0.6% 0.6%12:30 08:30 Employment Cost Index y/y : Q3 2.2% 2.3% n/a13:55 09:55 Michigan Sentiment (Final) : Oct 57.5 58.5 58.013:00 15:00 Belgium GDP (Flash) q/q : Q3 0.5% 0.2% n/a13:00 15:00 GDP (Flash) y/y : Q3 2.3% 2.1% n/aSun 30/10 Europe Clocks Go Back by One HourMon 31/10 05:00 14:00 Japan Housing Starts y/y : Sep 14.0% 15.0% 7.6%07:45 08:45 France PPI m/m : Sep 0.0% 0.0% n/a07:45 08:45 PPI y/y : Sep 6.3% 5.9% n/a09:00 10:00 Norway Retail Sales (sa) m/m : Sep 1.3% 0.2% n/a09:00 10:00 Retail Sales (sa) y/y : Sep 7.6% 4.3% n/a09:30 09:30 UK Mortgage Approvals : Sep 52.4k 50k 50.5k09:30 09:30 Net Consumer Credit : Sep GBP0.5bn GBP0.5bn GBP0.4bn10:00 11:00 Eurozone HICP (Flash) y/y : Oct 3.0% 2.9% 2.8%10:00 11:00 Unemployment Rate : Sep10:00 11:00 Italy CPI (NIC, Prel) m/m : Oct 0.0% 0.3% n/a10:00 11:00 CPI (NIC, Prel) y/y : Oct 3.0% 3.1% n/a10:00 11:00 HICP (Prel) m/m : Oct 2.0% 0.8% n/a10:00 11:00 HICP (Prel) y/y : Oct 3.6% 3.6% n/a11:00 12:00 PPI m/m : Sep11:00 12:00 PPI y/y : Sep12:30 08:30 Canada GDP m/m : Aug 0.3% 0.2% 0.2%12:30 08:30 GDP y/y : Aug 2.3% 2.2% n/a13:45 09:45 US Chicago PMI : Oct 60.4 59.5 59.0Market Economics 27 October 2011Market Mover69www.GlobalMarkets.bnpparibas.com
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Market Economics | Interest Rate St
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ECB to remain active onliquidity me
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The November FOMC meeting is the fi
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further actions to support stronger
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this figure by starting with CoreLo
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While a downgrade would not have a
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Low for longAs a result of the afor
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In September, we estimated 2012 Fre
Page 17 and 18: a fairly significant change in the
Page 19 and 20: Japan: Exports Slow on End of Catch
Page 21 and 22: Japan: Lessons from a ‘Lewis Turn
Page 23 and 24: durable consumer goods became commo
Page 25 and 26: Australia: Not Yet• Having been f
Page 27 and 28: the start of the year, overall cred
Page 29 and 30: Restrictive lending conditions coul
Page 31 and 32: This section is classified as non-o
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Page 42 and 43: EMU Debt Monitor: Trade IdeasThis s
Page 52 and 53: Table 1: BNP Paribas' Inflation For
Page 54 and 55: Table 3: BNP Paribas' Inflation For
Page 56 and 57: TIPS: A Pause Before a New Jump?Thi
Page 70 and 71: Economic Calendar: 28 Oct - 4 Nov (
Page 72 and 73: Key Data PreviewChart 3: Japanese P
Page 74 and 75: Key Data PreviewChart 7: UK Manufac
Page 76 and 77: Key Data PreviewChart 11: US Non-Fa
Page 78 and 79: Key Data Preview150100500-50-100-15
Page 80 and 81: Treasury and SAS Issuance CalendarT
Page 82 and 83: Central Bank WatchInterest RateEURO
Page 84 and 85: This publication is classified as n
Page 86: For Production and Distribution, pl
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