EFTA02489955.pdf

From: Daniel Sabba To: leevacationagmail.cont" leevacation@gmail.com> Subject: Re: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I] Sent: Friday, September 11, 2015 1:26:56 AM ATT00003.onq ATT00010.pnq ATT00007.onq ATT00008.pnq ATT00009.pnq ATT00002.pnq ATT00005.pnq ATT00001.pnq ATT00004.pnq ATT00006.pnq Classification: For Internal Use Only Ok. There are two trades I would like you to look at. One a cheap long term play in crude, other a play on global central bank liquidity coming down. From: jeffrey E. [mailto:jeevacation@gmail.com] Sent: Thursday, September 10, 2015 04:21 AM To: Daniel Sabba Subject: Re: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I] speak later today I am in europe On Thu, Sep 10, 2015 at 4:48 AM, Daniel Sabba wrote: Classification: For Internal Use Only Thought provoking charts. From: Isin Sumengen-Ziel (DEUTSCHE BANK AG, LO) [mailto: Sent: Wednesday, September 09, 2015 10:09 AM Subject: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence Given the volatile price action in the EMEA high betas (TRY, RUB, ZAR), the below charts may be informative: 1) Stretchometer: Price action is certainly stretched (on the weaker side) across the board, but especially in MYR and BRL. TRY ZAR RUB price action is also stretched, but not as much as before the rally over the past two days. EFTA_R1_01610716 EFTA02489955 Looking specifically at USDTRY, price action is now stretched to the extent we saw earlier this year and more importantly at the start of 2014 (when the CBT undertook an emergency rate hike). The stretchometer for USDZAR is at 5-yr highs, but has retraced somewhat in the last 2 days (in line with the risk-on appreciation move observed across the EMEA high-yielders). EFTA_R1_01610717 EFTA02489956 USDRUB price action is also stretched, but we are still far below the 'stretch' levels we have seen in the recent past. N. EFTA_R1_01610718 EFTA02489957 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): According to our short term financial fair value' metric, EM FX is cheap almost across the board, with ZAR being the the most undervalued currency. TRY is also cheap, while RUB less so. However, these results should be taken with a pinch of salt, as the short-term valuation metric provides a better picture when currencies are trading within relatively tight ranges, rather than trending strongly and breaking new ground (as is the case currently for many EM currencies) due to domestic factors/factors not captured by the model. Financial fair value (USD crosses): As the charts below show, the extent of undervaluation (i.e. the magnitude of the model residual) is at 1y extremes for TRY and ZAR, but not for RUB. USDTRY: EFTA_R1_01610719 EFTA02489958 NN USDZAR: EFTA_R1_01610720 EFTA02489959 USDRUB: EFTA_R1_01610721 EFTA02489960 Another point to highlight from the financial fair value metric, other than the cheapness of TRY and ZAR in particular, is the resilience of Central Europe (HUF. CZK. PLN. RON). We have been highlighting our bullish bias on the region (HUF and PLN in particular), and the financial fair value metric corroborates the fact that these currencies have been mostly immune to the recent sell-off in EM FX. They have the best performing EM currencies (vs USD) since the yuan deval. Over this period, there has certainly been differentiation within EMEA — weakening bias in the high yielders TRY RUB ZAR and resilience in Central Europe fx. This differentiation is also evident in the chart below, which indicates that the average correlation between the EMEA fx currencies (USD crosses) has come down sharply in the past few months. EFTA_R1_01610722 EFTA02489961 Best, N., N Gautam Gautam Kalani, Ph.D Economist/Strategist Deutsche Bank AG, Filiale London Emerging Markets Research Winchester House. 1 Great Winchester Street. EC2N 2DB London. United Kingdom Tel. Email This e-mail may contain confidential and/or privileged information. If you are not the intended recipient (or have received this e-mail in error) please notify the sender immediately and delete this e-mail. Any unauthorized copying, disclosure or distribution of the material in this e-mail is strictly EFTA_R1_01610723 EFTA02489962 forbidden. Please refer to http://www.db.com/en/content/eu disclosures.htm for additional EU corporate and regulatory disclosures and to http//www.db.corn/unitedkinodom/contenUprivacv.htm for information about privacy. 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