b*****r
发帖数: 2065 | 4 https://360.gs.com/research/portal/research/econcommentary/?action=viewpage&
st=1&d=16792280&isRouted=true
Goldman Sachs Research
Global Markets Daily: Market views muted ahead of the FOMC
Published 05:12 AM Wed Mar 19 2014
----------------------------------------------------------------------------
----
•The FOMC is now meeting for the first time with Janet Yellen as Chair.
•Our US team expects the FOMC to deliver an accommodative message...
•…alongside a continued tapering of asset purchases.
•But our market views here are likely to shift little in response.
•Much of that dovishness is arguably already priced, particularly in
US rates…
•…with other macro themes – the expected US growth rebound and EM
challenges – the key drivers of our medium-term views.
1. Market round-up
Equity markets had another strong day across the board: the S&P 500 added
72bp to close at 1872, nearly back to all-time highs, and implied equity
volatility declined sharply for the second day in a row, while EM equity
markets outperformed, led by a 400bp rally in Russian equities, with other
Russian assets improving slightly too (the RUB was a touch stronger and
yields a touch lower). Beyond equities, however, US markets were fairly
quiet ahead of today’s FOMC meeting. Despite the strong equity rally on
Tuesday, Asian markets have had a mixed session. Chinese equities are in the
red, but south east Asia and Japan are marginally positive. Developments in
the RMB remain a focus of Asian markets. Onshore spot fixed marginally
higher today, and onshore spot traded above 6.20, entering the new, wider
band for the first time. The rest of the Asian currency spectrum remains
fairly unfazed by developments in the RMB.
2. Some accommodative changes expected from the FOMC later today
The FOMC is now meeting for the first time with Janet Yellen as Chair. In
addition to the usual post-meeting statement release later today, there will
also be the quarterly release of the Summary of Economic Projections and a
press conference with Chair Yellen. The current backdrop presents several
challenges for the Fed. The US growth data have slowed, perhaps because of
weather (our own models suggest that about ½ of the 1pp decline in
implied real GDP growth is weather-related), but expectations remain firm
that growth will accelerate later this year. The unemployment rate has
declined sharply and is only two-tenths of a percent away from the Fed’s
stated 6.5% target. And the FOMC has already embarked on a tapering of asset
purchases, currently at about $10bn/month.
Given this backdrop, and under the guidance of Chair Yellen, our US
Economics team expects the FOMC to deliver an accommodative message (see “
US Economics Analyst: March FOMC Preview: All about Guidance,” March 14,
2014). They will likely acknowledge weather effects, but only partly, in
describing current economic conditions and they are likely to continue to
taper asset purchase at the current pace. Alongside this, we expect three
other shifts that, taken together, are marginally more accommodative. First,
the FOMC’s long-run unemployment and funds rate projections may both
decline. Second, we expect two participants to move their target dates for
the first rate hike (the so-called “dots”) further out. Third, we expect
the FOMC to move towards a more qualitative description of the labour market
conditions needed to shift to a less accommodative policy stance. This
qualitative guidance could occur alongside the current 6.5% unemployment
rate threshold or in place of it.
Despite these expected shifts from the Fed, our current assessment of where
key macro-driven asset markets are likely to head over the medium term is
not particularly captive to the outcome of today’s meeting. This is in part
because some markets – rates in particular – have already reflected an
accommodative Fed stance, leaving them relatively more exposed to the
expected pick-up in US growth, and in part because other macro themes are
likely to remain in focus, such as the ongoing adjustment process in EM
assets and China-related weakness.
3. Longer-dated US rates vulnerable to better growth outcomes; dovish
surprise unlikely
Turning first to the US rate market directly, with Dec 2015 Fed funds at
60bp and Dec 2016 Fed funds at 160bp, there is some room for a limited rally
at the very front end. But Fed dovishness is well appreciated by the market
, and short rates have already rallied over the last few months. Longer-
dated US rates ought to be more connected to the US growth outlook, and here
our bias is to be short. As Francesco Garzarelli and the Rates team have
recently argued, US 10-year yields hovering around 2.7% is below our
forecast for the end of Q2 at 3.1%, and we expect better US growth outcomes
to push yields higher from here. From a trading perspective, our focus so
far this year has been on the belly of the US curve via two trading
recommendations, one tactical – recommending longs on the June-15 Short
Sterling contract (LM5) against shorts on the June-15 Eurodollar contract (
EDM5) – and one a strategic 'Top Trade' – recommending a long EUR swap (
EONIA) 5y rate position vs. a short in 5y Treasuries.
4. More USD strength likely ahead, despite an accommodative Fed…
Despite a potential dovish tilt from the Fed, our tactical FX views are more
geared towards incremental US strength relative to other majors, not
weakness. Specifically, in the near term, our FX team has greatest
conviction in USD strength against the Yen, CAD and AUD, as US growth
bounces, the BoJ pivots to a more aggressively dovish stance, and China
growth and commodity market headwinds remain in place (see “The Global FX
Monthly Analyst: Our strongest conviction views,” March 13, 2014).
The near-term EUR and GBP paths from here are less clear, although our
inclination is for a shift towards USD strength. In both markets a good deal
of USD weakness has already been priced, in the case of the EUR in part
owing to a lack of ECB action, and in the case of the GBP in part due to a
better patch of UK growth. However, with the EUR nearing 1.40, the top of
our forecast range, ECB President Draghi’s recent rhetoric indicating that
FX constraints are on his radar screen, and US data expected to improve,
over the medium term we expect the USD to gain ground against both these
currencies.
5. …although EM assets may feel some relief temporarily
Over the last 18 months or so, US easing has, episodically, shielded EM
rates and FX from their fundamental headwinds. These patches of relief have,
thus far, proven only temporary, with structural needs to rebalance and
domestic growth concerns ultimately the more important drivers of EM asset
performance. This is our current view of EM market risks heading into the
FOMC as well.
First and foremost, it is unclear at best if there will be any incremental
US rate relief or if Fed dovishness is already fully appreciated by markets.
And even if there is some incremental easing to be priced, EM headwinds
remain intact. China growth outcomes continue to disappoint, and as our EM
team recently demonstrated, that is only partially priced in many exposed
markets. Beyond exposure to China weakness, which should abate somewhat as
we go through the year, the degree of internal rebalancing still needed in
several places implies significantly more market adjustments yet to come.
6. DM equities: An asset class for all seasons
DM equities are the one place where incremental Fed easing and the
likelihood of a US growth recovery both push in the same direction. True,
the S&P 500 is nearly back to all-time highs. With our Wavefront Consumer
Growth and GDP Growth baskets mostly range-bound thus far in 2014, weather
worries have been mostly absent, but so has growth optimism. Support has
mostly come from easy financial conditions and still-supportive risk
sentiment. So a pick-up in growth, incrementally more easing of financial
conditions or a combination of the two should be enough to keep pushing DM
equities higher. Indeed, our US strategists still expect modest S&P upside
this year. And tactically, we are expressing our upbeat equity market view
via a recommendation to be long the German DAX index, which had
underperformed markedly over the last few weeks and could benefit from any
FOMC surprise later today or better US growth news later this week, and as
weather effects roll off.
7. Recommended Tactical Trading Views
The following trading ideas from the Global Markets Group reflect shorter-
term views, which may differ from the longer-term ‘structural’ positions
included in our ‘Top Trades’ list further below.
On FX:
1.Stay long USDKRW (on a spot basis), opened at 1055 on 06 Jan 2014, with a
target of 1100 and a stop on a close below 1030, currently at 1071.
On Rates:
1.Stay long 10y Japanese break-even inflation (long 10y JGBis versus 10y
JGBs), opened at 1.16% on 31 Jan 2014, with a target of 1.60% and a stop on
a close below 0.95%, currently at 1.19%.
2.Stay long LM5 (June-15 Short Sterling) vs short EDM5 (June-15 Eurodollar),
opened at 58bp on 21 Feb 2014, with a target of 20bp and a stop on a close
above 75bp, currently at 53bp.
On Equities:
1.Stay long German equities via the DAX Index, opened at 9171.9 on 18 Mar
2014, with a target of 10,000 and a stop on a close below 8750, currently at
9237.
8. Recommended Top Trades for 2014
Longer-term structural views are expressed in our Top Trade recommendations.
These are typically managed with a wide stop, and assessed on the basis of
whether the fundamentals continue to support the medium-term investment
theme.
1.Stay long SP 500 Dec 14 Future and (funded out of) short AUD/USD Dec 14
Future, opened at 1986.8 on 25 Nov 2013, with a target of 2250 and a stop on
a close below 1855, currently at 2065.
2.Stay long EUR swap (EONIA) 5y rate and short 5y Treasuries, opened at
yield differential of -61 (bps) on 26 Nov 2013, with a target of -130 and a
stop on a close above -35, currently at -82.
3.Stay long USDCAD (on a spot basis), opened at 1.055 on 27 Nov 2013, with a
target of 1.14 and a stop on a close below 1.01, currently at 1.114.
4.Close long HSCEI Index and short Copper Dec 14 LME future, opened at 0.0%
(on return basis, corresponding to respective price levels of 11542.1 and
7064.5 in two instruments) on 02 Dec 2013, for a potential loss of -13.5%.
5.Stay long risk (selling protection) on the 7-year CDX IG Series 21 junior
mezzanine tranche (the 3-7% portion of the loss distribution), opened at 465
(on a running spread basis) on 03 Dec 2013, with a target of 350 (revised
from 395) and a stop on a close above 520 (revised from 585), currently at
409.
6.Stay long basket in large-cap bank indices in the US, Europe, and Japan,
implemented via equal parts of BKX, SX7E, and TPNBNK indices, opened at 100
on 04 Dec 2013, with a target of 120 and a stop on a close below 90,
currently at 102.2.
Noah Weisberger - Goldman, Sachs & Co.
(212) 357-6261 n*************[email protected]
Legal and Certification Disclosures I, Noah Weisberger, hereby certify that
all of the views expressed in this report accurately reflect my personal
views, which have not been influenced by considerations of the firm's
business or client relationships.
For Reg AC certification, see above. For other important disclosures, go to
www.gs.com/research/hedge.html
Click here to show certification disclosures |
