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Multi-Asset Strategy Team
Multi-Asset Strategy ResearchMulti-Asset Strategy Products: Multi-Asset Strategy Monthly, Multi-Asset Strategy Weekly, Absolute Essentials, Trade Alerts.
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• Even US recession in 2020 H1 may not be enough to reverse the 8-year uptrend in the broad US dollar index. Risks remain skewed towards the upside versus EM currencies in particular. But USD could start to fall versus EUR if US corporate credit becomes a major fault-line.
• Among EM, ZAR remains a favoured short. Sticking with long RUB/ZAR.
• Continue to favour EM high-yielders with decent fundamentals (such as IDR and MXN) relative to expensive low-yielders (e.g., THB and TWD). AUD and NOK have cheapened beyond terms of trade weakness, unlike CAD.
• We consolidate our commodity currency preferences into one recommendation – long AUD and NOK versus CAD – which should benefit if investor focus shifts from Asian trade to North American domestic demand.
• While Italian bonds are no longer looking cheap, we still find falling BTP yields hard to fight. Italy’s political and economic backdrops have both been improving and BTPs are still offering attractive relative value.
• Post-ISM US Treasury strategy review – we recommend retaining a long UST duration bias and taking profit on 5/30y UST curve flatteners.
Historic analysis and the past 18 months underline the importance of the macro surprise and expectations regime for a range of assets. Accordingly, the potential for a change of regime in the next few months has market implications. The key to a sustained revival in risk assets lies with a turnaround in global activity expectations – on this front neither ASR’s Leading Indicators nor the Global Nowcast is encouraging. At the same time, while positive activity surprises may re-emerge, they are unlikely to be sustained.
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