HomeResearch and NewsNegative yields are not forever: debt market bubble will explode someday

Negative yields are not forever: debt market bubble will explode someday

EQUITIES The start of the bear market is not far away, but now the market is only forming the top

  • Trade S&P500 equity index at 2100-2250 range with short position and put options purchase priority.

  • Short Russian equity index / ETF (RTS, RSX) and the most liquid single stocks (Sberbank, Yandex) with RTS target of 750-800 points.

  • Short country-specific ETFs on «Fragile Five» states and weak emerging markets, such as TUR (Turkey), EWZ (Brazil) and EZA (South Africa).

  • Long oil and oil-service single stocks and industry-specific ETFs, such as XOP, OIH, MRO, RIG in a case of Brent crude oil price drop to $40 per bbl.

  • Short overvalued Metals & Mining stocks (FMG.AX, AAL.L, XME, ABX, VALE) to buy them 20-25% lower (Chinese demand deterioration, large inventories and speculative long positions liquidation).

  • Short China-specific ETFs and Chinese single stocks with high liquidity on US stock exchanges (ASHR, CHAD and ADRs: BIDU, BABA, WUBA, CTRP, LFC).

  • Long / short speculative trade: buy deeps in MU, M, CNX, FSLR in the USA and in Magnit, etalon and VIP in Russia, short strengths in FB, Amazon, Netflix, Google, Tesla and large US banks.

CURRENCIES A break in US dollar strengthening is close to the end, Euro further weakening is highly probable

  • Short EUR/USD at 1.13-1.14 with a target of 1.08 and 1.05.

  • Short USD/JPY at 108-110 with a target of 90-95 (disappointment in «Abenomics» and BOJ actions).

  • Trade AUD/USD at 0.73-0.80 range and GBP/USD at 1.25-1.33 range.

COMMODITIES The worst is over, but large inventories and sluggish demand will determine volatile side trading

  • Short silver above $19.0 with a target of $17.0. Long gold below $1200 with a target of $1400.

  • Long wheat and corn long-dated futures, e.g. Jul and Dec (La Niña will result in droughts and poor crops harvest in 2017).

FIXED INCOME The market undervalues a probability of Fed’s rate raise as well as European debt bubble problem

  • Short long-dated European sovereigns (Germany, Italy) with a target price 6-8% lower, short Japan sovereigns at yield below -0.2% with a target yield of 0.2% and short 10-year US Treasuries at yield of 1.55-1.60% with a target yield of 2.0-2.25%.

  • Short long-dated emerging markets Eurobonds (Turkey, Kazakhstan, Russia) with a target of YTD lows.

  • Long short-dated Russian Eurobonds (Russia-20, Russia-23, Lukoil-19) at yields above 3.5-4.0% to reduce a cost of carry produced by other short positions in fixed income instruments.

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Oil Market Report - March 2020

Crude oil prices ended February 2020 sharply lower with both ICE Brent and NYMEXWTI showing monthly declines of more than 12% to reach their lowest monthlyvalues in almost 2.5 years as the rapid spread of Covid-19 in China and several othercountries raised investors’ concerns about the impacts on the global economy and oildemand, and triggered a sharp sell-off in markets amid uncertainties on the extent ofdemand destruction and worries that this health crisis might evolve into a pandemic.

oil, investment, equity

Arbat Capital: Banking Sector Report - February 2020

US banks tumbled again in February after very weak performance in January amid spreading COVID-19 around the world. The broad market was underperformed substantially for the second consecutive month after 4 months in a row of leading dynamics. Thus, BKX index decreased by 12.5% MoM in February vs -8.4% MoM of SPX index. Absolute performance on MoM basis was -2 std from the mean and it is in the bottom 4% of absolute MoM performance of BKX index.

investment, banks;

Commodity market Report - February 2020

Trade war is officially over but Chinese risks resurfaced from the other side - extreme quarantine measures after coronavirus outbreak in Jan-Feb resulted in significant breakdown in the industrial production chains and construction activity. However monetary and fiscal stimuli quickly reversed negative sentiment and overall risk conditions returned to the high Greed mode with only commodities market kept in risk-off mode. Energy complex was very volatile as its initial sharp drop was lately compensated by OPEC verbal interventions and renewed risk in Libya and Venezuela. Industrial metals fell sharply, but Precious shined brightly with unbelievable bubble in Palladium. Agri commodities were mostly range bound with Cocoa being top performer

Macroeconomic drivers turn to negative as positive developments after the Trade Deal signature and record financial markets levels gave the way to fears of world economic slowdown after the virus outbreak. On the other hand there were not many voices for recession as stimulative monetary policy should provide the cushion. However we think that markets overstated willingness of the Fed to keep on printing and the main risk once again turned to the hawkish surprise when it exits REPO stimulus gambit and the ECB to end QE. 

commodity;