Swiss National Bank (SNB) introducing negative interest rates: Bracing itself for possi-ble euro sto

Marga - Viernes, 19 de Diciembre

• 
• 
• 
• 
• • 
  • 
  • 

The SNB has embarked earlier than expected into uncharted territory with rather limited scope for success, remaining at the mercy of the European Central Bank, but having bought time, to allow the Swiss economy to continue on a steady growth path. The enlarged tool box to hold the EUR/CHF threshold at 1.20 does not enlarge its autonomy, but complicates its policy stance. The franc, however, will remain close to the EUR/CHF currency threshold for the time being.

Janwillem Acket; Chief Economist, Julius Baer

FIXED INCOME: De-risking continues

Financial analysis is forecasting the psychology of the market, famous economist John Maynard Keynes noted three quarters of a century ago. Market psychology seems to be the driving factor at this juncture, and it is negative. Investors are closing their positions in riskier segments, such as high-yield and emerging market bonds. Merrill Lynch noted that the weekly outflow out of US high-yield bond funds and exchange-traded funds was USD2.5 bn in the week ending on Wednesday, basically wiping out the inflows from the previous 11 weeks. The trailing 12-week fund flow figure is therefore down to USD0.4 bn. The situation is more dramatic for US loan funds which saw the biggest weekly outflow on record. Since Federal Reserve Chair Janet Yellen had warned the market in July that leveraged loans and high-yield bonds were excessively valued and yields were not rewarding for the risk inherent in these structures, money has been flowing out of these loan funds. Emerging market could withstand this negative sentiment for quite a while, with inflows remaining positive for most of 2014. The correction is still ongoing in the US leveraged loan and high yield bond market as the day of reckoning nears for many companies that have no viable business model anymore and just survived thanks to continuous inflows with super-cheap money. As capital sources are drying out, there will be more defaults in the near term. In emerging markets, however, sentiment seems overly negative. Global trade has not collapsed and leverage has been more modest than in the US high-yield market.

We keep our powder dry for US high-yield bonds and focus on opportunities in the emerging market segment mainly. We still like offshore Chinese renminbi (CNH) bonds and investment-grade emerging market corporate bonds.

Markus Allenspach; Head of Fixed Income Research, Julius Baer

*

FIXED INCOME: Russia: Status quo news is good news

The rouble has stabilised in the last two days at levels slightly above USD/RUB 60. The EU head of states talked about an easing of sanctions to honour the truce in Eastern Ukraine but came to the conclusion yesterday to leave things unchanged. In the US, there was talk about more financial sanctions over the last weekend that hurt the Russian market very much at the start of the week. After the Obama Administration yesterday decided to implement no further sanctions at this juncture, the market reacted with relief.

We maintain the position outlined in our report on Tuesday that the Russian government has sufficient international reserves to keep the key companies liquid. We still recommend not to sell bonds of Russian state-related issuers at this juncture.

Markus Allenspach; Head of Fixed Income Research, Julius Baer

*

COMMODITIES: Copper surplus at risk

Over the past couple of years, Africa has contributed strongly to globally growing copper mine production. Zambia is the continent’s second largest producer, accounting for around 4% of global production this year. Further expected growth over the coming years may however be called into question. As of next year, royalties will be increased while profit taxes will be removed, hitting primarily higher-cost mines. Barrick Gold (Hold, Price/Target: USD11.1/13) already announced the suspension of its Zambian copper mine, raising the risk of further cutbacks to current and future production. While negotiations appear to be ongoing, this nevertheless puts next year’s expected copper market surplus at risk. The market could be moving closer to balance which should increase its dependence on demand-side dynamics. For the time being, we maintain a neutral three and twelve-month outlook for copper with price targets of USD 6,600 and USD 6,500 per tonne. Ongoing mining cost deflation should keep prices in check, as outlined in our 2015 outlook.

Announced and potential cutbacks to Zambian copper production puts copper’s expected surplus at risk. Prices should nevertheless be kept in check amid ongoing mining cost deflation, warranting a short and longer-term neutral view.

Carsten Menke, Commodity Research, Julius Baer

[Volver]