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Market Research8.pdf

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07 November 2013

 France will tap the OAT 45s and launch a new 10y today, for around €6bn in total; we still
find the French long-end cheap versus swaps. Spain also issues €3-4bn between the 5y,
10y and 13y SPGBs, of which we find the 5y cheap on the curve but the 10y and 13y on
the rich side. Spain's Treasury will auction EUR 3.5 bn of bonds maturing in October 2018
(3.75%), in October 2023 (4.4%) and in July 2026 (5.9%).
 We revised our EURUSD forecasts lower to 1.30 and 1.28 in three and twelve months
given likely ECB dovishness driven by below-target inflation and the stabilization of US
yields supporting USD (see here).

UK: BoE Rate Decision, Lloyds Employment Confidence
 The Bank of England also releases its rate and asset purchase decision. We expect policy
to remain steady at 0.5% and quantitative easing at £375bn. Moreover, also the Lloyds
Employment Confidence for October will attract the attention, after a record high printing
last month (-13), the highest level since 2005.
 Short Sterling has been underperforming Euribor over the last week, and we have been
stopped out of our L-ER U6 tightener. We maintain our recommendation to receive GBP
1y1y as the market is still underpricing the BoE’s resolve to stay accommodative in the
 We are bearish sterling against the dollar (see here) but bullish against the euro around
the ECB and MPC policy decisions.

Sweden: Budget Balance, House Prices
 In Sweden, Budget Balance and House Prices will be out today. Last month printed at
SEK 28.3bn and SEK 2.074 million, respectively. We remain modestly bearish on SEK
and recommend GBPSEK longs (see here).

Norway: IP
 In Norway, Industrial and Manufacturing Production will be in the focus. Market expects
these numbers to turn positive from -0.7%mom and -3.8%mom, respectively. We remain
modestly bearish on NOK and recommend GBPNOK longs (see here).

Mexico: Inflation
 Consensus is for inflation to decline modestly from 3.39% yoy to 3.33%. While we think
MXN is better poised to benefit from a strong domestic story, in the near term, we think the
peso could remain weak in the event of further data strength in the US. We would still
expect it to outperform the rest of EM, even in the event of broad EM weakness.

Czech Republic: Rate Decision
 The policy rate is very likely to be held unchanged, with all focus on any FX policy
innovations. Given data have improved and minutes reveal rather heated discussion on
the Board, we do not expect FX interventions to be launched or the rhetoric strengthened.
The new rate projections will be of interest.
 We are neutral on CZK for the next three-month horizon when also strong current account
seasonality should help, but we remain medium-term bearish.

Malaysia: BNM Rate Decision
 The BNM is widely expected to leave rates on hold at 3%. Inflation has started to pick up,
but this is in response to subsidy rationalization measures, and fiscal policy is becoming
less expansionary. As such, we doubt Bank Negara will rush to raise the overnight rate.
 Malaysia’s fundamentals have improved, and the current account surplus is likely to rise
gradually into 1Q, which should give some supports to MYR.

The Global Macro Pulse