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23 May 2013
Flash: A historical view of the new normal - Societe Generale
FXstreet.com (Barcelona) - Kit Juckes, Global Head of Currency Strategy notes that normalising Fed policy in the late 1970s and in 1994 triggered big EM moves.
He sees that the ZAR has been the recent whipping-boy and while it probably goes further long USD/ZAR (and long TRY/ZAR) are crowded trades. Further he adds that the two EM currencies most frequently cited as favourites to own at the recent Euromoney Forum were the Indian Rupee, and the Mexican peso, so both are particularly vulnerable now.
Juckes continues to recall that credit has been the most resilient of all asset classes, and double-digit returns over the last year in European corporate bonds have far exceeded even bulls’ expectations. However, his asset allocation team warned yesterday the sector is rich, and the combination of higher volatility and a less attractive growth/interest rate mix is as toxic as it can get. He writes, “The iTraxx crossover index can easily correct 100-150bp in short order without challenging any long term bull’s conviction.”
He sees that the ZAR has been the recent whipping-boy and while it probably goes further long USD/ZAR (and long TRY/ZAR) are crowded trades. Further he adds that the two EM currencies most frequently cited as favourites to own at the recent Euromoney Forum were the Indian Rupee, and the Mexican peso, so both are particularly vulnerable now.
Juckes continues to recall that credit has been the most resilient of all asset classes, and double-digit returns over the last year in European corporate bonds have far exceeded even bulls’ expectations. However, his asset allocation team warned yesterday the sector is rich, and the combination of higher volatility and a less attractive growth/interest rate mix is as toxic as it can get. He writes, “The iTraxx crossover index can easily correct 100-150bp in short order without challenging any long term bull’s conviction.”