25 Jul 2013
Flash: Last minute summer rentals – BAML
FXstreet.com (London) - Alexandra Fletcher, Communications and Media Relations, BofA Merrill Lynch Global Research and Michael Hartnett, Chief Investment Strategist, BofA Merrill Lynch offered insight in summertime markets.
Key Quotes:
“Summer's here, the water's warm and volatility is wilting. The best trading opportunities are in Emerging Markets, as China growth expectations stabilize and a crowded dollar bull trade takes a breather. We expect to see trading bounces in southern hemisphere assets such as the ZAR, AUD, Brazilian resources and Indian bonds, which have recently been humiliated via the commodity cycle and/or their large current account deficits”.
“French manufacturing growth is outperforming China's, Irish property prices are rising and the Mediterranean is suddenly full of current account surpluses”.
“US, UK and Japanese banks have all been discounting the improvement of real estate trends in their respective markets. That implies that lagging European banks have room to play catch-up with their US and Japanese peers. We believe the Euro Stoxx Banks Index SX7E is the best play on sentiment”.
“And then in autumn: Sell Bonds, Buy DXY. As summer ends, Great Rotation leadership should resume. Significant monetary stimulus, the end of fiscal austerity, a booming housing market and record corporate cash balances should lead to a sharp pickup in the US economy, which in turn should be positive for the US dollar and negative for bonds. As noted last week, we consider the dollar the last of the great reflation trades and expect that the eventual end of QE will push DXY up to its long-term average of 100. We maintain a bearish core asset allocation to fixed income, and would sell bonds into any summer strength”.
Key Quotes:
“Summer's here, the water's warm and volatility is wilting. The best trading opportunities are in Emerging Markets, as China growth expectations stabilize and a crowded dollar bull trade takes a breather. We expect to see trading bounces in southern hemisphere assets such as the ZAR, AUD, Brazilian resources and Indian bonds, which have recently been humiliated via the commodity cycle and/or their large current account deficits”.
“French manufacturing growth is outperforming China's, Irish property prices are rising and the Mediterranean is suddenly full of current account surpluses”.
“US, UK and Japanese banks have all been discounting the improvement of real estate trends in their respective markets. That implies that lagging European banks have room to play catch-up with their US and Japanese peers. We believe the Euro Stoxx Banks Index SX7E is the best play on sentiment”.
“And then in autumn: Sell Bonds, Buy DXY. As summer ends, Great Rotation leadership should resume. Significant monetary stimulus, the end of fiscal austerity, a booming housing market and record corporate cash balances should lead to a sharp pickup in the US economy, which in turn should be positive for the US dollar and negative for bonds. As noted last week, we consider the dollar the last of the great reflation trades and expect that the eventual end of QE will push DXY up to its long-term average of 100. We maintain a bearish core asset allocation to fixed income, and would sell bonds into any summer strength”.