1 Dec 2014
Carry trades rule – RBS
FXStreet (Barcelona) - Brian Mangwiro of RBS, notes carry trades rule the current market as everything is now back to a liquidity trade because of soft inflation and weak global growth concerns.
Key Quotes
“Strategy‐wise, I have preferred to stay short Asia FX; stay REC’d/long in select European rate markets (EMU periphs, Poland, Sweden); short Euro FX (EUR/USD, EUR/CAD, EUR/HUF and EUR/PLN, among others); and neutral on duration, but in favour of flatteners in the UK, US and Canada.”
“I also discussed how rate hike prospects were being pushed back (in the US, UK, Canada and Oz) and how that, along with new QE initiatives, was creating a new wave towards carry/roll trades.“
“That said, I did not anticipate: (i) the ECB’s open debate on/reference to potential sovereign QE in Q1’15; and (ii) the broad‐based rally in global interest rate markets (along with Europe). I did try to fade the richness in UK rates (went long 1y1y USD vs UK; 10y US vs. UK), and even though I’m staying in (because positive roll soothes the pain), that is so far a very painful position.”
“With cheap cash sloshing around, UK and US rates are seen as ‘cheap’.”
“Clearly, everything is now [back to] a ‘liquidity trade’, and with global growth being questioned, and inflation soft (as commodity prices collapse ‐> oil, iron ore, copper etc), carry trades rule. Go With. To the waterfall.”
Key Quotes
“Strategy‐wise, I have preferred to stay short Asia FX; stay REC’d/long in select European rate markets (EMU periphs, Poland, Sweden); short Euro FX (EUR/USD, EUR/CAD, EUR/HUF and EUR/PLN, among others); and neutral on duration, but in favour of flatteners in the UK, US and Canada.”
“I also discussed how rate hike prospects were being pushed back (in the US, UK, Canada and Oz) and how that, along with new QE initiatives, was creating a new wave towards carry/roll trades.“
“That said, I did not anticipate: (i) the ECB’s open debate on/reference to potential sovereign QE in Q1’15; and (ii) the broad‐based rally in global interest rate markets (along with Europe). I did try to fade the richness in UK rates (went long 1y1y USD vs UK; 10y US vs. UK), and even though I’m staying in (because positive roll soothes the pain), that is so far a very painful position.”
“With cheap cash sloshing around, UK and US rates are seen as ‘cheap’.”
“Clearly, everything is now [back to] a ‘liquidity trade’, and with global growth being questioned, and inflation soft (as commodity prices collapse ‐> oil, iron ore, copper etc), carry trades rule. Go With. To the waterfall.”