20170510-法国巴黎银行-Despite_recent_China_concerns_and_related_commodity_weakness,_we_do_not_see_a_sustained_negative_impact_on_risky_assets_21页_2mb

BNP PARIBAS MARKETS CALL Summary

Core Content

This document provides the weekly market view from BNP Paribas Markets Call, dated 10 May 2017. It outlines the firm's outlook on various asset classes, including equities, commodities, currencies, and bonds, while also addressing the impact of geopolitical and economic factors on market dynamics.

Main Views

1. Risky Assets Outlook

• BNP Paribas maintains a positive view on risky assets for the next month, despite recent concerns about China and related commodity weakness.
• Low and stable yields, strong earnings, and reduced European political risk continue to support the market.
• US earnings growth was strong at 15.4% (for 432 companies), while European earnings growth was even stronger at 23% (for 182 companies).
• On a valuation basis, European stocks are favored over US stocks.

2. Commodities Outlook

• The firm is moderately bearish on commodities, citing buoyant supply and rising inventories as key factors keeping prices under pressure.
• Commodity weakness is expected to impact emerging markets, but improving economic data, strong investor inflows, and low rates may support the asset class in the short term.
• Oil prices are expected to remain under pressure due to high inventories and rising US production, though commodity inventories may support coal prices.

3. Currency Outlook

• Volatility across asset classes remains at record lows, which is seen as unsustainable.
• The Fed is expected to maintain its rate hike profile of two additional hikes in 2017.
• The firm recommends buying NZD vs JPY, as NZD has been oversold in the recent commodity-driven unwind and JPY long positions have not been fully unwound.

4. FX Market Analysis

• FX investors have aggressively sold commodity currencies, with NZD being the most bearish.
• Commodity currencies are seen as oversold based on short-term fundamental drivers, suggesting potential for a rebound.
• NZDUSD has declined too far versus commodities, rates, equities, and credit, making it a strategic buy.

Key Information

5. China Economic Outlook

• China's economic growth remains firm despite recent PMI declines, with hard data still robust.
• CPI has not followed PPI due to sharp declines in food prices, indicating no deflationary pressure.
• The CNY has weakened, but not enough to trigger a sharp devaluation.
• China is exporting inflation, as PPI inflation outpaces CNY depreciation.
• FX reserves have dropped by about USD 1 trillion, showing commitment to currency stability.

6. Oil Market Outlook

• The oil market is now more balanced, but US production is rising, and OPEC compliance may fall.
• Implied volatility is low, and realized volatility is even lower, suggesting potential for future performance.
• The drop in oil prices is expected to weigh on US HY bond prices.

7. Investor Positioning

• Investors are reducing long exposure to oil, but positions remain large.
• Iron ore is overbought, and copper is under pressure due to falling production.
• Momentum investors are selling into price weakness for iron ore.

8. Market Volatility

• Low implied volatility suggests markets are not worried about the current commodity price drop.
• Tail risk hedging is currently cheap, as seen in option skews.
• Volatility is not rising, which may indicate a new range for commodities.

Trade of the Week

• Recommended trade: Long NZDJPY
• Target: 81.000
• Stop: 76.300
• Reasoning: NZD has been oversold, while JPY long positions have not been fully unwound. The risk environment remains solid post-French election.

Dial-in and Replay Numbers

• Live Call: Every Wednesday at specified times in various locations (e.g., New York at 09:00, London at 14:00, etc.)
• Password: 'The BNP Paribas Markets Call'
• Replay: Available for 5 days following the call, with numbers listed for different countries.

Contacts & Legal Notice

• Robert McAdie: Global Markets Head of Strategy Research, contact details provided.
• Pierre Mathieu and Michael Sneyd: Cross-Asset Strategist and Macro Quantitative Strategist, respectively.
• Disclaimer: The document is non-independent research and not investment research for the purpose of MiFID.
• No liability is accepted for any losses arising from reliance on the document's content.
• STEER™ is a trademark of BNP Paribas.