Market Guide - Microsoft€¦ · Market Guide Brexit and trade war are still the main themes •...

Market GuideBrexit and trade war are still the main themes

• Brexit deadline approaches

• US–China trade deal could trigger next EUR/USD rebound

• Weak macro outlook weighs on the SEK

Investment Research

22 February 2019

I m p o r t a n t d i s c l o s u r e s a n d c e r t i f i c a t i o n s a r e c o n t a i n e d f r o m p a g e 1 3 o f t h i s r e p o r t .

Editor-in-Chief: Morten Helt, + 45 29 62 62 33, [email protected]

https://research.danskebank.com

2 | 22 February 2019 www.danskeresearch.com

Market Guide UK

Analysts

Editorial deadline 22 February 2019 Investment Research

Editor-in-Chief:

Morten Helt

Senior Analyst

+45 45 12 85 18

[email protected]

Christin Tuxen Chief Analyst +45 45 13 78 67 [email protected]

Jens Nærvig Pedersen Senior Analyst +45 45 12 80 61 [email protected]

Kristoffer Kjær Lomholt Senior Analyst +45 45 12 85 29 [email protected]

Joachim Waldemar Bratlie Assistant Analyst

[email protected]

Statistical sources: Macrobond Financial, OECD, IMF, Statistics Denmark and other national statistical institutions plus Danske Bank

calculations.

The next issue of Market Guide is due at the end of March 2019.

Market Guide is a general research report and any recommendations reflect a general opinion. As such, the report does not consider

your specific situation as an investor, including, in particular, your investment profile. This means that although the bank may have a

general recommendation, such recommendation may not be appropriate for you as an investor owing to your particular

circumstances.

Market Guide does not constitute an offer or a solicitation to buy or sell securities, foreign currency or financial instruments.

We recommend that you discuss any potential transactions with your investment adviser to ensure that any investment decisions

you make are appropriate given your personal circumstances.

mailto:[email protected]





Market Guide UK

Market overview

Brexit deadline approaches

The pressure on Prime Minister Theresa May is rising as she is still not able to find backing for

her Brexit-deal with the EU in the House of Commons. The key problem remains that there is

no majority for a credible alternative. Unsurprisingly, the indicative House of Commons vote

on May’s Plan B on 14 February was voted down. That said the vote still weakens her position

towards the EU as it displays she still does not have a united party behind her.

This is a problem as the EU is not willing to negotiate and make concessions if it does not

know whether it will be sufficient. May has promised another vote by the end of February

but she is unlikely to have anything new to bring forward then. As it stands now it seems

as though we have to get very close to the 29 March deadline (remember there is an EU

summit on 21-22 March) or a small majority in the Commons will force May to ask for an

extension of Article 50 by the end of this month. This would give time to negotiate the

future permanent relationship. In our view, this would be the best way to avoid ever

activating the much-disliked Irish border backstop. We still see the two most likely

outcomes as May’s deal passing at a later stage as pressure builds on the politicians, or a

second EU referendum.

Cease-fire agreement nearing an end

The cease-fire agreement in the US/China Trade war is set to expire on 1 March. Trump

backtracked on meeting Xi Jinping in late February saying it was ‘probably too soon’ to

meet. The change in tone from Trump rattled equity markets on fears that US tariffs will

increase when the agreement ends. According to Reuters, Trump’s advisers had warned

him that accepting a meeting at this stage would increase expectations and could limit US

leverage in the negotiations, meaning that the change in tone might not stem from

negotiations going sour. The number of demands deemed non-negotiable by China has also

been sharply reduced. We still believe that the two sides want a deal and will eventually

reach an agreement, but probably not before Q2. Forming an agreement on wording in all

areas and how to make it enforceable will take time. As long as the trade talks are moving

forward, we believe that tariffs will not be raised, as this would wreak havoc in markets.

Soft comments continue to stream from the Fed

Carry momentum for USD is fading on the back of the Fed’s soft rhetoric and elimination

of forward guidance on rates at the January meeting. We still look for two rate hikes this

year. This compares with rather dovish market expectations as the Fed has been extensively

repriced, with close to a full 25bp cut now priced in by end-2020. It has now clearly

signalled that the tightening cycle is close to an end, with flexibility with respect to both

rate hikes and balance sheet reductions.

Oil price slowly grinding higher

Oil prices have moved higher in 2019 as risk sentiment has stabilised and as the OPEC+

production cuts are beginning to work. Global risk sentiment will be important for

developments in oil prices going forward. While macroeconomic key figures are likely to

stay weak through Q1, we believe the more dovish tones from the FED and high likelihood

of a trade deal over the coming months should underpin oil demand over the medium term.

If the current waivers on Iran are not extended further in April, it will lead to a large decline

in Iranian oil production, which should quickly be offset by OPEC+ production adjustment

to mitigate the effect. This could cause some volatility over the short-term, but should not

have a big impact on oil prices over the medium term. Also, keep an eye out for OPEC+ to

review its December deal in April. We still forecast a gradually higher oil price towards

USD80/bbl in Q4 this year.

Contents

Market overview

USD

GBP

JPY

SEK

NOK

Other majors

EMEA

Other emerging market

currencies

FX forecasts

Read more in Danske Bank’s

recent forecasts and

publications

The Big Picture

Nordic Outlook

Yield Outlook

FX Forecast Update

Weekly Focus

Danske Daily

Changes to the Market Guide

In effect as of this publication, the

interest rate hedging section will

no longer be a part of our Market

Guide publication. Please see our

Yield Outlook publication for

interest rate forecasts, and our

Liability Update presentation,

which contains our

recommendations for hedging

interest rate risks seen from a

company perspective. Both

publications are published on a

monthly basis.

https://research.danskebank.com/abo/A4TheBigPictureNovember2018031218/$file/A4%20The%20Big%20Picture_November%202018_031218.pdf

https://research.danskebank.com/abo/NordicOutlook040119/$file/NordicOutlook_040119.pdf

https://research.danskebank.com/abo/YieldOutlook130219/$file/YieldOutlook_130219.pdf

https://research.danskebank.com/abo/FXForecastUpdate110219/$file/FX_Forecast_Update_110219.pdf

https://research.danskebank.com/abo/FXForecastUpdate110219/$file/FX_Forecast_Update_110219.pdf

https://research.danskebank.com/abo/WeeklyFocus220219/$file/WeeklyFocus_220219.pdf

https://research.danskebank.com/abo/DanskeDaily220219/$file/DanskeDaily_220219.pdf

https://research.danskebank.com/research/#/Research/articlelist/Yield-Outlook

https://research.danskebank.com/research/#/Research/articlelist/Rates-Hedging


Market Guide UK

USD – a EUR/USD rebound on the horizon

The US economy still looks strong, but with the Fed on hold and a possible

Trade war deal in H1, the case is growing for a move higher in EUR/USD.

Outlook for EUR/USD

The US has suffered less from the global loss of growth momentum that

gained traction towards the end of 2018. Furthermore, US data has started

to surprise on the upside recently, hinting that a trough may be in sight as

Trump’s fiscal boost and a supportive Fed lend assistance.

The Fed has continued the stream of soft comments along with the

elimination of forward guidance on rates at the January meeting. We still

look for two more hikes this year. This compares with rather dovish market

expectations as the Fed has been extensively repriced, with close to a full

25bp cut now priced in by end-2020. We have been arguing for a long time

that the next big move in EUR/USD is higher as monetary-policy

divergence fades and the cross is undervalued. While a Fed that is now

effectively on hold has been the first stage, we think the next trigger for a

continued rebound will be a US–China trade deal.

USD remains generally overvalued, with our MEVA and PPP estimates for

EUR/USD now in the 1.20s, suggesting the direction of gravity should be

higher medium term. The downside risk to our forecast is a weaker eurozone

performance, forcing the ECB to postpone the hike further. No deals in the

trade war and Brexit would also weaken the case for a move higher.

Carry momentum for the USD is fading on the back of the Fed’s soft

rhetoric, and even if another rate hike or two may be on the cards, we do

not think this will be a major source of dollar support. The Fed going on

hold has been the first stage, and we believe the next one will be a US/China

trade deal. Whether the ECB will fuel a third stage in this rebound remains

a question, but a first hike looms as a key EUR-supportive factor. For now,

1.15 should act as an attractor for the cross.

Hedging recommendations

Income Expenses Due to significant cost of carry, we recommend hedging USD income through risk reversals. Option volatility is relatively cheap and one could consider risk reversals with a premium payment in order to lower the strike of the sold put option. In the case of a USD appreciation below 1.12, consider restructuring into FX forwards.

We recommend hedging USD payables via knock-in forwards.

Source: Danske Bank

3M volatility 3M risk reversal 3M forward premium (% p.a.)

Source: Bloomberg, Danske Bank Source: Bloomberg, Danske Bank Source: Bloomberg, Danske Bank

cheap neutral expensive

Price indicator: implied volatility

6

7

8

9

Jul-17 Nov-17 Mar-18 Jul-18 Nov-18

EUR/USD Implied Volatility Realised volatility


Price indicator: risk reversal (USD seller)

-1.50

-1.00

-0.50

0.00

0.50

1.00


EUR/USD risk reversal


Price indicator: forward rate (USD seller)

2.50%

2.60%

2.70%

2.80%

2.90%

3.00%

3.10%

3.20%

3.30%

3.40%

3.50%

Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19

EUR/USD 3M Forward (%, ann.)

EUR/USD

Source: Bloomberg, Danske Bank

1M 3M 6M 12M

DB forecast 1.15 1.17 1.20 1.25

Forward 1.14 1.14 1.15 1.17

Cons. forecast 1.15 1.16 1.17 1.20

1.00

1.05

1.10

1.15

1.20

1.25

Feb/17 Oct/17 Jul/18 Mar/19 Nov/19

EUR/USD DB forecastForward Cons. forecast


Market Guide UK

GBP – growth looking bleak in the UK

A split House of Commons halts any progress in the Brexit negotiations.

Outlook for EUR/GBP

The growth picture has become weaker, as Brexit uncertainties are

weighing on investments and as global growth has slowed. The UK Service

PMI declined in January to 50.1 – the lowest level since June 2016. The

economy expanded 0.2% q/q in Q4 and monthly data implies that growth

could cool further in Q1. We see a clear tendency that businesses are

reluctant to invest, with business investments falling 1.4% in Q4, which is

the fourth consecutive fall.

As expected, the Bank of England (BoE) voted unanimously to keep the Bank

Rate at 0.75% in February. Despite recognising that growth has slowed, the

bank maintains its hiking bias. We still expect the BoE to hike in November

2019, while the market is pricing in the next hike in June 2021. If there is a

no-deal Brexit, we expect the BoE to ease monetary policy.

GBP remains fundamentally undervalued: our G10 MEVA model puts

EUR/GBP at 0.78 (our Brexit-corrected MEVA estimate for the cross is

around 0.83), while our PPP estimate is 0.76. Brexit remains as the largest

risk to our forecast, and will keep GBP undervalued and volatile until

further clarifications.

Our EUR/GBP forecast is based on our main scenario that May’s Brexit

plan will eventually be approved by parliament. We expect this to pave the

way for a significant decline in EUR/GBP. However, it is a close call, and

the key risk to our bullish GBP view is that Brexit clarifications are dragged

out – even beyond 29 March if Article 50 is extended – and that the GBP

appreciation would consequently be much more moderate and materialise

later than our forecast implies. In the near term, we expect EUR/GBP to

remain in 0.86-0.89 range. We see EUR/GBP at 0.875 in 1M, 0.84 in 3M

and 0.83 in 6 and 12M.


Income Expenses GBP has appreciated significantly this year and option volatility up to the 3M tenor has been increasing as the Brexit deadline moves closer. The combination of higher volatility and spot, makes knock-in forwards attractive when hedging GBP income.

We recommend hedging GBP-payables through FX forwards.

Source: Danske Bank





6

7

8

9

10

11

12

13

14


EUR/GBP Implied Volatility Realised volatility


Price indicator: risk reversal (GBP seller)

-0.50

0.00

0.50

1.00

1.50

2.00

2.50


EUR/GBP risk reversal


Price indicator: forward rate (GBP seller)

0.90%

1.00%

1.10%

1.20%

1.30%

1.40%

1.50%

1.60%


EUR/GBP 3M Forward (%, ann.)

EUR/GBP


1M 3M 6M 12M

DB forecast 0.88 0.84 0.83 0.83

Forward 0.87 0.87 0.88 0.88

Cons. forecast 0.87 0.87 0.87 0.87

0.82

0.84

0.86

0.88

0.90

0.92


EUR/GBP DB forecastForward Cons. forecast


Market Guide UK

JPY – falling back as risky assets recover

A recovery in risky assets has weighed somewhat on JPY on a broader basis. A

renewed setback in risk sentiment would support JPY. Another risk to bear in

mind is the potential for oil prices to overshoot if, e.g. sentiment around Iran

sanctions deteriorates when temporary waivers expire in April. That in turn

would be JPY negative.

Outlook for EUR/JPY

The acceleration in Japanese money supply growth and CPI inflation seen

in 2016 and 2017 faded last year. This has also started to carry over to

nominal GDP growth. In particular, we think it is important to monitor the

slowing growth of the Japanese monetary base, which seems to be at the

centre of the development outlined above.

The Bank of Japan (BoJ) continues to emphasise its willingness to keep

monetary policy accommodative and we do not expect any changes before

the end of 2019 at the earliest. However, its actions are starting to look

contradictory, as slowing monetary growth will not bring the BoJ closer to its

inflation aim, in our view. It could furthermore start to become a JPY positive.

Japan continues to be a significant capital exporter via its large current

account surplus of close to 4% of GDP, which is depressing Japanese real

interest rates further. Growth in JPY excess liquidity slowed down in 2018

and with the BoJ on hold, it is unlikely to pick up again in the short term.

Higher oil and metal prices this year are weighing on Japan’s terms of trade

and thus JPY. As risk sentiment recovers and a trade deal looms, commodity

prices are likely to move higher.

A recovery in risky assets has weighed somewhat on JPY on a broader basis.

A renewed setback in risk sentiment would support JPY. Another risk is the

potential for oil prices to overshoot, which would be a JPY negative. We see

EUR/JPY at 126.5, 128.7, 132 and 140 in 1, 3, 6 and 12M respectively.


Income Expenses We recommend hedging JPY-denominated income via FX forwards. We recommend hedging JPY-denominated expenses via participating

forwards.






7

8

9

10

11


EUR/JPY Implied Volatility Realised volatility


Price indicator: risk reversal (JPY seller)

-3.00

-2.50

-2.00

-1.50

-1.00

-0.50

0.00


EUR/JPY risk reversal


Price indicator: forward rate (JPY seller)

-0.10%

0.00%

0.10%

0.20%

0.30%

0.40%


EUR/JPY 3M Forward (%, ann.)

EUR/JPY


1M 3M 6M 12M

DB forecast 126.50 128.70 132.00 140.00

Forward 125.70 125.73 125.77 125.77

Cons. forecast 125.17 125.86 127.36 129.00

110

115

120

125

130

135

140


EUR/JPY DB forecastForward Cons. forecast


Market Guide UK

SEK – a break below EUR/SEK 10.00 is still a long way off

The December rate hike has not had the positive effect we envisaged,

probably due to the board’s dovish tone and weaker Swedish macro data.

Outlook for EUR/SEK

As evident from recent data, Swedish GDP growth is decelerating, and

points towards a weak Q4 as well. Numerous revisions to global and

Swedish growth assessments across the board have dampened rate hike

expectations further in G10 economies and put more pressure on the SEK.

The macro surprise index for Sweden is at depressed levels, suggesting a

lot of negativity is priced in already and that a rebound could soon be in the

making.

The Riksbank decided to keep the rate at -0.25% at the February meeting.

The apparent slowdown comes at an unfortunate time for the Riksbank’s

hiking ambitions. Coupled with a less upbeat view on inflation, particularly

core inflation, we doubt that the Riksbank will hike during 2019.

Commercial demand for SEK is held back by ultra-low rates in Sweden.

The significant rate gap versus the US makes it less attractive for Swedish

investors, e.g. pension funds, to raise their hedge ratios. The SEK is acting

increasingly as a funding currency in carry trades, bolstered by the current

low-volatility environment. It is possible that carry will remain an

underlying SEK headwind for some time. These trades might quickly go

into reverse if volatility spikes, promoting corrections in EUR/SEK.

The December rate hike has not had the positive effect we envisaged, which

is probably due to the board’s dovish communication coupled with weaker

Swedish macro data. A lot of macro negativity has been priced in as

forecasters have already revised their growth forecasts to sub-trend and

pricing of the Riksbank is very cautious, especially versus the ECB. Hence,

we feel that the recent, and to us unexpectedly aggressive, rally has gone a

bit too far. We see EUR/SEK at 10.40 in 1-3M and 10.20 in 6-12M.


Income Expenses Given the relatively cheap option volatility, we recommend hedging SEK-income via participating forwards.

We recommend hedging SEK-payables with FX forwards.






5

6

7

8


EUR/SEK Implied Volatility Realised volatility


Price indicator: risk reversal (SEK seller)

0.00

0.20

0.40

0.60

0.80

1.00


EUR/SEK risk reversal


Price indicator: forward rate (SEK seller)

-0.30%

-0.20%

-0.10%

0.00%

0.10%

0.20%

0.30%


EUR/SEK 3M Forward (%, ann.)

EUR/SEK


1M 3M 6M 12M

DB forecast 10.40 10.40 10.20 10.20

Forward 10.59 10.59 10.60 10.62

Cons. forecast 10.36 10.23 10.13 10.00

9.3

9.5

9.8

10.0

10.3

10.5


EUR/SEK DB forecastForward Cons. forecast


Market Guide UK

NOK – strong outlook for 2019

NOK is off to a strong start in 2019, and the outlook for the Norwegian

economy is looking strong in a rather gloomy eurozone environment.

Outlook for EUR/NOK

The past months have shown the rather unique position that the Norwegian

economy is in: while global growth has eased, Norwegian growth has

accelerated. The key factor lies in the petroleum sector, as lower break-even

oil prices have improved the profitability of the industry. This was also

evident in the Q4 GDP data as the mainland expanded by 0.9% q/q. We

expect growth to remain above trend, and core inflation is set to move

higher in the coming months, before falling below 2.0% in H2.

At the January monetary policy meeting, Norges Bank left the sight deposit

rate unchanged at 0.75% while reiterating that the outlook for policy rates

was roughly unchanged, confirming that markets should expect a hike in

March. We continue to expect two hikes this year but, importantly, we see

the balance of risk skewed towards three hikes – not like the market

pricing’s bias towards one.

The biggest risk factor for our forecast is broad-based USD strength and/or

a global risk-off event, which would weigh on the NOK directly and

indirectly via the oil price (as at the end of 2018). ). In addition, the risk

that we underestimate the impact of a Chinese slowdown is relevant, as

commodity FX in recent years has traded in a remarkably synchronised

manner. Foreign banks (proxy for speculative flows) returned to net buying

NOK at the beginning of the year, though we do not believe this is sufficient

to stretch NOK-long. From a long-term perspective, the NOK seems

fundamentally undervalued. Our PPP model has 8.85 as ‘fair’.

Going forward, we pencil in a stronger NOK based primarily on three

factors: (1) relative growth and relative rates, (2) tighter structural liquidity

and (3) a further stabilisation in global risk appetite and a higher oil price.

We see EUR/NOK at 9.60, 9.50, 9.40, and 9.30 in 1,3,6 and 12M.


Income Expenses

We recommend hedging NOK-denominated income via knock-in forwards.

We recommend hedging NOK-denominated expenses via FX forwards.






5

6

7

8


EUR/NOK Implied Volatility Realised volatility


Price indicator: risk reversal (NOK seller)

0.20

0.40

0.60

0.80

1.00


EUR/NOK risk reversal


Price indicator: forward rate (NOK seller)

1.20%

1.30%

1.40%

1.50%

1.60%

1.70%

1.80%


EUR/NOK 3M Forward (%, ann.)

EUR/NOK


1M 3M 6M 12M

DB forecast 9.60 9.50 9.40 9.30

Forward 9.78 9.81 9.85 9.94

Cons. forecast 9.64 9.54 9.47 9.40

8.5

8.8

9.0

9.3

9.5

9.8

10.0


EUR/NOK DB forecastForward Cons. forecast


Market Guide UK

Danske Bank’s hedging recommendations: other majors

Currency Instrument

Forecasts Income Expenses

CHF

We recommend hedging CHF income via FX forwards.

We recommend hedging CHF expenses via knock-in forwards.

Price indicators

Currency Instrument


AUD

We recommend hedging AUD income via FX forwards.

We recommend hedging AUD expenses via knock-in forwards.

Price indicators

Currency Instrument


NZD

We recommend hedging NZD income via FX forwards.

We recommend hedging NZD expenses via knock-in forwards.

Price indicators

Currency Instrument


CAD

We recommend hedging CAD income via FX forwards.

We recommend hedging CAD expenses via participating forwards.

Price indicators

Source: Danske Bank

1M 3M 6M 12M

DB forecast 1.14 1.15 1.18 1.20

Forward 1.13 1.13 1.13 1.13

Cons. forecast 1.15 1.15 1.15 1.18

1.00

1.05

1.10

1.15

1.20


EUR/CHF DB forecastForward Cons. forecast

Implied volatility

Risk reversal (CHF seller)

Forward rate (CHF seller)


1M 3M 6M 12M

DB forecast 1.62 1.63 1.64 1.69

Forward 1.60 1.61 1.62 1.64

Cons. forecast 1.60 1.59 1.59 1.62

1.30

1.40

1.50

1.60

1.70


EUR/AUD DB forecastForward Cons. forecast

Implied volatility

Risk reversal (AUD seller)

Forward rate (AUD seller)


1M 3M 6M 12M

DB forecast 1.72 1.72 1.76 1.79

Forward 1.67 1.68 1.69 1.71

Cons. forecast 1.69 1.70 1.71 1.74

1.40

1.50

1.60

1.70

1.80


EUR/NZD DB forecastForward Cons. forecast

Implied volatility

Risk reversal (NZD seller)

Forward rate (NZD seller)


1M 3M 6M 12M

DB forecast 1.52 1.52 1.52 1.56

Forward 1.50 1.51 1.52 1.53

Cons. forecast 1.51 1.51 1.52 1.55

1.35

1.40

1.45

1.50

1.55

1.60


EUR/CAD DB forecastForward Cons. forecast

Implied volatility

Risk reversal (CAD seller)

Forward rate (CAD seller)



Market Guide UK

Danske Bank’s hedging recommendations: EMEA

Currency Instrument

Forecast Income Expenses

PLN

We recommend hedging PLN income via knock-in forwards.

We recommend hedging PLN expenses via FX forwards.

Price indicators

Currency Instrument


RUB

We recommend hedging RUB income via FX forwards.

We recommend hedging RUB expenses via knock-in forwards.

Price indicators

Currency Instrument


HUF

We recommend hedging HUF income via knock-in forwards.

We recommend hedging HUF expenses via FX forwards. With the recent HUF-strengthening, one could consider hedging short maturity payables (1-3M) via risk reversals.

Price indicators

Currency Instrument


CZK

We recommend hedging CZK income via knock-in forwards.

We recommend hedging CZK expenses via risk reversals.

Price indicators

Source: Danske Bank

1M 3M 6M 12M

DB forecast 4.29 4.27 4.20 4.18

Forward 4.34 4.36 4.38 4.42

Cons. forecast 4.32 4.30 4.32 4.36

4.00

4.10

4.20

4.30

4.40


EUR/PLN DB forecastForward Cons. forecast

Implied volatility

Risk reversal (PLN seller)

Forward rate (PLN seller)


1M 3M 6M 12M

DB forecast 77.51 81.90 85.80 90.00

Forward 74.77 75.80 77.26 80.35

Cons. forecast 75.62 76.34 77.67 80.10

50.0

60.0

70.0

80.0

90.0


EUR/RUB DB forecastForward Cons. forecast

Implied volatility

Risk reversal (RUB seller)

Forward rate (RUB seller)


1M 3M 6M 12M

DB forecast 320.40 319.00 317.00 310.00

Forward 317.97 318.20 318.77 320.38

Cons. forecast 321.00 322.27 322.96 323.40

290

300

310

320

330


EUR/HUF DB forecastForward Cons. forecast

Implied volatility

Risk reversal (HUF seller)

Forward rate (HUF seller)


1M 3M 6M 12M

DB forecast 25.50 25.40 25.10 24.80

Forward 25.69 25.78 25.91 26.16

Cons. forecast 26.09 26.32 26.48 26.60

24.5

25.0

25.5

26.0

26.5

27.0


EUR/CZK DB forecastForward Cons. forecast

Implied volatility

Risk reversal (CZK seller)

Forward rate (CZK seller)



Market Guide UK

Danske Bank’s hedging recommendations: other emerging markets

Currency Instrument


CNH

(CNY)

We recommend hedging CNY-denominated income using FX forwards, as we are more bearish on the CNY than the market.

Hedge CNY-denominated expenses via risk reversals.

Price indicators

Currency Instrument


ZAR

We recommend hedging ZAR income via FX forwards.

We recommend hedging ZAR expenses via knock-in forwards.

Price indicators

Currency Instrument


TRY

We recommend hedging TRY income in 2019 via FX forwards, despite the significant cost of carry.

We recommend hedging TRY expenses via knock-in forwards.

Price indicators

Source: Danske Bank

1M 3M 6M 12M

DB forecast 7.76 7.84 7.98 8.25

Forward 7.64 7.68 7.74 7.87

Cons. forecast 7.77 7.86 7.94 8.04

7.00

7.25

7.50

7.75

8.00

8.25


EUR/CNH DB forecastForward Cons. forecast

Implied volatility

Risk reversal (CNH seller)

Forward rate (CNH seller)


1M 3M 6M 12M

DB forecast 16.39 17.55 17.40 17.81

Forward 16.01 16.22 16.53 17.18

Cons. forecast 16.06 16.11 16.26 16.56

12.0

13.0

14.0

15.0

16.0

17.0

18.0


EUR/ZAR DB forecastForward Cons. forecast

Implied volatility

Risk reversal (ZAR seller)

Forward rate (ZAR seller)


1M 3M 6M 12M

DB forecast 6.21 6.49 6.84 7.50

Forward 6.16 6.41 6.73 7.37

Cons. forecast 6.15 6.36 6.70 6.92

3.00

4.00

5.00

6.00

7.00

8.00


EUR/TRY DB forecastForward Cons. forecast

Implied volatility

Risk reversal (TRY seller)

Forward rate (TRY seller)



Market Guide UK

FX forecasts

Source: Danske Bank

G10

Last Update: 22/02/2019

Spot +1m +3m +6m +12m

Exchange rates vs EUR

EUR/USD 1.134 1.15 1.17 1.20 1.25

EUR/JPY 125.7 127 129 132 140

EUR/GBP 0.871 0.88 0.84 0.83 0.83

EUR/CHF 1.135 1.140 1.150 1.180 1.200

EUR/SEK 10.595 10.40 10.40 10.20 10.20

EUR/NOK 9.775 9.60 9.50 9.40 9.30

EUR/DKK 7.462 7.4620 7.4580 7.4550 7.4550

EUR/AUD 1.596 1.620 1.625 1.644 1.689

EUR/NZD 1.669 1.716 1.721 1.765 1.786

EUR/CAD 1.499 1.518 1.521 1.524 1.563

EM

Spot +1m +3m +6m +12m

EUR/PLN 4.338 4.29 4.27 4.20 4.18

EUR/HUF 318 320 319 317 310

EUR/CZK 25.646 25.50 25.40 25.10 24.80

EUR/RUB 74.371 77.51 81.90 85.80 90.00

EUR/TRY 6.059 6.21 6.49 6.84 7.50

EUR/ZAR 15.919 16.39 17.55 17.40 17.81

EUR/BRL 4.266 4.53 4.27 4.26 4.13

EUR/CNY 7.620 7.76 7.84 7.98 8.25

EUR/INR 80.690 83.95 85.41 86.40 88.75


Market Guide UK

Disclosures This research report has been prepared by Danske Bank A/S (‘Danske Bank’). The authors of this research report

are Morten Thrane Helt (Senior Analyst), Christin Tuxen (Chief Analyst), Jens Nærvig Pedersen (Senior Analyst),

Kristoffer Kjær Lomholt (Senior Analyst) and Joachim Waldemar Bratlie (Assistant Analyst).

Analyst certification

Each research analyst responsible for the content of this research report certifies that the views expressed in the

research report accurately reflect the research analyst’s personal view about the financial instruments and issuers

covered by the research report. Each responsible research analyst further certifies that no part of the compensation

of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed

in the research report.

Regulation

Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject

to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske

Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority

(UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation

Authority are available from Danske Bank on request.

Danske Bank’s research reports are prepared in accordance with the recommendations of the Danish Securities

Dealers Association.

Conflicts of interest

Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high-quality

research based on research objectivity and independence. These procedures are documented in Danske Bank’s

research policies. Employees within Danske Bank’s Research Departments have been instructed that any request

that might impair the objectivity and independence of research shall be referred to Research Management and the

Compliance Department. Danske Bank’s Research Departments are organised independently from, and do not

report to, other business areas within Danske Bank.

Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes

investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance

or debt capital transactions.

Financial models and/or methodology used in this research report

Calculations and presentations in this research report are based on standard econometric tools and methodology as

well as publicly available statistics for each individual security, issuer and/or country. Documentation can be

obtained from the authors on request.

Risk warning

Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis

of relevant assumptions, are stated throughout the text.

Expected updates

Monthly.

Date of first publication

See the front page of this research report for the date of first publication.

General disclaimer This research report has been prepared by Danske Bank A/S. It is provided for informational purposes only and

should not be considered investment advice. It does not constitute or form part of, and shall under no circumstances

be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments

(i.e. financial instruments mentioned herein or other financial instruments of any issuer mentioned herein and/or

options, warrants, rights or other interests with respect to any such financial instruments) (‘Relevant Financial

Instruments’).

The research report has been prepared independently and solely on the basis of publicly available information that

Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not untrue

or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and

subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any

loss of profits, arising from reliance on this research report.

The opinions expressed herein are the opinions of the research analysts responsible for the research report and

reflect their judgement as of the date hereof. These opinions are subject to change and Danske Bank does not

undertake to notify any recipient of this research report of any such change nor of any other changes related to the

information provided herein.

This research report is not intended for, and may not be redistributed to, retail customers in the United Kingdom or

the United States.

This research report is protected by copyright and is intended solely for the designated addressee. It may not be

reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank’s prior written

consent.


Market Guide UK

Disclaimer related to distribution in the United States This research report was created by Danske Bank A/S and is distributed in the United States by Danske Markets

Inc., a U.S. registered broker-dealer and subsidiary of Danske Bank A/A, pursuant to SEC Rule 15a-6 and related

interpretations issued by the U.S. Securities and Exchange Commission. The research report is intended for

distribution in the United States solely to ‘U.S. institutional investors’ as defined in SEC Rule 15a-6. Danske

Markets Inc. accepts responsibility for this research report in connection with distribution in the United States solely

to ‘U.S. institutional investors’.

Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence of

research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are not

registered or qualified as research analysts with the NYSE or FINRA but satisfy the applicable requirements of a

non-U.S. jurisdiction.

Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial Instrument

may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non-U.S. financial

instruments may entail certain risks. Financial instruments of non-U.S. issuers may not be registered with the U.S.

Securities and Exchange Commission and may not be subject to the reporting and auditing standards of the U.S.

Securities and Exchange Commission.

Report completed: 22 February 2019, 12:48 CET

Report first disseminated: 22 February 2019, 16:15 CET

N o r way

C h i e f A n a l y s t & H e a d of F r a n k J u l l u m+ 4 7 8 5 4 0 6 5 4 0f j u @ d a n s k e b a n k . c o m

J o s te i n T v e d t+ 4 7 2 3 1 3 9 1 8 4j t v @ d a n s k e b a n k . c o m

I N t e r N at I o N a l M a c r o

C h i e f A n a l y s t & H e a d of J a ko b E k h o l d t C h r i s te n s e n+ 4 5 4 5 1 2 8 5 3 0j a k c @ d a n s k e b a n . co m

A i l a E v c h e n M i h r+ 4 5 4 5 1 3 7 8 6 7a m i h @ d a n s k e b a n k . co m

A l l a n v o n M e h r e n + 4 5 4 5 1 2 8 0 5 5a l v o @ d a n s k e b a n k . co m

B j ø r n Ta n g a a S i l l e m a n n + 4 5 4 5 1 2 8 2 2 9b j s i @ d a n s k e b a n k . co m

M i k a e l O l a i M i l h ø j+ 4 5 4 5 1 2 7 6 0 7m i l h @ d a n s k e b a n k . co m

P i e t P. H . C h r i s t i a n s e n+ 4 5 4 5 1 3 2 0 2 1p h a i @ d a n s k e b a n k . co m

F I x e d I N c o M e r e s e a r c h

C h i e f A n a l y s t & H e a d of A r n e L o h m a n n R a s m u s s e n + 4 5 4 5 1 2 8 5 3 2a r r @ d a n s k e b a n k . c o m

C h r i s t i n a E . Fa l c h + 4 5 4 5 1 2 7 1 5 2c h f a @ d a n s k e b a n k . c o m

J a n We b e r Ø s te r g a a r d+ 4 5 4 5 1 3 0 7 8 9j a s t @ d a n s k e b a n k . c o m

J e n s P e te r S ø r e n s e n+ 4 5 4 5 1 2 8 5 1 7 j e n s s r @ d a n s k e b a n k . c o m

F o r e I g N e x c h a N g e

C h i e f A n a l y s t & H e a d ofC h r i s t i n K y r m e Tu x e n + 4 5 4 5 1 3 7 8 6 7tu x @ d a n s k e b a n k . co m

J e n s N æ r v i g P e d e r s e n + 4 5 4 5 1 2 8 0 6 1j e n p e @ d a n s k e b a n k . co m

K r i s tof f e r K j æ r L o m h o l t+ 4 5 4 5 1 2 8 5 2 9 k l o m @ d a n s k e b a n k . c o m

M o r te n T h r a n e H e l t+ 4 5 4 5 1 2 8 5 1 8m o h e l @ d a n s k e b a n k . c o m

F I N l a N d

C h i e f S tr a te g i s t & H e a d ofVa l t te r i A h t i+ 3 5 8 ( 0 ) 1 0 5 4 6 7 3 2 9v a h @ d a n s k e b a n k , co m

C h i e f E co n o m i s tP a s i K u o p p a m ä k i+ 3 5 8 1 0 5 4 6 7 7 1 5p a k u @ d a n s k e b a n k . co m

J u k k a S a m u l i A p p e l q v i s t+ 3 5 8 4 4 2 6 3 1 0 5 1a p p @ d a n s k e b a n k . co m

d c M r e s e a r c h

C h i e f A n a l y s t & H e a d of J e s p e r D a m k j æ r + 4 5 4 5 1 2 8 0 4 1 d a m k @ d a n s k e b a n k . c o m

B e n d i k E n g e b r e ts e n+ 4 7 8 5 4 0 6 9 1 4b e e @ d a n s k e b a n k . co m

B r i a n B ø r s t i n g+ 4 5 4 5 1 2 8 5 1 9b r b r @ d a n s k e b a n k . co m

C h r i s to p h e r H e l l e s n e s+ 4 6 8 5 6 8 8 0 5 4 7c a h e @ d a n s k e b a n k . co m

D a v i d B oy l e+ 4 7 8 5 4 0 5 4 1 7d b oy @ d a n s k e b a n k . c o m

H a s e e b S y e d+ 4 7 8 5 4 0 5 4 1 9h s y @ d a n s k e b a n k . co m

H e n r i k R e n è A n d r e s e n + 4 5 4 5 1 3 3 3 2 7h e n a @ d a n s k e b a n k . co m

J a ko b M a g n u s s e n + 4 5 4 5 1 2 8 5 0 3j a k j a @ d a n s k e b a n k . co m

L o u i s L a n d e m a n+ 4 6 8 5 6 8 8 0 5 2 4l l a n @ d a n s k e b a n k . co m

M a r k T h y b o N a u r+ 4 5 4 5 1 2 8 4 3 0m n a u @ d a n s k e b a n k . co m

N a ta s j a C o r d e s+ 4 5 4 5 1 4 3 8 5 4n a co @ d a n s k e b a n k . co m

N i co l a i P e r to u R i n g k ø b i n g+ 4 5 4 5 1 2 8 0 5 6n r i n @ d a n s k e b a n k . c o m

N i k l a s R i p a+ 4 5 4 5 1 2 8 0 4 7n i r i @ d a n s k e b a n k . co m

S v e r r e H o l b e k+ 4 5 4 5 1 4 8 8 8 2h o l b @ d a n s k e b a n k . co m

d e N M a r k

C h i e f E c o n o m i s t & H e a d of L a s O l s e n + 4 5 4 5 1 2 8 5 3 6l a s o @ d a n s k e b a n k . c o m

B j ø r n Ta n g a a S i l l e m a n n + 4 5 4 5 1 2 8 2 2 9b j s i @ d a n s k e b a n k . c o m

L o u i s e A g g e r s tr ø m H a n s e n+ 4 5 4 5 1 2 8 5 3 1l o u h a n @ d a n s k e b a n k . c o m

s w e d e N

C h i e f A n a l y s t & H e a d of M i c h a e l B o s tr ö m+ 4 6 8 5 6 8 8 0 5 8 7m b o s @ d a n s k e b a n k . co m

C a r l M i l to n+ 4 6 8 5 6 8 8 0 5 9 8c a r m i @ d a n s k e b a n k . co m

J e s p e r J a n P e te r s e n+ 4 6 8 5 6 8 8 0 5 8 5j e s p p e @ d a n s k e b a n k . co m

M i c h a e l G r a h n + 4 6 8 5 6 8 8 0 7 0 0m i k a @ d a n s k e b a n k . co m

S te f a n M e l l i n+ 4 6 8 5 6 8 8 0 5 9 2m e l l @ d a n s k e b a n k . c o m

Danske Bank ReseaRch

e M e r g I N g M a r k e t s

C h i e f A n a l y s t & H e a d of J a ko b E k h o l d t C h r i s te n s e n+ 4 5 4 5 1 2 8 5 3 0j a k c @ d a n s k e b a n . co m

V l a d i m i r M i k l a s h e v s k y + 3 5 8 ( 0 ) 1 0 5 4 6 7 5 2 2v l m i @ d a n s k e b a n k . co m

D a n s k e B a n k , H o l m e n s K a n a l 2 - 1 2 , D K - 1 0 9 2 C o p e n h a g e n K . P h o n e + 4 5 4 5 1 2 0 0 0 0 h t t p s : / / r e s e a r c h . d a n s k e b a n k . co m

G l o b a l H e a d of F I C C R e s e a r c h , T h o m a s H a r r, + 4 5 4 5 1 3 6 7 3 1 , th h a r @ d a n s k e b a n k . co m

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