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The Context 11th November 2019 1
The Context11th November 2019
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The Context
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Inside this week’s edition…
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The Power of Trade Talk- by Marcus Dewsnap, p3Given events towards the end of last week, focus will fall on any details of the Phase 1 trade deal currently under negotiation between the US and China. The moves were sharp in debt markets which suggests any sort of negative news flow will lead to an equally sharp reversal.
Euro Corp Comment: US Issuers Keep Driving Supply Amid Abundant Demand- by Matthew Barrett, p4It was a blockbuster week for the European corporate and as has been a themethroughout 2019, US issuers helped drive activity…
The NZD Week - Bias is Neutral- by Tony Nyman, p5-6RBNZ rate cut probability for Nov, i.e. early Wed, is back at 60%. On balance, wethink the RBNZ could wait, but suspect the market will stay cautious.
Outlook Into Year-end Now Looks More Positive For EMs- by Natalie Rivett, p7-9The Emerging Market carry trade is so far heading for its best quarter in two(and possibly in four if upside persists), and in an environment of still ultra-lowglobal bond yields and with some concerns starting to creep in over equityvaluations after a surge in stocks, currency related strategies may find particularfavour among investors.
Covered Bond Snapshot: Weekly Wrap, Charts And Stats- by Eva Bobb-Compton, p10-11Euro-denominated Covered supply continued to make good progress during theweek ending 8 November with seven issuers selling a combined EUR3.85bnacross eight tranches.
China Insight: Long-Awaited MLF Rate Cut Finally Happened- by Tim Cheung and Riki Zhang, p12-13PBOC cut the 1-year mid-term lending facility (MLF) rate by 5bp to 3.25% on 5 November while rolling over the matured MLF refinancing. The cut will likely drive down the loan prime rate (LPR) further, which was left unchanged at 4.20% and will be repriced on 20 November.
Know The Flows: With US Rate Cut in The Bag, Focus Shifts Back to Trade- by Cameron Brandt, p14Mutual fund investors got a rate cut for Halloween. Will they get a Sino-US tradedeal for Thanksgiving? Hopes of an end to the bruising trade war rose during thefirst week of November, propelling US benchmark indexes to new record highsand the Euro Stoxx 50 to levels last seen in 1Q18.
US 10yr Breakeven – Signals a Three-Month Base- by Ed Blake, p16Buy into near-term dips as we await a recovery extension targeting 1.816, perhaps 1.887. Stop under 1.641.
NZD/USD – Recovery Potential While Dips Hold .6295- by Ed Blake, p17
Buy near-term dips as we await renewed recovery through .6466 opening .6530,perhaps the .6583/.6592 zone. Place a stop beneath .6295.
LME Index – Completing 6mth Inverse Head/Shoulders Base- by Ed Blake, p18
Buy near-term dips towards 2815.8 as we await completion of a 6mth invertedhead and shoulders base targeting 2990.0/3029.8. Stop under the right shoulderat 2757.1.
The Power of Trade Talk
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By Marcus Dewsnap, IGM Head of Fixed Income Strategy
Given events towards the end of last week, focus will fall on any details of the Phase 1 trade dealcurrently under negotiation between the US and China. The moves were sharp in debt marketswhich suggests any sort of negative news flow will lead to an equally sharp reversal. Still, eventhe spanner the US President threw in the works Friday afternoon only led to a partial reversal.
Having been as low as 1.47% just over a month ago, the US 10-year breakeven is holding over1.70% although this is still uncomfortably low. Fed Funds do not imply a 50% chance of anotherrate cut until September 2020 (via WIRP) and Eur OIS has effectively priced out another DepoRate cut. Most yield curves are steeper (tighter financial conditions the price of reducing theneed for monetary policy easing), the Bund yield is up just over 30bp in a month and there is eventalk of the 10-year JGB moving back to 0%. High beta FX has been in demand. Such is the effectof the trade talk.
One obvious concern is that the details of the trade deal if it comes to fruition don’t match thehype. Another is that governments are let off the hook from pursuing structural reforms to liftpotential economic growth. This is especially pertinent in Europe where there is also a case forfiscal expenditure to deal with infrastructure problems which if not already an impediment togrowth will be in the near future.
A major focus over the coming week will be the sustainability of the bear steepening. The Fed forone looks as though it has incorporated a ‘Phase 1’ trade deal into its baseline outlook. Plenty ofcentral bankers out and about throughout the week who have a chance to discuss this andwhether the economic disruption (not to mention the trust side) caused so far is so deep thatmore monetary easing will be required. Chief amongst these will be FOMC head Powell(Wednesday/Thursday). Interest also in whether US policy is now deliberately ‘accommodative’to try and push inflation back up to 2% (and possibly beyond).
Back to Index PageThis is an excerpt from Marcus’ Week Ahead. For the full piece see HERE.
Euro Corp Comment: US Issuers Keep Driving Supply Amid Abundant Demand
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It was a blockbuster week for the European corporate market as a host of issuers jumped in tosecure funding, aided by a firm risk-on tone stemming from US-China trade deal optimism, andwith the market knowing the ECB has its back with it restarting its bond purchasing programme.In total, a hefty EUR11.25bn of corporate paper hit the tape last week courtesy of 11 issuers and16 separate tranches, which marks the highest total for the asset class since the w/e 11-Oct(EUR14.067bn).
As has been a theme throughout 2019, US issuers helped drive activity with Colgate-Palmolive,Boston Scientific, Apple Inc and Zimmer Biomet all joining the euro bond party and printing acombined EUR4.4bn, as they made the most of the favourable rates the currency has to offerversus dollars.
That quartet of issuers raised the reverse yankee corporate haul for the year up to EUR88.3bnwhich is already 51% higher than the EUR58.35bn in 2017 which previously held the record (seechart below). And, with a decent chunk of time still to go until the markets start to wind downahead of the seasonal festivities, we could easily see the jurisdiction breach the EUR100bn markbefore the year is out.
Among those which could help us get there are Harley-Davidson and Albemarle Corp with theformer having held calls for a debut single currency offering last week and the latter set toconduct a roadshow of its own starting Wednesday (13-Nov). Harley-Davidson, or any of theissuers in the bulging pipeline (see bottom of this report), are unlikely to go on Monday thoughwith French investors out as they observe Armistice Day.
The demand for last week's trades overall was nothing less than a blowout, with the EUR11.25bnworth of paper attracting combined orders in excess of EUR42bn, with an average cover ratio of4.09x.
Whilst all the deals were impressively at least 2x covered, the standout transactions on thedemand front were those from Colgate Palmolive and Bayer AG. The former's EUR500m 2- and20-yr tranches could have been sold 9.5x and 5x respectively whilst Bayer's higher-beta EUR1bn60NC5.5 and EUR750m 60NC8 hybrids were covered by 4.8x and 7.07x.
The latter came as the issuer left plenty on the table with final premiums of ~37.5bps despitebeing ramped in 50-62.5bps from IPTs, as the borrower looked to entice investors with litigationsurrounding the company's Roundup weed killer continuing to overhang.
Bayer's trades meant that this week's average NIC was boosted to 6.25bps, whilst if you excludethose bonds, the average premium actually comes in a zero which shows that pricing power verymuch remains with issuers at this juncture.
In fact, out of the 13 bonds where the final NIC was derived this week, nine printed either flat orthrough fair value. All of which will be of encouragement to those waiting in the wings ahead of atrade in the near future.
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By Matthew Barrett, Senior Credit Analyst
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The NZD Week - Bias is NeutralBy Tony Nyman, Head of G10 FX
continued page 6
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Expected Nzd/Usd trading range is 0.6280-0.6400
We wrote at the end of last week that it's going to be close.
See bottom middle of the Dashboard, RBNZ rate cut probability for Nov, i.e. early Wed, isback at 60%. That is some distance off those mid-Oct highs of 100% for a 14 days period.
Recall the late Oct positive move in the key gauge of CB thinking the ANZ businessconfidence survey (-42.4 in Oct vs -53.5 last) was negated to an extent by last Tue'sdisappointing employment/AHE data (unemployment rate 4.2% vs 3.9% and AHE softer at0.6% q/q vs the 1.0% median and 1.1% last).
Before RBNZ day, we get the likes of credit card spending and 2-yr inflation expectationsurvey. Both could garner more interest than usual as investors grapple with whether Orrand co move one last time in 2019 after 0.75% of cuts already or wait and see until Q12020.
On balance, we think the RBNZ could wait, but suspect the market will stay cautious aheadin a rough (and wide) 0.6300-0.6500 near-term range unless US-China changes everythingand blows Kiwi out of there.
RISK - The views of other leading firms show the market is divided.
• Bloomberg poll - Current rates 1.00%. Ave 0.82%. Of the 21 respondents 15 see furthereasing this month.
• BARCLAYS - Incl the UK clearer who targets 0.6270 in their TOTW.
• ING - See unchanged albeit a tight call and describe themselves as bullish for 0.6450.Arguments in favour of easing are running thin. Awaiting more developments in theinternal and external environment. Even if Orr and co cut would likely mark the end ofthe easing cycle, and the RBNZ may well flag such an intent to pause. Cite extensiveshort market positioning (-56% of open interest via latest CFTC data).
• NZIER Shadow MPC - Majority see no change appropriate amid signs of renewedhousing market activity. However, the labour market appears to be slowing asbusinesses become more cautious on hiring.
• ANZ - Trump's refusal to remove all tariffs saw a modest pullback in Nzd sentiment.While global events remain a big driver, domestic focus will be on the RBNZ's MPS thisweek and cites support 0.6280, resistance 0.6410. Thanks to the inv bank who add It'snot the slam dunk it was, but on balance think the RBNZ will cut the OCR to 0.75%. Onthe positive side, the NZD has fallen, house prices have strengthened, and Q3 CPI was a
touch stronger than expected. But dominating that, the outlook for both global anddomestic growth has weakened markedly since Aug. Ahead, the impact of higher bankcapital requirements will need to be added into the forecasts for Feb's MPS. So, thepath of least regrets would be a 0.25% cut and leaving the door ajar to more if required.ANZ continue to expect 0.25% rate cuts in Nov, Feb and May taking the OCR to 0.25%.
• Sharp pullback from last week's .6466 peak is approaching 61.8% of the rally from .6204(1 Oct) at .6304, which also coincides with the lower boundary of an approx. 6-weekrising channel
• Buyers may look to re-group near there, but back above .6407 is needed to repair theshort-term damage and re-open .6466/99
• Sub .6281 (17 Oct low) threatens resumption of the wider down-trend
The NZD Week – cont’d
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Outlook Into Year-end Now Looks More Positive For EMs
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By Natalie Rivett, Senior EM Analyst and Ed Blake, Chief FI Technical Analyst
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continued page 8
EM Outlook - cont’d
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Not all was rosy within Emerging Markets last month, with Turkey's military incursion in Syria, theArgentine presidential election and Chilean social unrest some of the key regional risks thatinvestors had to contend with. Yet on the whole, October still proved to be a positive month forEMs, with the risk mood supported by a combination of progress in trade discussions that have leftthe US and China working towards finalising a phase one deal, diminishing risk of a no-deal Brexitthanks to the 'flextension' and the continued global backdrop of accommodative monetary policy.
This has all left the MSCI measures of developing nation currencies and equities at 3-month highs;both enjoyed their biggest monthly advance since June over the course of October. Additionally, theJPM gauge of implied volatility for currencies has slid to the lowest in 3-months, whilst EPFR data forthe final week of October showed net inflows into both EM equity and bond funds for the first weekin six. This was the strongest showing when both equity and bond funds have had net inflows sinceFebruary. These net inflows persisted into the first week of November, as can be seen in thedashboard on the prior page.
Broad weakness in the Dollar has also played an important role in reviving investor confidence, withthe DXY having reversed course off a 2+ year high at the very beginning of October to trade down at2-month lows into month-end - the worst monthly performance since January 2018.
The question now being asked, is can this positivity last into year-end?
Economic stabilisation important for maintaining the EM rally
There have been some encouraging signs the worst-case outcome for US-China trade have beenavoided, with the reports that US and Chinese officials are actively considering rolling back sometariffs to clinch the partial trade deal under negotiation. From here, signs of stabilisation in theglobal economic data are the next piece of evidence needed to ensure this recent rally in EMs haslegs.
Whilst world trade is likely to remain weak in the near-term, it is important that the situation is atvery least not getting any worse, particularly when considering that most central banks are alreadyin an accommodative stance (some having pushed interest rates into negative territory) and riskrunning against the limits of how much monetary policy can help stimulate economic activity.
Former ECB President Draghi was particularly vocal of the need for complementary governmentaction and the IMF - which last month, cut its forecast for global GDP growth this year from 3.3%in the spring to 3%, the weakest global growth rate since the financial crisis - has also made itclear that monetary policy 'cannot be the only game in town' and should accompany fiscalsupport, 'where fiscal space is available and where policy is not already too expansionary’.
Manufacturing has been the general source of global economic weakness amid lingering tradeuncertainty and there have been some tentative signals that the worst is over for this sector,notably with the JPM global manufacturing index having edged up in September and October,closer towards the key 50 mark (see the dashboard).
In China, whilst the official manufacturing survey showed activity contracted for a sixth successivemonth, more encouraging was the Caixin PMI that expanded at the fastest pace in almost 3-yearsin October. Meanwhile, the US manufacturing PMI - although still in contraction in October -improved for the first time in 7-months, while the ISM manufacturing print stabilised and not onlydid the services ISM improve, the sub-indices looked good as well. Germany is the principlesource of weakness in the Eurozone, with output continuing to contract and job lossesaccelerating, but the expectations component of the October IFO survey did edge higher givinghope that we are at/or close to an inflection point, with Germany already likely in recession.
The markets will require further signs of encouragement on the data front if this tentativeoptimism that we are seeing with regards to EMs is to be maintained into year-end.
continued page 9
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EM Outlook - cont’d
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Further upside targeted in the MSCI EM Currency Index
As the dashboard shows, the Emerging Market carry trade is so far heading for its best quarter intwo (and possibly in four if upside persists), according to a Bloomberg index for 8 major currencies(BRL, MXN, INR, IDR, ZAR, TRY, HUF and PLN) and in an environment of still ultra-low global bondyields and with some concerns starting to creep in over equity valuations after a surge in stocks,currency related strategies may find particular favour among investors.
On a broad perspective, the outlook is bullish for Emerging Market FX, with the followingtechnical picture suggesting there is scope for the MSCI EM currency Index to extend through1657.5/1658.2 (19 July/21 March key peaks) next and with any near-term corrective dips seenstalling within the 1617.1/1634.1 area.
However, key risks to EMs into year-end include a further deterioration in global growth, whilsthopes for a US-China trade deal have disappointed in the past and further disappointment cannotbe ruled out going forward, with no guarantees the two sides will continue towards acomprehensive agreement.
The performance of the Dollar will also remain important for EM FX markets. The DXY has seen arenewed bid in recent sessions and not everyone may be convinced that further broad Dollarweakness awaits, particularly now the Fed has hit pause on its rate cutting cycle. This would likelyrequire more evidence of a pickup in global growth, a continuously improving rhetoric around US-China trade relations and/or a situation where the market starts to reprice in rate cuts from theFed. The latter may only really be possible if consumers become more convinced that US inflationis slowing, with inflation expectations for 1- and 3-years from now at record lows.
For those seeing a less compelling case for the Dollar to drop much more, it is worth bearing inmind that Goldman Sachs has suggested looking for Dollar-neutral carry trades in EMs as analternative.
• The MSCI Emerging Markets Currency Index has recovered from 1587.4 (3 September base)through a 19-1/2 month falling trendline (1641.0) to post new three-month highs
• With studies building, an extension through 1657.5/1658.2 (19 July/21 March key peaks)would confirm a major 16-1/2 month base and open 1662.8 (1.618x 1587.4/1624.8 rally from1602.3)
• Sustained gains then target 1670.5 (equality of 1575.1/1658.2 rally from 1587.4), perhaps1679.6/1694.9 (28/11 May 2018 lower highs) on extension
• Any near-term corrective dips should stall within the 1617.1/1634.1 zone (16/30 October lows)
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Covered Bond Snapshot: Weekly Wrap, Charts And Stats
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• Euro-denominated Covered supply continued to make good progress during the week ending8 November with seven issuers selling a combined EUR3.85bn across eight tranches. This isslightly up from the EUR3.5bn print the week before, which reinvigorated the market afterzero supply the previous week. Year-to-date issuance now stands at EUR131.75bn versusEUR132.825bn sold during the same period in 2018.
• Large order-books were the theme with a combined EUR13bn worth of demand for theEUR3.85bn raised. This took the average cover ratio from 2.19x to 3.28x, the highest figuresince mid-July (when Banco di Desio e della Brianza's EUR500m 7yr (OBG) had the market toitself). More broadly, it exceeds the average year-to-date cover ratio which stood at 2.37xprior to last week. (see IGM Cheat Sheet for more)
• This uptick in demand coincides with the ECB resuming its asset purchases under CBPP3 at thestart of the month. And while we cannot precisely glean the ECB's participation in the deals,from the stats available we can see Central Bank/Official Institution involvement has climbedto an average of ~19% versus ~14% the prior week.
• Some rarity value could also account for the volume of orders seen. The week produced onlythe year's second Portuguese Obrigacoes Hipotecarias issuer in the shapeof Banco Montepio whose EUR500m 5yr OH was more than six-times covered (the highestindividual cover ratio last week). We also saw the year's second Polish covered bond - mBankHipoteczny's EUR300m Sep-2025 was over three-times subscribed.
• Despite these two relatively shorter-dated issues going down well with investors, borrowersseemed to have favoured the longer end of the curve last week, continuing to take advantageof low interest rates to extend their covered curves. Two 15yr tranches emerged and threeother lines were seen in the 10yr+ range.
• The performance of these primary deals have continued into the secondary market with alldeals quoted inside their respective reoffer levels (mid) on Friday morning. This willundoubtedly encourage those issuers who remain in the pipeline, the most recent additioncoming from Volksbank Wien.
Execution highlights
The week's euro covered activity began in earnest on Tuesday, with three issuers clamouring forthe attention of investors with their respective lines. CAFFIL's well-flagged Green Coveredmaterialised as a EUR750m Nov-2029 line and the EUR3bn+ book allowed leads to shave 5bp offthe m/s+7bp area starting point and to price half a basis-point inside the issuer'scurve. DZHYP took a two-pronged approach via an 8yr HP in conjunction with a 15yr OP, daysahead of the redemption of a EUR500m Nov-2020 line. Finally on Tuesday, the year's secondPolish covered bond came from mBank Hipoteczny's EUR300m Sep-2025 line. Background on allthree deals are here. Stats on mBank are here and those for DZHYP are here.
Wednesday's supply was provided courtesy of DAPO and RLB Vorarlberg, out with a combinedEUR800m across their respective 10- and 15yr transactions. 4bp was shaved off both the dealsduring execution leaving little in the way of a premium for investors - DAPO’s EUR500m 10yrpriced flat to its curve at m/s flat reoffer while RLB Vorarlberg's EUR300m 15yr offered just 1bpover its fledgling curve. Relative value analysis on both deals is here.
Another duo rounded out the week's activity on Thursday when Banco Montepio and ArkeaPublic Sector SCF sold respective EUR500m Nov-2024 OH and EUR500m Jan-2030 OP. Montepio'sdeal was only the second from the jurisdiction this year and this rarity enabled books to grow toEUR3bn, also allowing a significant tightening of guidance to the tune of 15bp. And while adefinitive final NIP was not ascertained, allowing for the 2-year tenor extension from its own Oct-2022s suggests pricing inside its own curve. Investors were able to add Arkea Public Sector debtto their books for the first time since 2011 and submitted orders to the tune of EUR1bn for theEUR500m line. Relative value analysis and background on the trades is here.
continued page 11
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By Eva Bobb-Compton
Covered Bond Snapshot – cont’d
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In the pipeline
** Volksbank Wien AG has mandated Commerzbank, Deutsche Bank, DZ Bank, Erste Group andLBBW to lead manage its upcoming 10yr EUR 500mn (no-grow) fixed-rate Mortgage CoveredBond offering (Hypothekarisch Fundierte Bankschuldverschreibung) with an expected rating ofAaa by Moody's. Furthermore, the company is available to host 1x1 calls on demand
** NATIXIS Pfandbriefbank AG (KNFP) has mandated BayernLB, DekaBank and Natixis to leadmanage its forthcoming medium term Mortgage Pfandbrief transaction. This transaction will be aEUR 250mn issue and is expected to be rated Aaa by Moody's. The Pfandbriefe are issued underthe issuer's Debt Issuance Programme and will be launched in the near future, following a numberof investor meetings, subject to market conditions. FCA/ICMA. Roadshow Schedule: Mon Nov,11th - Frankfurt 1x1s, Tue Nov, 12th - Vienna, Wed Nov, 13th - Copenhagen and/or Helsinki.Natixis Pfandbriefbank participants Hansjoerg Patzschke, CEO, Thomas Behme, Head of Treasury,Dirk Brandes, Member of Board
** NORD/LB Luxembourg S.A. Covered Bond Bank has mandated ABN AMRO, Commerzbank,Credit Agricole CIB and NORD/LB to arrange a series of investor meetings across Europe from 23-30 Oct. An inaugural EUR300m no grow denominated Green Lettres de Gage Renewable Energytransaction with a short to medium term maturity is expected to follow. The issue is expected tobe rated Aa3 by Moody’s
** Deutsche Bank AG has mandated Deutsche Bank to arrange a series of fixed income investormeetings across Europe commencing on 4-Nov to introduce their Structured Covered BondProgramme. A EUR structured conditional pass through covered bond benchmark transaction isexpected to follow, subject to market conditions. The notes are expected to be rated at the Aa-level by Moody's and AA by DBRS
** Danish Ship Finance has mandated Credit Suisse, LBBW, Nordea and UniCredit to organise aseries of fixed income investor meetings across Europe commencing on 5-12 Nov ahead of aEUR500m no grow benchmark transaction backed by shipping mortgages. The bonds expected tobe rated A by S&P and the issue is expected to have an intermediate tenor.
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China Insight: Long-Awaited MLF Rate Cut Finally Happened
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PBOC cut the 1-year mid-term lending facility (MLF) rate by 5bp to 3.25% on 5 November(chart 1) while rolling over the matured MLF refinancing. The cut will likely drive down theloan prime rate (LPR) further, which was left unchanged at 4.20% and will be repriced on20 November (chart 2). As the first cut in the MLF rate in this easing cycle, it suggests PBOCis faced with growing risk of further economic slowdown. However, the magnitude of thecut is small, reflecting the degree of monetary easing is constrained by growing CPIinflation.
Take a look at the pace of CGB bond yield rise, we should know this MLF cut made a lot ofsense. Since the beginning of September, CGB yields has kept rising. 10-year yield reachedas high as 3.34% in late-October, up as much as 34bp from September's lowest level (chart3).
continued page 13
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By Tim Cheung, Head of China, Riki Zhang EM Analyst
China Insight – cont’d
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As the government is adopting fiscal easing in an effort to support economic growth, somore borrowing is needed. Over CNY1tn of bonds will be issued over the next two monthsas per the schedule, a failure to curb the upside of bond yields will increase the financialburden for the government.
The slight cut in the MLF rate may alleviate the upside pressure on bond yields in the shortrun. But its impact should be quite limited as the market has yet to price in a potentialacceleration of CPI inflation.
As far as trading strategy is concerned, we are still looking to build IRS flattening tradewhen 5-year vs 1-year spread enters 35-40bp region (chart 4).
We reiterate our view that bear-curve steepening could last till Trump and Xi sign thewritten phase-one trade deal, and that it however will unlikely last any longer after thatbecause markets sooner or later will know that just a phase-one trade deal is far fromenough to stabilize China's economic growth unless a more aggressive monetary easing isadopted.
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Know The Flows: With US Rate Cut in The Bag, Focus Shifts Back to Trade
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By Cameron Brandt, Director, Research
Mutual fund investors got a rate cut for Halloween. Will they get a Sino-US trade deal forThanksgiving? Hopes of an end to the bruising trade war rose during the first week of November,propelling US benchmark indexes to new record highs and the Euro Stoxx 50 to levels last seen in1Q18.
Fund flows during the first week of November reflected this optimism, with US Equity Fundschalking up their third inflow in the past four weeks and Asia ex-Japan Equity Funds postingconsecutive weekly inflows for the first time since early July while Emerging Markets Bond andEquity Funds both attracted fresh money. Funds with diversified global mandates were thebiggest beneficiaries of this shift in sentiment: Global Bond Funds recorded their third largestinflow year-to-date and Global Equity Funds their biggest since the fourth week of 2018.
Overall, the week ending November 6 saw EPFR-tracked Equity Funds pull in a net $16.7 billion,although the recent pick-up in flows to Dividend Equity Funds stumbled, and Bond Fundsabsorbed $10.6 billion. Investors also committed $197 million to Balanced Funds, $355 million toAlternative Funds and $52.3 billion to Money Market Funds.
At the asset class and country fund levels, Germany Equity Funds posted their first weekly inflowsince late April and Spain Equity Funds saw their 14-week redemption streak come to an endwhile France Equity Funds recorded outflows for the 44th time this year and redemptions fromBelgium Equity Funds hit their highest level since early 3Q16. Total Return and Municipal BondFunds extended inflow streaks stretching back to mid-February and early January respectively andoutflows from Inflation Protected Bond Funds climbed to a 22-week high.
Hopes of a Chinese-US trade deal and a better than expected 3Q19 corporate earnings seasonkept the money flowing into Sector Funds during early November, with eight of the 11 majorgroups tracked by EPFR recording net inflows. There was also a noticeable increase in themagnitude, with flows into Technology, Industrials and Real Estate Sector Funds hitting 18, 34 and38-week highs respectively and Financials Sector Funds taking in over $700 million.
Back to Index Page For further information on EPFR, please click HERE
The following pages are dedicated to:
IGM 15
Technical Analysis
IGM’s global team of Technical Analysts constantly look for interesting patterns in prevailing price action of a broad range of currency pairs, fixed income and commodity products.
We will highlight the most compelling on these pages.
For information on the full spectrum covered, please contact your Account Manager.
US 10yr Breakeven – Signals a Three-Month Base
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Technical Analysis by Ed Blake
• Extends gains from 1.470 (2019 low - 9 October) through 1.706 (16 September high) to
suggest completion of a three-month base
• Studies are building and a sustained break confirms the base and opens clustered
resistance by the 1.816 lower high
• Beyond allows further recovery to 1.887 (10 May high) and potentially the 2019 peak at
1.984
• Only below the 1.541 higher low would avert and suggest extended consolidation above
1.470
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STRATEGY SUMMARY
Buy into near-term dips as we await a recovery extension targeting 1.816, perhaps 1.887. Stop under 1.641
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Resistance Levels
R5 2.085 8 November 2018 lower high R4 1.984 2019 high – 25 April R3 1.887 10 May 2019 high, near 76.4% retrace of 1.984/1.470 fall R2 1.816 25 July 2019 lower high, near a 13-month falling trendline and 61.8% of 1.984/1.470 fall R1 1.750 200DMA, just over 18 July 2019 former low at 1.734 and 50% of 1.984/1.470 fall at 1.726
Support Levels
S1 1.641 5 November 2019 low S2 1.541 31 October 2019 higher low S3 1.470 9 October 2019, 38-month low S4 1.426 3 August 2016 low S5 1.355 24 June 2016 low, near 76.4% retracement of 1.115/2.208 rally
NZD/USD – Recovery Potential While Dips Hold .6295
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Technical Analysis by Ed Blake
• Channelled up from .6204 (1 October base) to .6466 (4 November high, near 38.2%
retracement of .6791/.6204 fall), before retreating
• .6204 look to be a significant low and while over .6295/.6333 (channel base/30 October
low), watch for fresh upside
• Decisively over .6466 opens .6530 (50% retracement of .6791/.6204 fall), possibly .6583-
.6592 zone (200DMA, 6 August high and 61.8% retracement)
• Only under .6295 would avert current recovery potential and leave .6204 vulnerable to a
re-test
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STRATEGY SUMMARY
Buy near-term dips as we await renewed recovery through .6466 opening .6530, perhaps the .6583/.6592 zone. Place a stop beneath .6295
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Resistance Levels
R5 .6791 19 July 2019 lower high, just under an 11-month falling trendline at .6812 R4 .6668 76.4% retrace of .6791/.6204 fall R3 .6592 61.8% retrace of .6791/.6204 fall, near 6 August lower high at .6587 and 200DMA at .6583 R2 .6530 50% retrace of .6791/.6204 fall R1 .6466 4 November 2019 high, near 38.2% retrace of .6791/.6204 fall
Support Levels
S1 .6295 5½ week rising channel support, just under 30 October 2019 low at .6333 S2 .6241 16 October 2019 low S3 .6204 1 October 2019, 4¼ year low S4 .6130 2015 spike low – 24 August S5 .6092 26 May 2009 higher low
LME Index – Completing 6mth Inverse Head/Shoulders Base
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Technical Analysis by Ed Blake
• Fell from 3058.0 (2019 peak - 28 February) to 2717.8 (7 August low), before forming a six-
month inverted head/shoulders base
• With studies firming, above neckline resistance at 2873.8 would confirm the base and offer
initial scope to 2990.0
• A sustained recovery above 2990.0 opens the head and shoulders base target at 3029.8,
perhaps the 2019 peak at 3058.0
• Only a failure over 2873.8 and/or a return below the right shoulder low at 2757.1 would
negate and open 2717.8
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STRATEGY SUMMARY
Buy near-term dips towards 2815.8 as we await completion of a 6mth inverted head and shoulders base targeting 2990.0/3029.8. Stop under the right shoulder at 2757.1
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Resistance Levels
R5 3102.1 9 July 2018 high, nr 7 December 2017 low at 3100.1 and 50% of 3499.6/2717.8 fall at 3108.7 R4 3058.0 2019 peak – 28 February R3 3029.8 Six-month inverted head and shoulders base target R2 2990.0 11 March 2019 former low R1 2873.8 19 July 2019 high, near 13 September and 16 May 2019 highs at 2873.7/2871.6
Support Levels
S1 2815.8 31 October 2019 low S2 2757.1 2 October 2019 low S3 2717.8 7 August 2019, 28½ month low S4 2694.2 10 May 2017 higher low S5 2634.8 29 December 2016 higher low
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