5 Feb 2014
Flash - BAML
FXStreet (Guatemala) - David Woo, head of Global Rates and Currencies Research at Bank of America Merrill Lynch said growth matters more than tapering.
Key Quotes:
"Investors fear slower US growth more than Fed tapering. We worry that extreme weather may continue to weigh on growth sentiment in the near term. Markets have a tendency to over-react to either abnormally warm (US: Q1 2012) or cold weather (Europe: Q1-2013) at this time of the year".
"Extreme weather likely continue to sap growth optimism. According to our calculation, this January was the coldest in the US since 1988. February is set to also be colder than usual. Consumer spending appears more sensitive to the weather in Q1 than Q4. The correlation between Q1 US GDP growth and average Q1 temperature was 48% over the past decade".
"Positioning unwind gone a long way but not over. We remain bullish on US growth this year and stand behind our end-2014 forecast for 10y Treasury yields and USD/JPY at 3.75% and 108. In the short term, we are wary that the unwinding of short US rates and short JPY positions may not be over".
"Benefit from weather volatility via calendar spreads. To profit from weather induced uncertainty, we recommend calendar spreads in US rates or USD/JPY: sell a 6w USD/JPY 105 one-touch option to finance buying a 12w 105 one-touch option; sell 6w payer on 10y, 2.9% strike and buy 12w payer on 10y, 3.1% strike. The biggest risk to these trades is a stronger-than-expected January NFP - the NFP survey week was unusually warm even though the entire month was very cold".
Key Quotes:
"Investors fear slower US growth more than Fed tapering. We worry that extreme weather may continue to weigh on growth sentiment in the near term. Markets have a tendency to over-react to either abnormally warm (US: Q1 2012) or cold weather (Europe: Q1-2013) at this time of the year".
"Extreme weather likely continue to sap growth optimism. According to our calculation, this January was the coldest in the US since 1988. February is set to also be colder than usual. Consumer spending appears more sensitive to the weather in Q1 than Q4. The correlation between Q1 US GDP growth and average Q1 temperature was 48% over the past decade".
"Positioning unwind gone a long way but not over. We remain bullish on US growth this year and stand behind our end-2014 forecast for 10y Treasury yields and USD/JPY at 3.75% and 108. In the short term, we are wary that the unwinding of short US rates and short JPY positions may not be over".
"Benefit from weather volatility via calendar spreads. To profit from weather induced uncertainty, we recommend calendar spreads in US rates or USD/JPY: sell a 6w USD/JPY 105 one-touch option to finance buying a 12w 105 one-touch option; sell 6w payer on 10y, 2.9% strike and buy 12w payer on 10y, 3.1% strike. The biggest risk to these trades is a stronger-than-expected January NFP - the NFP survey week was unusually warm even though the entire month was very cold".