Global Cross Asset Strategy: Viruses, Votes And Volatility March 4, 2020
After posting multiple record highs for much of the year, the benchmark S&P 500 US equity index was jolted into correction territory, as investors began to panic that the coronavirus outbreak would not be successfully contained. We had already placed among our key 2020 views a put option on the S&P 500 Index with March 31 expiry, due to our belief that political risks were underappreciated, and the market was generally too complacent. We took advantage of the rapid decline, selling those puts with a massive 245% return (see publication explaining the strategy here). This effectively allowed us to re- enter our long S&P 500 view at the bottom of the correction (see updated table on the following page), and we retain a broadly bullish view on stocks moving Kathryn Rooney Vera forward. Head of Research & Strategy [email protected] +1 786.871.3758 Our timing for selling our puts was supported by a far better-than-expected performance by former Vice President Joe Biden during the ‘Super Tuesday’ Gregan Anderson, CFA voting held on March 2, where a large share of total delegates needed to secure Macroeconomic Strategist the Democratic nomination for the US Presidency were up for grabs. Following [email protected] a strong showing in South Carolina and endorsements from key Democratic +1 786.871.3743 leaders (including three former opponents who had dropped out of the race), Biden won 10 out of the 14 states, with the others all going to rival far-left Chge In End- candidate Vermont Senator Bernie Sanders. We believe that the market would Past 2 YTD 2020 be unfazed by the prospect of a Joe Biden Presidency, and perhaps more Asset Spot Weeks Change Target USG10Y 0.99 -57bps -93bps 2.00 importantly, the disruption a Sanders presidency would likely cause to major USG30Y 1.63 -38bps -76bps 2.50 sectors, including most notably health care, is now far less likely to occur. JGB10Y -0.13 -8bps -12bps 0.00 DXY 97.34 -2.38% 0.98% 97.00 EUR 1.11 2.97% -0.78% 1.12 While we are still far from out of the woods regarding the coronavirus, the JPY 107.35 3.71% 1.14% 112.00 markets will be supported by the improving political outlook, as well as a MXN 19.54 -4.92% -3.06% 18.50 BRL 4.58 -4.21% -11.65% 3.90 surprisingly quick reaction by the US Fed, which cut 50bps in a bid to counteract SPX 3060 -9.64% -5.30% 3500 the potentially adverse economic impacts of the virus. We expect a global IBOV 105573 -9.39% -8.71% 130000 coordinated effort to tackle the crisis through both additional monetary policy MEXBOL 43080 -4.06% -1.06% 49000 Brazil 10Y 6.18 -8bps -47bps 6.50 as well as a fiscal response. Mexico 10Y 6.29 -20bps -55bps 6.70 MXEF 1028 -6.87% -7.79% 1219 Gold 1640 1.76% 8.10% 1600 Looking ahead, we like health care stocks as the ‘Bernie Bust’ is less likely to WTI Crude 46.9 -11.97% -23.17% 55.0 occur, and we would rotate a portion of bond holdings into high-yielding stocks As of 03/04/2020 to benefit from both higher yields and greater capital appreciation potential from current suppressed levels.
▪ Fixed Income: US yields plummeted to record lows as investors fled to safe- haven assets, although the yield curve has steepened.
▪ FX: The dollar finally relinquished its ytd gains as the carry trade versus the EUR was drastically diminished.
▪ Equities: US stocks saw their quickest correction since the 1930s, but the sell-off presents investors with opportunities looking ahead.
▪ Commodities: Oil prices tumbled on global growth concerns, but should firm as coronavirus fears subside.
Bulltick 2020 Investment Strategy – Top Picks Equity USD Returns Since Call Initiation (dates in parentheses)
S&P Real Estate (12/18- ) 5.8%
S&P 500 + put option @3,190* (12/18- ) 2.0%
S&P Consumer Staples (12/18- ) 0.9%
MSCI China Cons Disc (12/18- ) -0.4%
MSCI Asia ex-Japan (12/18- ) -5.1%
MSCI EM Index (12/18- ) -6.9%
Euro Stoxx 50 (12/18- ) -8.0% Capital Gains S&P Financials (12/18- ) -10.6% Dividend Gains Forex Gains Brazil IBOV (12/18- ) -16.0% Total Return
-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0%
*Total gains of underlying position including an ATM put option hedge expiring 3/31/20, sold on 2/28/20. Benchmark Fixed Income USD Returns Since Call Initiation (dates in parentheses)
Brazil USD, 2028 (12/18- ) 7.1%
Capital Gains Interest Gains Petbra 2024 (USD) (12/18- ) Forex Gains 3.9% Total Return
Pemex 2027 (USD) (12/18- ) 2.3%
Mexico MXN (MBONO), 2027 (12/18- ) 1.0%
Colombia (COLTES) 2028 (12/18- ) 0.1%
Brazil BRL (NTNF) 2029 (12/18- ) -7.0%
-15.0% -10.0% -5.0% 0.0% 5.0% 10.0%
Fixed Income Strategy:
▪ US 10Y yields are at all-time lows, falling below an Developed Markets 10Y Total Returns astoundingly low 1.00%, following the most rapid correction since the market collapse of 1933, with the benchmark S&P 2-week return YTD return 500 Index falling more than 10% in just six days. The proximate 7.6% cause of the correction was the apparent lack of containment 5.4% of the coronavirus outbreak emanating from China. While we 4.7% 4.7% 4.5% 3.8% 3.7% continue to believe that a devastating global health 3.3% catastrophe will be avoided, the virus has proved much more 2.7% 2.5% 1.5% difficult to contain that previous outbreaks, such that cases 0.6% outside of China continue to climb. Germany Japan US France Italy UK ▪ On Tuesday, the Fed added to the downward pressure on yields with an emergency 50bps cut, the first time an EM Local Currency Bond Total Returns extraordinary FOMC rate decision has been deployed since the 2-week return YTD return global financial crisis more than a decade ago. Officials had telegraphed on Friday that a rate cut was likely to occur in 32.9%
March, and ultimately concluded that the additional boost 17.7% from the element of surprise would be beneficial. We now expect that further stimulus is on the horizon, not just in the 0.1%1.4% 2.2%
US, but from central banks across DM. -0.5% -2.1% -2.4% -3.1% -4.6% -9.4% -13.2% ▪ We expect that rates will remain low, but that further rally Argentina Peru Colombia Chile Mexico Brazil will be blunted. Ongoing political risk (particularly the ongoing 2026 2029 2030 2030 2029 2029 swings in the trajectory of the Democratic Primary race) will keep rates from rising substantially from these new lows in the EM USD-Denominated Bond Total Returns
short term. However, a further rally will be precluded by the 2-week return YTD return scope of the recent move (leaving less room for further yield 7.6% compression), as well our expectation that the intensity of the 5.9% 6.5% 5.5% 4.7% 3.1% coronavirus crisis will diminish over the coming weeks. 2.7% 2.5% 2.4% 2.1%
▪ Against this backdrop, EM bonds will ultimately benefit from a return of the reach for yield, coupled with upside in -1.9%
commodity prices. -7.7% Chile Mexico Colombia Peru Brazil Argentina 2028 2028 2029 2027 2029 2028
Benchmark Asset Begin-2020 Current YTD Interest YTD Capital YTD Forex Total YTD 2020 Target 2020 YTM YTM Gains, % Gains, % Gains, % Return, % YTM Return, % UST 10Y 1.87 0.87 0.39% 7.18% - 7.57% 2.00 1.01% German 10Y -0.23 -0.64 0.00% 4.11% -0.66% 3.43% -0.35 -0.12% Japan 10Y 0.00 -0.14 0.02% 1.28% 1.17% 2.48% 0.00 -3.13% Mexico MBONO 2029 6.89 6.26 1.36% 4.07% -3.10% 2.16% 6.70 10.43% Mexico USD, 2029 3.25 2.49 0.73% 5.77% - 6.50% 3.00 5.00% Brazil BRL 2029 6.79 6.56 1.41% -1.21% -12.22% -12.04% 6.50 -3.69% Colombia TES 2030 6.34 5.77 1.24% 4.10% -5.50% -0.44% 6.00 2.09% Chile CLP 2030 3.14 3.20 0.72% -2.03% -8.23% -9.43% 3.50 -0.88% Argentina ARS, 2026 50.34 41.11 7.42% 31.44% -4.19% 33.04% 45.00 20.38% Venezuela 2028 (USD) 67.66 59.34 13.88% 30.65% - 44.52% 66.00 106.14% Peru Soberano 2029 4.20 3.65 0.94% 3.71% -3.11% 1.39% 4.00 2.93% Source: Bloomberg, Bulltick. All returns are in USD As of 03/04/2020
Fixed Income Chartpack:
① US yields have falling to nearly 3 standard deviations from the moving 1-year average, on the back of a rapid decline in risk appetite. ② Spreads between the US and other DM benchmark sovereigns have declines, given the steep declines in the US outpaced the declines seen abroad. #1 US--10-Year Yield, % (with 1, 2, and 3 Standard Developed Markets--10Y Yields, % #2 Deviations from 1-year moving average) 3.5 4.0 3 s.d. from 1-year moving average 3.0 3.5 2 s.d. from 1-year moving average 1 s.d. from 1-year moving average 2.5 UST 10Y yield 3.0 2.0
2.5 1.5 1.0 2.0 0.5 UST 10Y 1.5 0.0 German 10Y Bunds UK 10Y Gilts 1.0 -0.5 France 10Y Japanese 10Y Bonds 0.5 -1.0 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
③ Over the past several weeks, the entire yield curve has shifted downward over 50bps, although the decline has been larger among maturities between 1-3 years. ④ Indeed, due to falling near-term yields, the 30-2 UST spread - often used as a recession indicator when negative - is now at its highest level since early 2018. #3 30-2Y UST Spread, % #4 US Yield Curve 3.8 2.5 3.6 UST 30Y yield 3.4 UST 2Y yield 3.2 Spread 3.0 2.0 2.8 2.6 2.4 2.2 1.5 2.0 1.8 1.6 1.4 1.0 1.2 As of 01/03/2020 1.0 Current 0.8 0.6 0.5 0.4 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 0.2 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
⑤ The coronavirus is the most important driver of yields in recent weeks, but the Fed has added fuel to the fire, with a 50bps cut at an extraordinary FOMC meeting, with the market pricing in further cuts. ⑥ Investors should look at high yield bonds, which, given our view that recession is not on the immediate horizon, offer attractive return in this low-yield environment. #5 High Yield Corp Vs EM Sovereign Bond Yields, bps #6 Futures Rates Vs 10Y Yield 900 3.5 JP Morgan EMBI Global Spread 800 3 BarCap HY YTW-10Y Spread 700 2.5 600 2
1.5 500
1 400
0.5 US 10Y Yield 300 Rolling 2-Year Ahead Fed Funds Futures Rate 0 200 Mar-2017 Oct-2017 May-2018 Dec-2018 Jul-2019 Feb-2020 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Source: Bloomberg, Bulltick As of 03/04/2020
FX Strategy:
Developed Markets, FX Spot Returns
▪ After testing the 100 level, the US Dollar index (DXY) has fallen 2-week return YTD return sharply in recent days, by 2.7% to just over 97.0. Although in recent years the dollar has benefitted from sales of dollar- 3.7% 3.1% denominated assets, particularly USTs, meaning when yields have fallen the dollar has tended to rise, we attribute the recent 1.2% 1.0% bout of dollar depreciation to the relative decline in US interest
rates. In recent trading, the spread between USTs and European -0.7% -0.4% sovereigns has shrunk substantially, reducing the carry trade and -1.3% -1.1% -2.4% pushing the dollar lower. -2.9% -3.1% -2.8% JPY EUR GBP CAD DXY CHF
▪ We expect the carry trade to remain relatively EUR-positive by Emerging Markets, FX Spot Returns recent historical standards, keeping the dollar from regaining its past strength. 2-week return YTD return
▪ Meanwhile, the safe-haven currency JPY has rallied amid a -1.1% -1.2% -3.1% -2.7% -2.9% -3.1% serious decline in risk appetite, mainly associated with the -4.2% -4.7% -5.0% spread and lack of containment of the coronavirus, despite the -5.5% fact that Japan is among the hardest-hit countries, with 331 -8.2% confirmed cases at the time of writing. Although the spread of the virus has already exceeded our expectations, and will likely -12.2%
take longer to recover from than we had previously anticipated, PEN ARS COP CLP BRL MXN we nonetheless believe that a global catastrophe will be averted, and that risk appetite will return in the coming months. Emerging Markets, FX Carry Returns
2-week return YTD return ▪ EMFX has been hit hard by the knock-on effects of lower global growth expectations, particularly in the form of lower 4.7% commodity prices. The price of oil, for example, briefly fell below 1.0% the US$45/bbl level for the first time at the end of February, before recovering slightly. We expect that as commodity prices -1.0% -2.9% -2.2% -2.3% -2.2% firm, the depreciatory pressures on EMFX will subside, with slow -5.3% -4.6% -4.8% but positive implications for EMFX. -8.0% -11.7% ARS PEN CLP COP BRL MXN Asset Begin 2020 Current YTD Spot YTD Interest End-2020 2020 Expected 2020 Expected Return Gains Target Spot Return Total Return DXY 96.4 97.3 1.0% - 97.0 0.6% - USD/EUR 1.12 1.11 -0.7% -0.07% 1.12 -0.1% -0.6% JPY/USD 108.6 107.4 1.2% -0.03% 112.0 -3.0% -3.3% CNY/USD 6.96 6.93 0.5% - 7.00 -0.5% - MXN/USD 18.93 19.54 -3.1% 1.25% 18.50 2.3% 9.5% BRL/USD 4.02 4.58 -12.2% 0.64% 3.90 3.1% 7.9% COP/USD 3,288 3,479 -5.5% 0.70% 3500 -6.1% -1.5% CLP/USD 752.4 819.9 -8.2% 0.28% 750.0 0.3% 2.6% PEN/USD 3.31 3.42 -3.1% 0.52% 3.40 -2.6% 1.7% ARS/USD 59.88 62.50 -4.2% 9.07% 75.00 -20.2% 28.4% Source: Bloomberg, Bulltick. Note: Total returns include 3m deposit (or comparable) interest gains. Carry gains incorporate interest rate differential with US rates. All FX returns are against USD As of 03/04/2020
FX Chartpack:
① The US dollar fell from multiyear highs to around 97.3, in keeping with its average since early 2019. We attribute the declin e in the value of the dollar to reduced carry following a sharp decline in US interest rates. ② The Euro rallied accordingly, testing US$1.12/EUR, a climb of more than 3.5%. #1 Dollar Index/Euro Relationship #2 US--DXY Index And US10Y Yield 101 1.070 104 1.080 3.25 US10Y yield, % (LHS) 102 100 DXY Index (RHS) 1.090 2.75 100 99 1.100 98 1.110 98 2.25 96 1.120 97 1.130 1.75 94 1.140 92 96 DXY Index (LHS) 1.150 1.25 Exchange Rate, USD/EUR (RHS, inverted) 90 95 1.160 0.75 88
Jan-17 Jun-17 Nov-17 Apr-18 Sep-18 Feb-19 Jul-19 Dec-19
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③ The decline in the dollar helped to support many EMFX in recent trading, although they all have lost value in the year -to- date. One exception is the Brazilian real, which fell even further, due in part to low commodity prices. ④ Within the DMFX space, the JPY saw a rally that rivaled that of the EUR, due to its role as a safe-haven asset. #3 LCY/USD, YTD Normalized (Up=Depreciation) USD/LCY, YTD Normalized (Up=Appreciation) #4 BRL/USD CLP/USD COP/USD DXY USD/EUR USD/GBP USD/JPY MXN/USD PEN/USD 116 104
114 103
112 102 110 101 108 100 106 99 104 102 98 100 97 98 96 Jan-2020 Feb-2020 Mar-2020 Jan-2020 Feb-2020 Mar-2020
⑤ Surprisingly, the currency of China, the epicenter of the health crisis, has held up remarkably well. ⑥ As a result, both of the most important LatAm currencies, the MXN and BRL, have underperformed the broad EMFX basket, due in part to their exposure to falling commodity prices. #5 China--Exchange Rate, CNY/USD #6 7.4 MXN And BRL Vs EMFX 80 JPMorgan EMFX Index (LHS) 7.2 USD/MXN, Normalized, (1/1/2015=100), RHS 105 75 USD/BRL, Normalized, (1/1/2015=100), RHS 7.0 95
70 6.8 85
6.6 65 75 6.4 60 65 6.2 Exchange Rate, CNY/USD 50dma 100dma 200dma 55 55 6.0 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20
Source: Bloomberg, Bulltick As of 03/04/2020
Equities Strategy:
▪ Markets were sent reeling over the past two event-packed weeks, led first by the apparent lack of containment of the Developed Market Equity Returns coronavirus, which sent the S&P 500 into correction territory 2-week return YTD return (>10% decline) in just six days, a pace of decline unmatched since the 1930s. We were taken by surprise by the developments of the coronavirus, but fortunately had already taken precautions in the form of protective put options, given -5.3% what we saw as a complacent market amid underappreciated -6.5% -7.8% -7.3% -8.8% -8.9% political risk. -9.8% -9.2% -9.3% -9.1% -9.3%-9.1%-9.6% -12.4% ▪ Remarkably, political risk has dropped drastically over just Nikkei French Euro Spain FTSE 100 German S&P 500 the past few days, given the reversal of fortunes of former 225 CAC 40 Stoxx Ibex DAX Vice President (and relative moderate) Joe Biden, whose candidacy looked dead after losing three straight Democratic Select S&P 500 Sectors Returns primaries. He won a decisive victory in South Carolina, 2-week return YTD return however, which led to two other moderates, Mayor Pete 3.1% Buttigieg and Senator Amy Klobuchar, to end their campaigns 1.6% and endorse him. This supercharged his candidacy in Super -0.2% -1.7% Tuesday, where he took the majority of states and help to -4.0% -4.6% -4.7% blunt leftist Vermont Senator Bernie Sanders' momentum. -10.8% -13.0%-12.3% With the political outlook improving and our options deep in -15.9% the money, we sold our puts on Monday. -24.1% ▪ Looking ahead, we think there is substantial upside from Cons Stap Real Estate Utilities Info Tech Financials Energy current sold-off levels, and given the historically low yields, Emerging Market Equity Returns we like bond proxies (like Utilities and Real Estate), and given 2-week return YTD return the lessened prospect of a Sanders administration takeover of 2.3% the health care sector, we like health care stocks as well. We
also expect -0.7% -4.1% -5.3% -6.4% -6.9% ▪ Outside of the US, we like stocks which have been impacted -7.8%-8.8% solely due to exogenous shocks, such as lower commodity -11.9% -10.9% -12.8%-13.6% prices, but which maintain solid fundamentals. Brazil and -15.3% Colombia are examples in the Latin American space. -19.9% Shanghai Argentina Peru MSCI EM Mexican Colombia Brazilian Comp Merval General Bolsa COLCAP Bovespa Asset Div Begin 2020 Current Cap Gains Cap Gains Target 2020 Expected Total Returns Yld Price Price (LCY, YTD) (USD, YTD) 2020 LCY w/Div USD w/Div S&P 500 2.1% 3,231 3,060 -5.3% -5.3% 3,500 8.3% 10.2% 8.3% 10.2% Euro Stoxx 3.8% 3,745 3,421 -8.7% -9.3% 4,100 9.5% 12.8% 9.3% 12.7% German DAX 3.4% 13,249 12,128 -8.5% -9.1% 14,750 11.3% 14.3% 11.2% 14.1% Nikkei 225 2.1% 23,657 21,100 -10.8% -9.8% 25,000 5.7% 7.6% 2.5% 4.3% Shanghai Comp 2.6% 3,050 3,012 -1.3% -0.7% 3,500 14.7% 17.2% 14.1% 16.6% MSCI India 1.6% 1,370 1,289 -5.9% -9.0% 1,500 9.5% 11.0% 8.5% 10.0% MSCI EM 3.2% 1,115 1,028 -7.8% -7.8% 1,214 8.9% 11.7% 8.9% 11.7% MSCI World 2.7% 565 522 -7.6% -7.6% 621 9.8% 12.2% 9.8% 12.2% Mexican Bolsa 3.5% 43,541 43,080 -1.1% -4.1% 49,000 12.5% 15.7% 15.1% 18.3% Brazilian Bovespa 3.6% 115,645 105,573 -8.7% -19.9% 130,000 12.4% 15.2% 15.9% 18.7% Colombia COLCAP 4.7% 1,662 1,534 -7.7% -12.8% 1,750 5.3% 8.9% -1.1% 2.3% Source: Bloomberg, Bulltick. Chart returns are in USD, excluding dividends As of 03/04/2020
Equities Chart pack:
① The S&P 500 tumbled from record highs as investors soured on risk assets amid the global health crisis, bringing the index in line with its 1-year moving average. ② PE ratios will likely be impacted not only by the price, but by downwardly adjusted forward earnings estimates. Present valuations suggest value, however. #1 S&P 500 Index (with 1, 2, and 3 Standard S&P 500 Monthly Forward PE Ratio, Including 60- #2 Deviations from 1-year moving average) month moving average 3,700 28 26 Index PE ratio value (latest: 17.7) 3,200 24 60-month moving average (latest: 17.79) 22 2,700 20 18 2,200 16 3 s.d. from 1-year moving average 14 1,700 2 s.d. from 1-year moving average 12 1 s.d. from 1-year moving average SPX Index 10 1,200 Dec-1997 Sep-2001 Jun-2005 Mar-2009 Dec-2012 Sep-2016 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
③ Another indicator suggesting that it may be time to buy is the spread between the earnings yield and the US 10 -year bond yield, which as at multiyear highs. ④ The recent decline has helped real estate(one of our favored sectors for 2020) and other bond proxies, while cyclical stocks have been hit hard. #3 Earnings Yield Vs 10Y Yield S&P Total Sector Returns Since 12/18/2019 #4 10.00 10.0% S&P Total Sector Returns Since 12/18/2019 SPX Earnings Yield-US10Y Yield Spread 9.00 10.0% Dividend Gains Capital Gains SPX Index Earnings Yield (E/P ratio) 5.0% 5.0% 4.6% Defensives Cyclicals 8.00 US 10Y Yield 5.0% 2.3% Others 0.0% 5.0% 4.6% 7.00 0.0% 2.3% -5.0% 6.00 -0.3% -5.0% -2.6% -3.2% -3.5% -3.8% 5.00 -10.0% -0.3% -10.0% -6.8% -7.9% -2.6% 4.00 -3.2% -3.5% -3.8% -15.0%-15.0% -11.6% Dividend Gains 3.00 -6.8% -20.0% -7.9% -20.0% Capital Gains 2.00 -11.6% -25.0%-25.0% -21.9% 1.00 0.00 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19
⑤ The fall in the value of the dollar has seen the outperformance in US markets (in US-dollar terms) all by evaporate in recent trading, with global, US, and EM benchmark indices posting similar ytd losses. ⑥ The depreciation in the BRL and the decline in commodity prices have hit LatAm stocks, which tested multiyear lows. We expect upside from current levels. #5 #6 Global EquityMSCI Indices, Emerging Normalized Markets Index(100=Jan 2020) MSCI Latin America Index 1200106 4000
104 1100 3500 102
1000100 3000 98 900 96 2500 94800 MSCI Emerging Markets Index 92 MSCI World ex USA 2000 700 90 SPX Index
88600 1500 Dec-19Dec-19 Jan-20Jan-20 Jan-20Jan-20 Feb-20 Feb-20Feb-20 Mar-20Feb-20 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Source: Bloomberg, Bulltick As of 03/04/2020
Commodities Chartpack: ① Despite recent dollar weakness (associated with the reduced carry trade versus the EUR), some commodity prices saw steep declines, most notably the price of oil. ② The decline is due to concerns about global growth following the disruptions caused by the coronavirus outbreak, while oil production levels remain elevated.
#1 Commodity Prices (Normalized, Jan 2019=100) Oil Production Of Top 4 Global Producers, '000 bbl/day #2 150 14,000 US Saudi Arabia 145 Soy, USD/ton 12,000 Russia Iraq 140 Copper, USc/lb WTI crude, USD/bbl 135 10,000 130 Gold, USD/oz 125 8,000 120 6,000 115
110 4,000 105 100 2,000 95 0 90 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 Jan-95 Jan-99 Jan-03 Jan-07 Jan-11 Jan-15 Jan-19
③ The steep decline has put the oil futures market in contango. We expect price risks to be weighted to the upside from current levels, and retain our US$55/bbl price target for end-2020. ④ Volatility levels soared to levels not seen since 2015, although they have come down slightly in recent days. #3 WTI Oil Price Futures, USD/bbl US--Volatility Index (VIX) #4 51.0 45 40 Vix Index 50.0 Current level (31.77) 35 49.0 30
48.0 25
47.0 20 Current 46.0 15 One Month Ago 10 45.0 5
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⑤ Sugar prices have fallen substantially, due in part to the reduced demand for ethanol production given suppressed oil prices, meaning cane processors are opting to produce food sugar instead. ⑥ Industrial metals are down on the year, but have been resilient in recent trading, despite China's importance to these commodities. #5 Normalized Crop Prices (Jan 2020=100) Normalized Indust Metals Prices (Jan 2020=100) #6 120 Copper Lead Aluminum Nickel Zinc Soy Coffee Corn Rice Sugar 115 110 110 105 105 100 100 95 90 95 85
80 90 75 70 85 Jan-20 Feb-20 Mar-20 Jan-20 Feb-20 Mar-20
Source: Bloomberg, EIA, Bulltick As of 03/04/2020
FIXED INCOME Begin 2020 Current 2020 Target Expected USD Benchmark Security YTM YTM YTM Return, % UST 10Y 1.92 0.93 2.00 1.01% German 10Y -0.21 -0.64 -0.35 -0.12% Japan 10Y -0.01 -0.14 0.00 -3.13% Mexico MBONO 2029 6.89 6.35 6.70 10.43% Mexico USD, 2029 3.25 2.56 3.00 5.00% Brazil BRL 2029 6.79 6.56 6.50 -3.69% Colombia TES 2030 6.34 5.78 6.00 2.09% Chile CLP 2030 3.14 3.20 3.50 -0.88% Argentina ARS, 2026 50.34 41.11 45.00 20.38% Venezuela 2028 (USD) 67.66 59.34 66.00 106.14%
Peru Soberano 2029 4.20 3.65 4.00 2.93%
FX Begin 2020 Current 2019 Target Expected Return Spot Rate Spot Rate Spot Rate (w/ int gains), % DXY 96.4 97.3 97.0 0.63% USD/EUR 1.12 1.11 1.12 -0.58% JPY/USD 108.6 107.4 112.0 -3.27% CNY/USD 6.96 6.93 7.00 -0.52% MXN/USD 18.93 19.54 18.50 9.47% BRL/USD 4.02 4.58 3.90 7.93% COP/USD 3288 3479 3500 -1.46% CLP/USD 752.4 819.9 750.0 2.58% PEN/USD 3.31 3.42 3.40 1.71%
ARS/USD 59.88 62.50 75.00 28.40%
EQUITIES Begin 2020 Current 2020 Target Expected USD Return, Benchmark Index Price Price Price Including Divs, % S&P 500 3231 3060 3500 10.16% Euro Stoxx 3745 3421 4100 12.65% German DAX 13249 12128 14750 14.12% Nikkei 225 23657 21100 25000 4.34% Shanghai Comp 3050 3012 3500 16.61% MSCI India 1370 1289 1500 10.03% MSCI EM 1115 1028 1214 11.66% MSCI World 565 522 621 12.17% Mexican Bolsa 43541 43080 49000 18.34% Brazilian Bovespa 115645 105573 130000 18.70%
Colombia COLCAP 1662 1534 1750 2.29%
Source: Bloomberg, Bulltick. Note: Red forecasts have been recently revised
About Bulltick Capital Markets
Bulltick Capital Markets is a full-service investment bank specialized in Latin America. The firm offers a variety of diversified financial products and services with local know-how and international expertise. Its client base is comprised of established financial institutions and qualified investors in Latin America, as well as of the international financial community with investment interests in the region. Bulltick is headquartered in the United States, with offices in Miami, Mexico City, and Bogota.
Our Research Resources
With Bulltick's vast Latin American in-roads, resources and networks, our research team is strategically positioned to provide value-added research on local and regional companies, markets and industries. With analysts in the region, along with management road shows, we are able to track the pulse of the leading markets in Latin America. We make it our business to know the business of the region, so we can help our clients manage volatility with in- depth coverage of macroeconomic leading sectors and market-moving events.
Global Macro & Emerging Markets Fixed Income Sales & Trading Research (+1) 305-533-1541 (+1) 305-533-1541 Rodrigo Covian Victor Gutierrez Kathryn Rooney Vera, Head of Research [email protected] [email protected] [email protected]
Gregan Anderson, CFA, Strategist Klaus Spielkamp Joaquin Almeyra [email protected] [email protected] [email protected]
Equity Sales & Trading Argentina Institutional Sales & Trading Klaus Spielkamp(+1) 305 - 533 - 1541Joaquin Almeyra (+1) 305-533-1541
Adolfo Lazaro Diego Raffetti [email protected] [email protected]
Eduardo Saenger [email protected]
Klaus Spielkamp Joaquin Almeyra
Bulltick Colombia (+57) 1- 317-9638
Carlos Daniel Ruiz [email protected]
Klaus Spielkamp Joaquin Almeyra
ANALYST CERTIFICATION
The analyst(s) primarily responsible for the preparation of this report hereby certify that all the views expressed herein accurately reflect their personal views only. The analyst(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
IMPORTANT DISCLOSURES
Principal/Agency Trading: Bulltick and its affiliated entities, employees, officers, and directors may deal on a principal and/or agency basis in transactions involving currencies, markets, sectors and/or securities referred to herein (or related derivatives or other instruments related thereto), including in transactions which may be contrary to any recommendations contained herein. The Firm’s Analysts may interact with sales and trading personnel in the ordinary course of business. Such sales and trading personnel may trade and/or have proprietary positions in the securities (or in related derivatives) that are the subject of this report, and the Firm's interest may conflict with the interests of investors in those instruments.
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Conflict Management: Fixed income personnel report to the head of fixed Income and are not subject to the direct or indirect supervision or control of any other Firm department (or members of such department).
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