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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
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
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.
3 | 22 February 2019 www.danskeresearch.com
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.
4 | 22 February 2019 www.danskeresearch.com
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
cheap neutral expensive
Price indicator: risk reversal (USD seller)
-1.50
-1.00
-0.50
0.00
0.50
1.00
Jul-17 Nov-17 Mar-18 Jul-18 Nov-18
EUR/USD risk reversal
cheap neutral expensive
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
5 | 22 February 2019 www.danskeresearch.com
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.
Hedging recommendations
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
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
10
11
12
13
14
Jul-17 Nov-17 Mar-18 Jul-18 Nov-18
EUR/GBP Implied Volatility Realised volatility
cheap neutral expensive
Price indicator: risk reversal (GBP seller)
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
Jul-17 Nov-17 Mar-18 Jul-18 Nov-18
EUR/GBP risk reversal
cheap neutral expensive
Price indicator: forward rate (GBP seller)
0.90%
1.00%
1.10%
1.20%
1.30%
1.40%
1.50%
1.60%
Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19
EUR/GBP 3M Forward (%, ann.)
EUR/GBP
Source: Bloomberg, Danske Bank
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/GBP DB forecastForward Cons. forecast
6 | 22 February 2019 www.danskeresearch.com
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.
Hedging recommendations
Income Expenses We recommend hedging JPY-denominated income via FX forwards. We recommend hedging JPY-denominated expenses via participating
forwards.
Source: Bloomberg, 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
7
8
9
10
11
Jul-17 Nov-17 Mar-18 Jul-18 Nov-18
EUR/JPY Implied Volatility Realised volatility
cheap neutral expensive
Price indicator: risk reversal (JPY seller)
-3.00
-2.50
-2.00
-1.50
-1.00
-0.50
0.00
Jul-17 Nov-17 Mar-18 Jul-18 Nov-18
EUR/JPY risk reversal
cheap neutral expensive
Price indicator: forward rate (JPY seller)
-0.10%
0.00%
0.10%
0.20%
0.30%
0.40%
Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19
EUR/JPY 3M Forward (%, ann.)
EUR/JPY
Source: Bloomberg, Danske Bank
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/JPY DB forecastForward Cons. forecast
7 | 22 February 2019 www.danskeresearch.com
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.
Hedging recommendations
Income Expenses Given the relatively cheap option volatility, we recommend hedging SEK-income via participating forwards.
We recommend hedging SEK-payables with FX forwards.
Source: Bloomberg, 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
5
6
7
8
Jul-17 Nov-17 Mar-18 Jul-18 Nov-18
EUR/SEK Implied Volatility Realised volatility
cheap neutral expensive
Price indicator: risk reversal (SEK seller)
0.00
0.20
0.40
0.60
0.80
1.00
Jul-17 Nov-17 Mar-18 Jul-18 Nov-18
EUR/SEK risk reversal
cheap neutral expensive
Price indicator: forward rate (SEK seller)
-0.30%
-0.20%
-0.10%
0.00%
0.10%
0.20%
0.30%
Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19
EUR/SEK 3M Forward (%, ann.)
EUR/SEK
Source: Bloomberg, Danske Bank
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/SEK DB forecastForward Cons. forecast
8 | 22 February 2019 www.danskeresearch.com
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.
Hedging recommendations
Income Expenses
We recommend hedging NOK-denominated income via knock-in forwards.
We recommend hedging NOK-denominated expenses via FX forwards.
Source: Bloomberg, 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
5
6
7
8
Jul-17 Nov-17 Mar-18 Jul-18 Nov-18
EUR/NOK Implied Volatility Realised volatility
cheap neutral expensive
Price indicator: risk reversal (NOK seller)
0.20
0.40
0.60
0.80
1.00
Jul-17 Nov-17 Mar-18 Jul-18 Nov-18
EUR/NOK risk reversal
cheap neutral expensive
Price indicator: forward rate (NOK seller)
1.20%
1.30%
1.40%
1.50%
1.60%
1.70%
1.80%
Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19
EUR/NOK 3M Forward (%, ann.)
EUR/NOK
Source: Bloomberg, Danske Bank
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/NOK DB forecastForward Cons. forecast
9 | 22 February 2019 www.danskeresearch.com
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
Forecasts Income Expenses
AUD
We recommend hedging AUD income via FX forwards.
We recommend hedging AUD expenses via knock-in forwards.
Price indicators
Currency Instrument
Forecasts Income Expenses
NZD
We recommend hedging NZD income via FX forwards.
We recommend hedging NZD expenses via knock-in forwards.
Price indicators
Currency Instrument
Forecasts Income Expenses
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/CHF DB forecastForward Cons. forecast
Implied volatility
Risk reversal (CHF seller)
Forward rate (CHF seller)
cheap neutral expensive
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/AUD DB forecastForward Cons. forecast
Implied volatility
Risk reversal (AUD seller)
Forward rate (AUD seller)
cheap neutral expensive
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/NZD DB forecastForward Cons. forecast
Implied volatility
Risk reversal (NZD seller)
Forward rate (NZD seller)
cheap neutral expensive
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/CAD DB forecastForward Cons. forecast
Implied volatility
Risk reversal (CAD seller)
Forward rate (CAD seller)
cheap neutral expensive
10 | 22 February 2019 www.danskeresearch.com
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
Forecast Income Expenses
RUB
We recommend hedging RUB income via FX forwards.
We recommend hedging RUB expenses via knock-in forwards.
Price indicators
Currency Instrument
Forecast Income Expenses
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
Forecast Income Expenses
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/PLN DB forecastForward Cons. forecast
Implied volatility
Risk reversal (PLN seller)
Forward rate (PLN seller)
cheap neutral expensive
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/RUB DB forecastForward Cons. forecast
Implied volatility
Risk reversal (RUB seller)
Forward rate (RUB seller)
cheap neutral expensive
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/HUF DB forecastForward Cons. forecast
Implied volatility
Risk reversal (HUF seller)
Forward rate (HUF seller)
cheap neutral expensive
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/CZK DB forecastForward Cons. forecast
Implied volatility
Risk reversal (CZK seller)
Forward rate (CZK seller)
cheap neutral expensive
11 | 22 February 2019 www.danskeresearch.com
Market Guide UK
Danske Bank’s hedging recommendations: other emerging markets
Currency Instrument
Forecast Income Expenses
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
Forecast Income Expenses
ZAR
We recommend hedging ZAR income via FX forwards.
We recommend hedging ZAR expenses via knock-in forwards.
Price indicators
Currency Instrument
Forecast Income Expenses
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/CNH DB forecastForward Cons. forecast
Implied volatility
Risk reversal (CNH seller)
Forward rate (CNH seller)
cheap neutral expensive
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/ZAR DB forecastForward Cons. forecast
Implied volatility
Risk reversal (ZAR seller)
Forward rate (ZAR seller)
cheap neutral expensive
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
Feb/17 Oct/17 Jul/18 Mar/19 Nov/19
EUR/TRY DB forecastForward Cons. forecast
Implied volatility
Risk reversal (TRY seller)
Forward rate (TRY seller)
cheap neutral expensive
12 | 22 February 2019 www.danskeresearch.com
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
13 | 22 February 2019 www.danskeresearch.com
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
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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.
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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
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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.
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consent.
14 | 22 February 2019 www.danskeresearch.com
Market Guide UK
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may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non-U.S. financial
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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