Nomura Global FX Wk 2012-02-16 494826

Global Foreign Exchange Research

1

Global FX Weekly

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N O M U R A I N T E R N A T I O N A L P L C

1 6 F E B 2 0 1 2

Any authors named on this report are research analysts unless otherwise indicated.

Please see analyst certifications and important disclosures on starting on page 59.

Portfolio Performance

G10 FX 4

EM FX and Rates 5

Regional Articles

Stress-testing euro flow dynamics 7

Over the past six months, we have generally been calling for euro weakness, and from a trading perspective we have been trading both EURUSD and euro crosses from the short side. We have been a bit more cautious in recent weeks. But we re-entered euro shorts last week, targeting a move to 1.25 in the next one to two months. A key reason we have remained bearish on the euro is that „structural weakness‟ in cross-border capital flows is likely to remain a drag. Since the ECB‟s LTROs have seen a number of trends change, we think now is a good time to stress test this important assumption.

RBA: Statement on Monetary Policy, Feb 2012 12

The Reserve Bank of Australia (RBA) has released its first statement on monetary policy (SMP) of 2012. Following the decision at the February meeting to keep rates on hold, the more detailed SMP has fleshed out some of the forecasts that lead to that decision. We still maintain our view that the RBA should remain on hold for 2012. We recognise that the RBA has room to cut given the global economic backdrop and the expected drop in inflation – indeed, it states that the current inflation outlook would provide room to cut should demand conditions weaken. We do, however, believe that in setting policy for the medium term, the RBA has based its pause on its central scenario.

Taiwan: A good place to receive 13

We believe the general weak global growth backdrop and sovereign debt crisis in Europe both pose downside risks to Taiwan‟s growth outlook. Given recent idiosyncratic sell-offs in the Taiwan 5yr, we see TWD 5yr as cheap relative to USD rates. As our US rates strategists believe there is room for USD rates to sell off, we see an opportunity to trade TWD against USD to hedge out exposure to USD-driven sell-offs. We enter USD10k DV01 into a TWD 5yr/USD 10yr (1:0.40) spread, which provides a similar payout as outright receiving the TWD 5yr but has less exposure to US economic performance and risk sentiment.

Singapore: Examining the IRS curve 16

The SGD IRS curve has continued its rolling flattening in 2012 set against an uncertain global backdrop. While we remain comfortable with our near-term recommendation to receive SGD 5fwd 5yr, we examine the current drivers of recent curve dynamics via principal component analysis (PCA) and investigate if there are additional ways to position for a normalisation of the SGD 2s5s10s spread. The PCA-weighted butterfly is less directional than its traditional counterpart and has better carry characteristics; however, in certain circumstances, such as in the event of a spike in front-end rates, it becomes more directional.

HUF - a cheap hedge post "LTROQE"? 20

We recently published our view that EM assets would continue to see inflows (see EM‟s forgotten inflows: To Rise Like the Phoenix). Nevertheless, we do believe that there will be short-term corrections to this theme. In EEMEA, we believe that buying 1-month EUR/HUF can be a good hedge for this backdrop. Our medium conviction level at this stage leads us to recommend a 1-month 302-308 call spread and we only allocate 36bp for this trade. In other words, our maximum loss should be US$72k on a US$20mn notional position (Hence this is rather an opportunistic position which can benefit on the run-up to ECB LTRO). The maximum gain is US$325 showing a 4.52:1 risk reward.

Take half profit on Turkey eurobond trade 22

On 24 Jan we receommended buying Turkey 2017s against 5yr Treasuries and SOVX CEEMEA against that, at a spread level of 80bp. We doubled our exposure two days later at 88bp. Today, this spread trades at 50bp, and while we believe in the rebalancing story and some further re-pricing in Turkey soverieng spreads, we believe the timing is right to take some profit. We are reducing half our exposure, booking USD 340K to our model portfolio.

Simon Flint

[email protected]

Jens Nordvig

[email protected]

Geoffrey Kendrick

[email protected]

Craig Chan

[email protected]

Olgay Buyukkayali

[email protected]

Peter Attard Montalto

[email protected]

Saeed Amen

[email protected]

Tony Volpon

[email protected]

Boris Segura

[email protected]

Yunosuke Ikeda

[email protected]

Benito Berber

[email protected]

Ylva Cederholm

[email protected]

Yujiro Goto

[email protected]

Advin Pagtakhan

[email protected]

Martin Whetton

[email protected]

Charles St-Arnaud

[email protected]

Kewei Yang

[email protected]

Wee Choon Teo

[email protected]

Prateek Gupta

[email protected]

Prashant Pande

[email protected]

Masanari Takada

[email protected]

Vivek Rajpal

[email protected]

http://intranet.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=489089&cid=+qV/Aa83aGc=


Global FX Weekly

16 Feb 2012 Nomura 2

Nomura 2 16 Feb 2012

Take profits on USD/ILS 23

We are taking profit on our short USD/ILS position, adding US$ 112K to our model portfolio. There are three reasons for taking profits: the collapse of January PMI, the rate market has started to outperform the US again, and Middle-East concerns have picked up again.

Buy USD/TRY again for a delta hedge 24

Our advice on USD/TRY has been to own 30-delta strangles after we took profit on our rate payers and 2v5 flatteners. We believe timining is now good for the second delta hedge due to local and global factors. Locally, implied yields collapsed, coupled with a fairly crowded TRY long positioning built over the past 3 months, can create significant two-way realised volatility. Globally, S&P500 is close to multi-year highs and we see potential for excitement, false breaks and realised volatility. We are buying US$ 1.5mn of USD/TRY at 1.7610.

Mexico: An inflation shock in the making 25

Inflation will be above 4.0% y-o-y, the upper bound of the target interval, for most of the year and this will likely trigger a sell-off in the short end of the curve as we don‟t believe the market has priced it in. For this reason we recommend a tactical trade of paying 3year TIIE.

Forecast no shadow 28

We created our growth surprise indices nearly two years ago (available on Bloomberg at ALLX NGIS and on NomuraNow), designed to capture the differences in economic data releases between the actual release and expectations. In this paper, we extend the work to create data range indices (which we are also planning to put on Bloomberg), which examine the uncertainty in forecasts. We find that generally a smaller spread in economists‟ forecasts tends to be related to positive data surprises. Conversely, a large spread is generally accompanied by adverse surprises in economic data. We discuss trading rules using a combination of both our growth surprise and range indices. Our final trading basket which uses these ideas has annualised returns of 4.4% and an information ratio of 1.45 since 2003.

FX and Rates Model Output

Asia FX Positioning Indices 34

Asia Local Market Rate Expectations 37

Asia Local Market Rate Liquidity Monitor 46

Global FX Forecasts

FX Forecasts 55

http://go.nomuranow.com/fixedincome/tools/composite/nnpage/fi/fx/models/gsi

Global FX Weekly




G10 FX Trading Portfolio

Key trading views

USD to outperform

EUR to underperform

Tactical views

Sell EUR/USD (options)

Buy gold vs. USD and EUR (options)

Portfolio risk summary

The portfolio has a positive correlation with USD.

The portfolio has a positive correlation with risk.

It has a positive correlation with USD yields and also a positive correlation with EUR yields.

Exhibit 1. Portfolio deltas (spot and options) Exhibit 2. G10 risk sensitivity

-50-40-30-20-10

010203040

US

D

EU

R

JP

Y

GB

P

AU

D

NZ

D

CA

D

CH

F

SE

K

NO

K

XA

UDeltas (mm USD)

0102030405060708090

USD +1% S&P500 +1%

USD2Y +10bps

EUR2Y +10bps

$k move in portfolio

Source: Nomura Source: Nomura

Exhibit 2. G10 trading portfolio performance

G10 Macro Strategy Spot Portfolio

L/S Trade name Trade

Trade

Type

Entry /

Change

Date Exit Date

Entry

Level Current P&L (%)

Position

Size

($m)

Notional

($m)

Carry

(bps)

Var

($k)

P&L

($k)

weekly

P&L

($k)

entry

long EUR/CHF add spot 09-Jan-12 1.2141 1.2071 -0.2 40 40 9 162 -128 -98

long NZD/JPY exit spot 12-Jan-12 15-Feb-12 60.84 65.89 8.3 10 10 -81 435 200 835

Cash 60 60

Spot Weekly P&L (since 09-Feb-12) 73

Spot Total P&L year to date 1,161

1 US $100 million portfolio since Feb 5, 20092 EUR/CHF sl 1.1990 tp 1.2450 3 NZD/JPY sl 62.50 tp 64.00

G10 Macro Strategy Options Portfolio

L/S Trade name Trade

Trade

Type Entry Date

Exit / Expiry

Date

Entry

Level Current P&L (%)

Pos

Size

($m)

Notional

($m)

P&L

($k)

weekly

P&L

($k)

entry

short EUR/USD 1.25 hold Put 09-Feb-12 04-Apr-12 0.25% 0.57% -0.32% 0.160 28 -90 -90

long EUR/USD 1.30 (1.33) hold UIP 06-Feb-12 04-Apr-12 0.71% 1.59% 0.88% 0.445 28 182 246

long AUD/CAD 1.00 hold Put 01-Feb-12 01-Aug-12 1.20% 0.97% -0.23% 0.194 20 4 -46

long CAD/JPY 77/79 exit Call Spread 20-Jan-12 15-Feb-12 0.53% 1.90% 1.37% 0.475 25 200 343

long XAU/USD 1650/1750 hold Call Spread 09-Jan-12 09-May-12 2.30% 3.49% 1.19% 0.175 5.00 -18 60

long XAU/EUR 1300/1375 hold Call Spread 09-Jan-12 09-May-12 1.95% 2.40% 0.45% 0.120 5.00 8 23

Options Weekly P&L (since 09-Feb-12) 287

Options Total P&L year to date 273

Source: Nomura

Global FX Weekly




EM FX and Rates Trading Portfolio

Exhibit 1. EM FX Portfolio

Trade

TypeEntry date

Expiry/

Exit date

Entry

level

Stop-

loss

Previous

Mark

Current

level

P&L

since

entry

VAR

(USD)

Size Notional $ % carry $

Asia

Exit Short USD / CNY 1Y NDF 15-Apr-11 19-Apr-12 6.3840 6.5117 6.2817 6.2900 6.3840 10.0 10.0 -13,001 -0.1 147,243

Exit Short USD / CNY 2M NDF 05-Jan-12 09-Mar-12 6.3150 6.3782 6.2893 6.2950 6.3150 5.0 5.0 -4,513 -0.1 15,835

Hold Short USD / CNY 1M NDF 18-Jan-12 21-Feb-12 6.3080 6.3711 6.2929 6.3025 6.3080 10.0 10.0 -15,219 -0.2 8,719

Hold Short USD / HKD 2Y Fw d 06-Dec-10 10-Dec-12 7.7205 7.8363 7.7509 7.7515 7.7205 20.0 20.0 -1,554 0.0 -80,176

Hold Long SGD / KRW 3M 27-Jan-12 30-Apr-12 898.9 880.9 902.1 896.3 898.9 5.0 5.0 -31,932 -0.6 -14,443

EEMEA

Hold Long Spot 09-Nov-11 25.35 24.30 24.78 25.30 25.35 5.0 5.0 105,655 2.1 -1 -2,950

Exit Short Spot 17-Jan-12 15-Feb-12 3.83 3.91 3.71 3.75 3.83 5.0 5.0 -62,319 -1.2 4 112,171

Hold Long Spot 26-Jan-12 1.80 1.75 1.78 1.80 1.75 1.75 27,960 1.6 -18 -35,432

Enter Long Spot 13-Feb-12 1.76 1.76 1.78 1.76 1.50 1.50 13,527 0.9 -5 13,527

Hold Long Call 07-Nov-11 03-May-12 1.70% premium 0.70% 0.93% 1.70% 5.0 5.0 11,500 0.2 -38,500

Hold Long Call 07-Nov-11 02-May-12 2.26% premium 0.28% 0.32% 2.26% 5.0 5.0 2,000 0.0 -97,000

Hold Long Call spread 17-Jan-12 17-Apr-12 0.58% premium 0.12% 0.13% 0.58% 10.0 10.0 1,000 0.0 -45,000

Enter Long Call spread 16-Feb-12 16-Mar-12 0.36% premium 0.36% 0.36% 0.36% 20.0 20.0 0 0.0 0

Hold Long Strangle 12-Jan-12 12-Apr-12 2.90% premium 4.33% 3.26% 2.90% 5.0 5.0 -53,500 -1.1 18,000

USD/TRY

EUR/CZK @ 26.00

EUR/PLN @ 4.74

USD/TRY

EUR/HUF (3.02/3.08)

EUR/PLN (4.60/4.75)

USD/TRY (1.83/1.96)

Position ($m) P&L since last markAvg

entry

Rate

EUR/CZK

USD/ILS

Source: Nomura

Global FX Weekly



Exhibit 2. EM Rates Portfolio

Country IRS/bonds Action Entry date Entry Stop 09-Feb 16-Feb DV01 Funding

3M Carry

(bp)

3M Roll

down

(bp) 1-Week Total P&L ($)

Australasia

1 Australia 2x5 BBSW/LIBOR steepener Hold 4-Jan-12 3.00 9.50 9.00 15,000 AUD - - -7,500 90,000

2 Australia Long ACGB 5.75% July 2022 Hold 9-Jan-12 11.75 10.70 9.85 40,000 AUD - - 34,000 76,000

Short ACGB 5.75% May 2021

North Asia

1 Korea Receive 10Y KTB ASW Spread^^ Hold 2-Dec-10 -22.0 -14.3 -20.5 4,888 KRW - - -30,624 7,490

2 Korea KTB 3s10s ASW Box Flattener^^ Hold 2-Dec-10 57.0 16.8 20.1 5,000 KRW - - -16,381 184,704

3 Korea Receive KRW 5Yfwd5Y IRS Enter 15-Feb-12 75.0 75.0 78.9 995 KRW - - -3,707 -3,707

Pay USD 5Yfwd5Y IRS

Korea Receive KRW 5Yfwd5Y IRS Hold 15-Dec-11 85.0 66.7 81.9 2,045 KRW - - -25,501 5,887

Pay USD 5Yfwd5Y IRS

Receive KRW 5Yfwd5Y IRS Hold 23-Nov-11 75.0 68.0 83.0 2,031 KRW - - -28,670 -15,887

Pay USD 5Yfwd5Y IRS

4 Korea KRW 6m fwd 2s5s conditional bull

steepener (Strikes 3.285, 3.44)

Hold 30-Nov-11 15.5 6.4 4.8 5,000 KRW - - -9,276 6,622

5 Korea KRW 2s5s Steepener Hold 9-Feb-12 3.5 -10.0 3.5 2.6 4,936 KRW - - -8,059 -8,059

6 Korea KRW 3s5s Steepener Hold 9-Feb-12 4.0 -5.0 4.0 1.5 9,878 KRW - - -24,748 -24,748

7 Taiwan Receive TWD 1Y IRS Hold 18-Oct-11 0.87 0.86 0.86 25,176 TWD - - -12,588 21,713

Receive TWD 1Y IRS Enter 15-Feb-12 0.87 0.87 0.87 10,000 TWD - - -1,300 -1,300

8 Taiwan Receive TWD 5Y IRS Enter 15-Feb-12 35.00 35.00 35.50 10,000 TWD - - -5,000 -5,000

Pay USD 10Y IRS (wt 0.4)

South and South East Asia

1 Singapore Receive SGD 5Yfwd5y IRS Hold 2-Dec-10 223.0 139.3 143.1 12,321 SGD - - -75,942 876,601

Pay USD 5Yfwd5Y IRS (wt 0.4)

2 Singapore Receive SGD 5Yfwd 5Y IRS Hold 30-Nov-11 2.97 3.25 2.84 2.82 5,000 SGD - - 10,500 75,000

3 Thailand Receive THB 5Y IRS Hold 30-Nov-11 3.16 3.40 3.28 3.29 5,000 THB - - -5,000 -65,000

4 Malaysia Receive MYR 2Yfwd1y IRS Hold 25-Jan-12 3.30 3.33 3.24 4,936 MYR - - 42,719 29,034

5 India INR 2Yfwd1s5s Steepener Hold 20-Jan-12 20.0 20.5 21.6 7,000 INR - - 7,700 11,200

6 India INR 2s5s Steepener*** Hold 27-Oct-11 -20.0 -27.0 -26.0 6,412 INR - - 6,412 -38,179

7 India Long IGB8.79 11/08/21 bond Hold 5-Dec-11 8.66 8.25 8.20 3,000 INR - - 26,144 227,702

8 India Long IGB9.15 11/14/24 bond Hold 19-Dec-11 8.52 8.35 8.27 3,000 INR - - 34,156 133,822

9 India Long IGB8.19 1/16/20 bond Hold 7-Feb-12 8.21 8.29 8.24 3,000 INR - - 23,946 3,647

US

1 US Pay Sep IMM FRA-OIS spread # Hold 29-Apr-10 24.0 30.8 37.3 10,000 USD - - 65,000 132,500

EEMEA

1 South Africa Buy S. Africa 5.5% 2023s - R197s Hold 30-Sep-10 2.61 2.80* 2.08 2.17 5,000 ZAR 4.0 -94,159 566,389

2 South Africa Buy S. Africa 13.5% 2015s -

R157s

Hold 10-Jan-12 6.81 7.15 6.66 6.68 5,000 ZAR 10.6 17 -11,274 96,518

3 South Africa Buy S. Africa 13.5% 2015s -

R157s

Hold 26-Jan-12 6.49 7.15 6.66 6.68 2,500 ZAR 10.6 17 -2,563 -37,375

4 Buy 7.5% 2017s Exit 24-Jan-12 80 120 60 50 10,000 USD 12.5 100,000 300,000

Sell US Treasury 5yr

Buy SOVX CEEMEA

5 Buy 7.5% 2017s Hold 26-Jan-12 88 120 60 50 10,000 USD 12.5 100,000 380,000

Sell US Treasury 5yr

Buy SOVX CEEMEA

LatAm

1 Argentina Buy 8.75% 2017s Hold 14-Oct-11 -9 75 44 27 310 USD 22,740 5,592 6,331

295

2 Dom. Rep. Buy DR 7.5% 2021s Hold 23-Jan-12

El Salvador Sell ES 7.375% 2019s 23-Jan-12 130 200 118 106 664 USD 78.77 8,202 16,201

3 Mexico Pay 3yr TIIE Enter 13-Feb-12 5.16 4.95 5.14 5.18 5,000 MXN -9 -5 776 776

Level Risk & Return P&L

*** We look to add at better levels.

^^ KAAU1 rolled to the next contract (KAAZ1) on 19-Sep-11. *^ We w ill look to fade w eakness to increase at 2.80%;

Turkey/CEE

MEA

Turkey/CEE

MEA

Source: Nomura

Global FX Weekly



Exhibit 3a. Cumulative performance of EM positions Exhibit 3b. EM FX net positions

1-week PnL

(USD)

2012 YTD

(USD)

Past 52w

(USD)

Cumulative EM FX P&L -20,396 216,957 120,284

Cumulative EM Rates P&L 102,856 2,124,192 12,664,089

Note: Asia FX and rates trades were priced as at 6pm on publication day (SGT). EEMEA FX and rates trades were priced as at 2pm on publication day (LDT).

-35

-25

-15

-5

5

15

25

HK

D

CN

Y

EU

R

SG

D

TR

Y

CZ

K

KR

W

US

D

Asia, Latam and EMEA Allocation of FX Risk (Spot and NDF, USD mn)


Trade Summary

Asia Rates Summary:

1. According to the range of the spread and the volatility, we reduce the step of our position

adjustment from +/-2k per 25bp to +/-1k per 15bp. As such, we add USD1k DV01 at 75bp on 16

February 2012 to take the overall position to USD5k DV01. (Target: 0bp; Adjusted scaling:

Add/reduce 1k for every 15bp of widening/tightening).

2. On 15 February 2012, we entered USD10k DV01 into a TWD 5yr/USD 10yr (1:0.40) spread,

which provides a similar payout as outright receiving the TWD 5yr but has less exposure to US

economic performance and risk sentiment. We also add a further USD10k DV01 to our existing

recommendation to receive TWD IRS 1yr to hold to maturity.

Asia FX Summary:

1. On 13 February 2012, we took profits on two of our three short USD-CNY positions (60% notional).

We cut two positions that fix on 7 March (P&L +32bp) and 17 April (P&L +147bp), and retain the

position which fixes on 17 February.

EEMEA Rates Summary:

1. On 16 February 2012, we took half of our profits on our recommendation to buy Turkey 2017s

against 5yr Treasuries and SOVX CEEMEA against that. We book profits of 34bp, or USD340K in

our model portfolio.

EEMEA FX Summary:

1. On 13 February 2012, we performed our second delta hedge of our USD/TRY strangle. With our

un-hedged delta at -36%, we bought USD 1.5mn of USD/TRY at 1.7610.

2. We exited our short USD/ILS position at 3.75, booking a profit of USD112K.

3. On 16 February 2012, we bought a 1-month 302-308 EUR/HUF call spread, allocating 36bp to the

trade. Our notional is USD20mn, meaning our maximum loss would be USD72K, maximum gain is

USD325, which gives us a 4.52:1 risk-reward.

LatAm Rates Summary:

1. We initiated a payer position on 3yr Mexico TIIE IRS on 13 February 2012, with an entry level of

5.16%, targeting 5.40% and stopping at 4.95%.

Global FX Weekly



Regional Article

Stress-testing euro flow dynamics 1

Eurozone capital flows continue to look structurally weak

Over the past six months, we have generally been calling for euro weakness, and

from a trading perspective we have been trading both EURUSD and euro crosses

from the short side. We have been a bit more cautious in recent weeks. But we re-

entered euro shorts last week, targeting a move to 1.25 in the next one to two

months.

A key reason we have remained bearish on the euro is that „structural weakness‟ in

cross-border capital flows is likely to remain a drag. Since the ECB‟s LTROs have

seen a number of trends change, we think now is a good time to stress test this

important assumption.

Looking at a number of high-frequency indicators, incorporating feedback from

investors globally, and adding our views on underlying drivers of asset allocation

decisions, the broad picture in terms of underlying euro flow dynamics is as follows:

Foreign inflows into eurozone fixed income instruments have recovered marginally

in the early part of 2012 relative to their very weak trend in the fourth quarter of

2011. Private sector investors globally have turned more neutral in terms of

eurozone debt flows in Q1 2012, after selling eurozone debt instruments at a fast

pace in Q4 2011. On the official side, we expect weaker EUR demand for eurozone

debt and deposits than has been the norm in recent years. This is both due to

weaker reserve accumulation by global central banks and due to a lower expected

euro share out of new accumulation.

In terms of resident flows, outflows from the eurozone are recovering sharply:

eurozone investors appear to be buying both foreign equity and bonds in good size

in Q1 2012, with negative implications for the overall cross-border portfolio flow

picture.

The overall flow picture has adopted a somewhat different flavor from Q4 2011.

Inflows are not quite as weak as in Q4, but outflows have accelerated sharply.

Overall, structural weakness in the net flow portfolio flow picture seems to persist in

2012, even as the LTRO has led to better dynamics in short-term debt markets.

Q4 2011 saw the weakest net eurozone portfolio flows in four years. We expect

another negative reading in Q2 2012 as structural weakness in euro flows persists.

Exhibit 1 provides a summary view of this basic picture. The following pages

provide more details on the most important sub-components.

1) First published as G10 FX Insight on 15 February 2012

Exhibit. 1: Eurozone portfolio flows with Q1 2012 range estimates (EUR bn)

Fixed income Equity Total Fixed income Equity Total

Q1 2010 63.4 9.5 72.9 -20.0 -31.9 -51.9 21.0

Q2 2010 86.9 15.2 102.1 -3.3 -2.2 -5.5 96.6

Q3 2010 -3.8 56.8 53.1 -40.4 -1.7 -42.1 11.0

Q4 2010 18.2 47.4 65.6 -5.3 -40.7 -46.1 19.5

Q1 2011 67.4 88.2 155.6 -28.1 1.0 -27.1 128.5

Q2 2011 203.3 -20.1 183.2 -15.1 -18.0 -33.0 150.2

Q3 2011 4.3 -31.3 -27.0 11.3 53.3 64.6 37.7

Q4 2011 -85.4 -21.2 -106.6 51.1 32.0 83.1 -23.5

Q1 2012 +0bn to +50bn +10bn to +30bn +10bn to +80bn -20bn to -60bn -30bn to -50bn -50bn to -110bn -65bn to -10bn

OutflowsInflowsNet flows

Note: Negative inflows mean foreign selling of eurozone securities. Negative outflows mean eurozone resident buying of foreign securities. Q1 2012 is estimated value. Source: Nomura, ECB

Jens Nordvig

+1 212 667 1405

[email protected]

Global FX Weekly



Private foreign inflows into eurozone debt instruments

Foreign inflows into eurozone fixed income instruments were unusually weak in H2

2011. It is difficult, however, to judge whether there has been a shift over the past

two to three months since official flow data are generally lagged. Against this

background, we try to track the most timely flow information, as well as the

feedback we get from investors. Since the behavior of private sector investors is

potentially quite different from the official sector, we find it helpful to focus on each

segment separately. In relation to the private sector segment, we make the

following observations:

1. Recent data from Japan showed that Japanese investors remained

sellers in December, although the pace of selling was slower than in

October and November. Exhibit 2 breaks down Japanese flow to the

eurozone into flows to Germany, the periphery, and Spain/Italy. The red

cells indicate selling, and as the table shows, there was broad-based

selling of eurozone fixed income up to and including December. Total flows

have been negative in all months since May 2011.

2. High-frequency data from mutual funds globally point to a marginal

improvement in January and February compared with the worst months

of 2011 (November and December). But flows into eurozone fixed income

have only been marginally positive in 2012 YTD, and they remain well

below the pace of inflows seen in H1 2011 (less than 10% to be specific).

3. Our recent Nomura Macro Road Show across the US collected

responses from around 110 investors last week. The responses show

continued caution on Italian bonds, and on the eurozone outlook more

generally. Over 60% of respondents believe that Italian yields will rise

above 6% by the end of 2012, with over half of them expecting yields to

jump over 7% by year-end. For reference, the current level of the 10-year

yield is 5.5%. Meanwhile, almost 50% of respondents expect at least one

eurozone country to exit the currency union in 2012. This type of sentiment

suggests that an imminent improvement in the inflow from US-based

investors is unlikely, and our feedback from real-money investors in Japan

also indicates continued caution towards the region.

All told, we would be surprised to see any meaningful pickup in inflows into

eurozone debt instruments in Q1 and Q2 from private sector foreign

investors. We may see an improvement relative to the situation in H2 2011, when

there were significant foreign liquidations, but this does not equate to significant

fresh inflows.

Exhibit. 2: Japanese investment in eurozone fixed income

EUR billion

EUCALIBN IndexEurozone Germany

Periphery

(GR,IE,PT)Spain, Italy

Date

1/31/2011 5.6 3.4 -0.5 0.7

2/28/2011 5.9 3.9 -0.5 0.4

3/31/2011 0.0 -1.5 -0.2 0.3

4/30/2011 0.2 -2.5 -0.1 0.7

5/31/2011 -0.8 -8.0 0.0 -0.4

6/30/2011 -5.3 -5.2 -0.2 0.7

7/31/2011 -2.2 1.3 -0.9 0.0

8/31/2011 -13.1 -5.7 0.2 -3.9

9/30/2011 0.9 2.1 -0.2 -1.5

10/31/2011 -8.6 -6.3 -0.1 -1.1

11/30/2011 -7.2 2.2 -0.5 -6.0

12/31/2011 -1.9 -1.2 -0.5 -0.3

Note: Negative investment means net selling of Eurozone debt by Japanese investors. Source: Nomura, MOF

Exhibit. 3: Fixed income inflows into the Eurozone

-40

-20

0

20

40

60

80

100

120

140

160

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12

Fixed Income inflows (foreign investors)

EUR BOP - Fixed Income inflows (rhs)

EURbn EURbn

Inflows

Source: Nomura, EPFR

Global FX Weekly



Official foreign inflows into eurozone debt instruments

The official flow picture is even harder to track on a real-time basis, but it may be

even more important in relation to EUR/USD. Exhibit 4 illustrates this by looking

back at estimated EUR demand from official sources. The estimate shown here is

our proprietary estimate, based on a number of different data sources: we estimate

that euro demand from the official sector averaged around $110bn per quarter in

the period from Q1 2007 to Q3 2011, with peak flows in the region of $150-200bn

in a number of quarters.

Looking ahead, there will be two key determinants of the amount of euro demand

from official sources: the trend in overall reserve accumulation and the share of

euro in this new accumulation. Based on current available information, we estimate

official EUR demand to fall somewhere in the range of $0-50bn in Q1 2012.

With respect to the trend in global reserve accumulation, there appears to be

evidence of underlying structural slowing. Reserve accumulation picked up to some

degree in early 2012 (according to our estimates, EM central banks have

accumulated around $50bn of new reserves in January). But this is still well below

the pace in H1 2011, when there was an average monthly accumulation of $81bn,

and it is also down relative to the monthly average of $71bn in 2010.

A factor to consider here is also the shifting composition of reserve accumulation.

Japan, which has traditionally been more USD focused, is again accounting for a

bigger portion of global intervention, as opposed to the period from 2004 to 2009

when EM central banks were driving the reserve accumulation and G10 central

banks generally did very little (with the exception of the SNB).

With respect to the EUR share of new reserve accumulation, and reserve

holdings more broadly, it is too early to detect any clear trends in the data. But it is

our impression from franchise flows that the degree of euro buying by central banks

has not picked up commensurately with the pickup in reserve accumulation in

January and February. This pattern would follow logically from increasing concerns

about potential break-up and redenomination risk, as well as from concerns related

to the longer-term implications for the euro from the ECB‟s new long-term liquidity

injections.

We think global reserve accumulation is probably on pace to reach around $100bn

in Q1 2012, roughly half the pace observed in H1 2011. In addition, we think the

EUR share of the new accumulation may have fallen compared with that of recent

years, perhaps to below 25%. This suggests that EUR demand from the official

side could be well below $50bn in Q1 and Q2, compared with an average

above $100bn per quarter in recent years, which would be a material shift in

flows.

Exhibit. 4: Estimated official EUR demand

-100

-50

0

50

100

150

200

250

Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11

USD bn

Expected range of EUR buying in H1 2012

Note: Estimates based on proprietary Nomura model. Source: Nomura.

Exhibit. 5: Trend in EM reserve accumulation

-50

-30

-10

10

30

50

70

90

110

130

150


China

Other EM

Oil Exporters

EM total

$bn

Note: Reserve accumulation of oil exporters group is estimated for January 2012. Source: Nomura, Bloomberg

Global FX Weekly



Resident outflows and the net portfolio flow picture

Over the past several months, we have commented repeatedly on the trend in

cross-border flows from resident investors in the eurozone. In the financial press,

this flow is typically termed „repatriation flow‟.

As shown in Exhibit 6 below, there were significant repatriation flows back into the

eurozone in H2 2011. Adding up both equity- and fixed income-related repatriation

flows, the number is in the region EUR100bn, helping to explain why the euro

traded more resiliently than many had been expecting during the August to

November period.

Resident flows remain an important part of the overall flow picture, and the latest

information points to a significant shift over the past two months. According to high-

frequency data we track, outflows have essentially recovered to „normal levels‟ in

January, and in February they are actually on track to be the strongest in our

sample, although obviously we do not have a full month yet.

This picture of sharply accelerating outflows is evident in both equity and fixed

income space, and if we extrapolate these trends, it would be no surprise to see

portfolio outflows in the region of EUR100bn in Q1 2012. This would be one of the

strongest outflows on record, and would constitute a significant drag on the net flow

picture.

Turning to the net portfolio flow picture, we have looked at recent trends in key

components in order to evaluate what the overall picture may look like over the next

couple of months. As mentioned earlier, we see little prospect of significant inflow

into eurozone debt or equity instruments from private sector foreign investors in the

coming months, and official inflows are also likely to be more moderate than has

been the norm in recent years.

The big swing factor could be outflows from eurozone resident investors. In H1

2011, net portfolio outflows averaged EUR30bn per quarter. However, H2 2012

saw quarterly repatriations spike towards EUR100bn.

Based on evidence of accelerating outflows in January and February, we would

expect outflows to add up to $50-100bn in Q1 as a whole, and this would be a key

factor driving the overall portfolio flow picture into negative, as indicated in Exhibit

1.

Exhibit. 6: Eurozone resident flow

-60

-40

-20

0

20

40

60-15

-10

-5

0

5

10

15Jan-10 Jul-10 Jan-11 Jul-11 Jan-12

Fixed Income outflows (eurozone investors)Equity outflows (eurozone investors)EUR BOP (rhs inverted)

EUR bn EUR bn

Outflow

Source: Nomura, EPFR

Exhibit. 7: US equity flow to eurozone vs. ROW

-4

-2

0

2

4

6

8

-40

-20

0

20

40

60

80


US equity flows to ROW

US equity flows to eurozone (rhs)

USD bn USD bn

Source: Nomura, EPFR. Note chart shows cumulative flow since Jan 2010.

Global FX Weekly



Conclusion

The net flow picture in the eurozone remains structurally weak, although the drivers

of this weakness have shifted to some degree over the past two months. This

observation is also consistent with the trend in the EUR TWI, which has continued

to trend lower over the past two months, despite improvement in funding market

conditions and some decline in the euro risk premium.

Looking ahead, we expect three factors to keep the euro TWI weak. The one factor

is underlying structural weakness in the capital flow picture. The two others are

eurozone growth underperformance and continued lack of a final and decisive

European policy response.

From a trading perspective, it is important to combine the underlying euro TWI view

with a view on broader risk sentiment. In a risk-negative environment, the most

attractive crosses are likely to be EUR/JPY and EUR/USD. In a more favorable risk

environment, crosses such as EUR/Scandi, EUR/EM and EUR/commodity

currencies are likely to be more attractive expressions.

We have generally been positioned in a more risk-constructive fashion in our

portfolio since the results of the December LTRO. But we have recently booked

profits on the bulk of that exposure (G10 FX Portfolio Update: Taking profits on

cross/JPY trades - 15 Feb 2012).

After a large run-up in risk assets over the past two months, we are inclined to flip

to a more risk-neutral bias from here. We are short EURUSD from 1.33 last week,

and we continue to view 1.32-34 as a very attractive area to add to EURUSD

shorts.

Our current EURUSD target for Q1 is 1.25 (revised at the end of January), and our

analysis of the capital flow picture reinforces our conviction in that target.

Exhibit. 8: EUR/USD vs. euro TWI

85

90

95

100

105

1

1.1

1.2

1.3

1.4

1.5

1.6


EUR/USD

Euro TWI (rhs)

Source: Nomura, Bloomberg

Exhibit. 9: EUR risk premium

8

10

12

14

16

18

20

Jul 2010 Jan 2011 Jul 2011 Jan 2012

%

Note: EUR risk premium uses sovereign spreads to calculate a measure of how much risk is present in the euro. Source: Nomura, Bloomberg

http://go.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=494358


Global FX Weekly



Regional Article

RBA: Statement on Monetary Policy, Feb 20122

The Reserve Bank of Australia (RBA) has released its first statement on

monetary policy (SMP) of 2012. Following the decision at the February meeting to

keep rates on hold, the more detailed SMP has fleshed out some of the forecasts

that lead to that decision.

The RBA notes the improvement in the global outlook, in particular recent

developments within the eurozone and improvements in the US in recent months.

It suggests that Europe appears to be in recession, while in Asia, growth has

moderated reflecting weaker export demand. China too, has slowed but is now

running at a more sustainable pace.

Turning to the domestic economy, the main theme remains the two-speed nature

of the economy with continued large investment in the resources sector at the

expense of the industry that is affected by a high exchange rate. Over the next

year, resources investment is set to reach its highest level relative to GDP in 50

years, with LNG projects alone having reached $A180bn in investment. As the

RBA notes, this is a "key element in [its] forecasts" and is "expected to have

positive spin-offs to a number of sectors". This strength is contrasted with

weakness in the consumer sector in consumption and housing. The RBA also

notes the declining unemployment rate.

The other two key points relate to unemployment and inflation. On the former, the

central scenario sees unemployment tick higher over the course of 2012 before

declining in 2013. Inflation is expected to fall further over the next two quarters as

fruit and vegetable prices decline. There is a slight element of concern raised in

respect to the non-tradeables sector.

In summary, this does not change our view that the RBA should remain on hold

for 2012. We recognise that the RBA has room to cut given the global economic

backdrop and the expected drop in inflation – indeed, it states that the current

inflation outlook would provide room to cut should demand conditions

weaken. We do, however, believe that in setting policy for the medium term,

the RBA has based its pause on its central scenario.

2) First published as a First Insight: Rates Asia ex-Japan on 10 February 2012

Martin Whetton +61 2 8062 8611

[email protected]

Global FX Weekly



Regional Article

Taiwan: A good place to receive 3

It is hardly surprising that the general weak global growth backdrop and

sovereign debt crisis in Europe both pose downside risks to Taiwan‟s growth

outlook. Given recent idiosyncratic sell-offs in the Taiwan 5yr, we see TWD 5yr as

cheap relative to USD rates. As our US rates strategists believe there is room for

USD rates to sell off (see US Rates: The Stealth Sell-off, 10 February) we see an

opportunity to trade TWD against USD to hedge out exposure to USD-driven sell-

offs. We enter USD10k DV01 into a TWD 5yr/USD 10yr (1:0.40) spread, which

provides a similar payout as outright receiving the TWD 5yr but has less

exposure to US economic performance and risk sentiment. Furthermore, there is

no rate cut priced into the Taiwan curve, so we still favour the front end of the

Taiwan IRS curve, which provides a cheap option to the fat tail risk posed by

global growth and the risk backdrop. We also add a further USD10k DV01 to our

existing recommendation to receive TWD IRS 1yr to hold to maturity (see Taiwan:

Receive TWD IRS 1yr; a cheap „option‟ for tail risk, 18 October 2011).

Growth set to slow on weaker external demand

At its December policy meeting, the Central Bank of China (CBC) held its policy

rate unchanged, as was widely expected. Growth forecasts were again revised

lower, from 4.81% to 4.51% for 2011 and from 4.58% to 4.19% for 2012 (Nomura:

4.0% for 2011 and 2.0% for 2012). We believe that the effects of the European

debt crisis on the real economy and financial stability weighed heavily on the

CBC‟s considerations. We believe that even if the situation does not worsen

much further, reduced demand will significantly affect Taiwan, at least through

trade channels, which will continue to put pressure on growth (Exhibit 1). Exports

to the US, EU, Japan and China have all trended lower since 4Q11. Domestic

demand has also slowed (Exhibit 2), as was highlighted in the latest monetary

policy committee statement.

Exhibit. 1: Weaker external demand slows growth

-60

-40

-20

0

20

40

60

80

100

2002 2004 2006 2008 2010 2012

Exports (yoy %)

Export Orders (yoy %)

Industrial Production (yoy %)

Source: Nomura Research, CEIC, Bloomberg.

Exhibit. 2: Domestic demand is also weakening

-25

-20

-15

-10

-5

0

5

10

15

20

25

2002 2004 2006 2008 2010 2012

Retail Sales (yoy %)

Commercial Sales (yoy %)


3) First published as Asian Strategy Snapshot on 15 February 2012

Kewei Yang +65 6433 6246

[email protected]




Global FX Weekly



Back end of the IRS curve provides receiving opportunity

Against this macro backdrop, we believe Taiwan‟s growth outlook should keep

the back end of the curve at relatively low levels. Historically, the back ends of

Asian rates curves show a consistent relationship with USD rates. Though

Taiwan rates generally exhibit less volatility, they also have a very high

correlation with USD rates. For example, the correlations between TWD 5yr and

USD 5yr and 10yr are higher than 90%. The directionality is very strong, allowing

TWD 5yr to be treated as a low beta USD 5yr or 10yr (Exhibit 3). Here we

compare it to the USD 10yr, because: 1) the correlation between both levels and

changes is slightly higher; 2) given an anchored front end in the US, we prefer to

move further out the curve. We believe the recent sell-off in Taiwan provides

opportunities on a relative basis, because daily changes of more than 3bp are

quite significant for a less-volatile market, and secondly, the TWD 5yr seems

relatively cheap compared to USD long-term rates (Exhibit 3). To come up with a

proper risk weights, we firstly regress TWD 5yr on USD 10yr which gives a risk

weight, or beta, of 0.35. We then try to find a better weight within the confidence

interval of the beta.

The first consideration is carry and rolldown. Both USD 5yr and 10yr

have quite significant negative carry and rolldown (more than -30bp/yr).

The risk weight helps reduce the negative carry/rolldown and the spread

position actually has a slightly positive carry/rolldown. As a tactical trade

we are comfortable with a small positive carry and rolldown.

The next consideration is the potential richness of the TWD 5yr. A risk

weight of 0.40 shows the TWD 5yr/USD10yr spread is currently at an

extreme level (99 percentile in recent history, Exhibit 4).

Lastly, the onshore-offshore spread of TWD 5yr reaches -10bp, which

suggests offshore positioning is biased to pay at the moment. Should the

growth outlook be revised down again, we may well see very significant

receiving interest.

As such, we are comfortable trading the spread on this beta. The spread

fluctuates frequently, which provides tactical opportunities to take profit of 10-

15bp with relatively small downside risk. We open a position with USD10k of

DV01 in the TWD 5yr/USD10yr spread (at 1:0.40) at 35bp and target a narrowing

to 20bp.

Exhibit. 3: Strong linkage between TWD 5yr and USD 10yr

0.9

1.1

1.3

1.5

1.7

1.9

1.5 2 2.5 3 3.5 4 4.5

TW

D 5

y

USD 10y

2y

1y

6m

3m

Latest


Exhibit. 4: Weighted spread reaches extreme levels

0

5

10

15

20

25

30

35

40

Mar-10 Sep-10 Mar-11 Sep-11

TWD 5y - USD 10y (1 : 0.40)


Global FX Weekly



Still recommend receiving TWD 1yr as a cheap „option‟ for a crisis scenario

Despite the economy being one of the more exposed in Asia to external factors,

Taiwan‟s rates market has priced in very little in future rate cuts. Since October

we have seen value in receiving the front end of the TWD curve via the 1yr IRS

(see Taiwan: Receive TWD IRS 1yr; a cheap ‘option’ for tail risk, 18 October

2011). At the time we first recommended the trade, investor exposure was limited

to just three policy meetings (December 2011, March and June 2012). Our

Taiwan economist expects no hikes this year.

Based on the historical relationship between the policy rate and the 3m CP fixing

in Taiwan, we can conservatively expect that half of one 12.5bp hike is passed

through to the CP fixing (Exhibit 5). Hence, we can approximate the profit-and-

loss of the position and run stress tests on the trade. The results (Exhibit 6)

suggest the risk in holding this position is that the CBC delivers three hikes, which

in our opinion is very unlikely. The position would not return much in basis-point

terms in a scenario somewhere between aggressive hikes and aggressive cuts

(the most likely outcome). However, the trade would perform very well in a crisis

scenario, where the CBC has to cut rates significantly. Given that our scenario

analysis was done mainly on a hold-to-maturity basis, we tested to see what risk

the position might face in mark-to-market terms. This is actually rather benign,

with a daily VaR at 1bp.

According to our risk-reward analysis, we believe this trade essentially provides a

very cheap „option‟ for a crisis scenario, with slightly positive carry/rolldown. We

therefore add a further USD10k DV01 (to our original 25K) to our receive TWD

IRS 1yr at 87bp, to hold to maturity. Investor exposure for this new position is

limited to three policy meetings (March, June and September).

Exhibit. 5: Relationship between 3m CP fixing and policy rate

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11

Policy rate 3m CP 1y IRS


Exhibit. 6: Attractive risk-reward of receiving TWD 1yr

3m CP

(Fixing) 3 2 1 0

1st 0.85 0.85 0.85 0.85 0.85 0.85 0.85

2nd 0.91 0.85 0.85 0.85 0.85 0.85 0.50

3rd 0.98 0.91 0.85 0.85 0.85 0.50 0.50

4th 1.04 0.98 0.91 0.85 0.50 0.50 0.50

Avg 0.94 0.90 0.87 0.85 0.76 0.68 0.59

1y IRS 0.87 0.87 0.87 0.87 0.87 0.87 0.87

PnL

(bp)-7.4 -2.7 0.4 2.0 10.8 19.5 28.3

Scenario Analysis (TWD 1y IRS)

# of policy rate hike in 1y Crisis

unlikely likely event risk



Global FX Weekly



Regional Article

Singapore: Examining the IRS curve 4

The SGD IRS curve has continued its rolling flattening in 2012 set against an

uncertain global backdrop. While we remain comfortable with our near-term

recommendation to receive SGD 5fwd 5yr, we examine the current drivers of

recent curve dynamics via principal component analysis (PCA) and investigate if

there are additional ways to position for a normalisation of the SGD 2s5s10s

spread. The PCA-weighted butterfly is less directional than its traditional

counterpart and has better carry characteristics; however, in certain

circumstances, such as in the event of a spike in front-end rates, it becomes more

directional.

Recent curve moves and the macro backdrop

Over the past several weeks, the SGD IRS curve has flattened considerably amid

ongoing concerns over the global outlook for growth (Exhibit 1). Generally

speaking, this move has been in line with the dynamics in global markets, with

the move in SGD IRS resembling the rolling flattening seen in core market IRS

curves. We illustrate the rolling flattening of the curve over the past six months in

Exhibit 2, with the darkest line representing the most recent curve, while older

curves are represented by progressively lighter shades. As a byproduct of this

rolling flattening move, the SGD 2s5s10s spread has also drifted further into

negative territory, as the 5s10s spread has not kept pace with the flattening of the

2s5s.

In our update last week of our current trade recommendations (see Asia ex-

Japan rates strategy update, 6 February), we noted that the focus of the market

in the medium term would likely revolve around the global growth outlook, and

this has not changed. We highlighted that as long as this broader theme exists,

then Singapore, with its open economy and financial system, would be

susceptible to potential negative shocks and this would manifest itself at the back

end of the curve. While we still hold our view for a lower and flatter SGD IRS

curve (via our recommended SGD 5fwd 5yr), given the recent multi-year lows of

the SGD 2s5s10s butterfly, it is useful to examine the drivers of recent curve

dynamics to look for any near-term opportunities.

Exhibit. 1: SGD IRS slopes and curvature (bp)

-50

-25

0

25

50

75

100

125

07 08 09 10 11 12

SGD 2s5s - bp SGD 5s10s

SGD 2s5s10s SGD 1fwd 2s5s10s


Exhibit. 2: Rolling flattening of the SGD IRS curve (%)

0.510.460.52

0.68

0.88

1.10

1.321.51

1.681.81

1.93

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

6M1yr 2yr 3yr 4yr 5yr 6yr 7yr 8yr 9yr 10yr


4) First published as Asian Strategy Snapshot on 14 February 2012

Advin Pagtakhan +65 6433 6555

[email protected]



Global FX Weekly



Armed with a spreadsheet and a sharp pencil

In terms of examining the drivers of the curve, we analysed SGD rates using a

principal component analysis (PCA) approach on 1fwd 1yr, 2fwd 2yr and 5fwd 5yr.

We chose the 1fwd 1yr rate as a proxy for near-term expectations of the path of

monetary policy; 2fwd 2yr as a proxy for the medium-term outlook, as the policy

outlook has less influence on this part of the curve; and 5fwd 5yr as the long-term

equilibrium level, which is a rough reflection of the market‟s view on long-term

growth expectations.

In terms of the PCA loadings for the first component (Exhibit 3), we see that

levels have been mainly driven by growth expectations as opposed to near-term

policy settings in Singapore, while the belly of the curve, or the medium-term

outlook, has been stable regarding its influence on the level of the curve. Perhaps

the best way to illustrate this clearly is via the US curve, which is applicable as

USD rates have historically had a strong influence on movements on the SGD

curve. Here the story is similar, though much cleaner (Exhibit 4). In terms of the

dynamics, the influence of the near-term path of monetary policy on the level of

the USD curve has diminished given the Federal Reserve‟s policy to keep rates

low for an extended period, recently pushing out rate hike expectations to at least

2014. At the same time, increased concerns regarding the impact of the

European sovereign debt crisis and focus on US data has amplified the impact of

growth prospects on the level of the curve.

Exhibit. 3: PCA loading on first component of SGD curve

0.3

0.4

0.5

0.6

0.7

0.8

08 09 10 11 12

SGD 1fwd 1yr

SGD 2fwd 2yr

SGD 5fwd 5yr

Source: Nomura

Exhibit. 4: PCA loading on first component of USD curve

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

08 09 10 11 12

USD 1fwd 1yr

USD 2fwd 2yr

USD 5fwd 5yr

Near-term path of monetary policy has

little impact

Influence of long term growth expectations

has increased

Source: Nomura

While this is important in terms of the determinants of the curve, what is of most

interest to us are the PCA loadings on the second and third components, or

roughly speaking, the “slope” and the “curvature”, respectively. In terms of the

drivers of the SGD IRS slope, our proxy for long-term growth expectations has

historically had a relatively strong and robust influence. The influence of

expectations of monetary policy on the slope has increased in recent months,

which coincides with the negative SOR fix in August resulting in a re-pricing of the

curve. In addition, this timing is consistent with the changing market view on what

the Monetary Authority of Singapore (MAS) was expected to do at its October

2011 meeting, as well as the recent focus on the upcoming April meeting.

Regarding the curvature of the SGD IRS curve, the PCA loadings for this

component has oscillated considerably in recent months, with the impact of policy

settings in Singapore and long-term growth prospects waxing and waning. That

said, one factor that has remained a consistently strong influence is the medium-

term growth outlook. This is unsurprising as when one looks at the curvature, the

Global FX Weekly



importance of the belly of the curve remains constant where the changes in

influence occurs in the wings of the butterfly.

Dislocation between the 2s5s and 5s10s slope

As noted earlier, the SGD IRS curve has flattened considerably, driven by the

2s5s leg with 5s10s remaining relatively stable (Exhibit 1). As a result, the spread

on the SGD2s5s10s butterfly (1:2:1 weighting) has fallen from near 0bp in late

December to as low as -30bp. While the spread has moved 5bp higher in recent

sessions it still remains near multi-year lows. Qualitatively, one can make the

case that this is a product of the rolling flattening of IRS curves and should the

broader malaise in markets continue, then the flattening would eventually result in

a flatter 5s10s. In addition, with growth expectations being the dominant PCA

loading on the second component, this would support our view for a flatter 5s10s,

which we have expressed via the SGD 5fwd 5yr (which also benefits from growth

expectations being the dominant factor on the determination of the SGD curve

level).

There are a number of different risks to our view of a flatter SGD 5s10s. First, our

US strategists look for a steepening of the USD curve, with the optimal

expression being in the 5s10s against a backdrop of improving US data, the

Fed‟s Twist operations, as well as the Fed‟s rates lower-for-longer strategy. This

is potentially significant given the robust historical relationship between the USD

and SGD curves. Another risk comes from issuance; if there is continued

issuance by foreign names in SGD looking to take advantage of low yields and

looking to expand their investor base. Finally, should our broader macro view

prove incorrect and we see a swift and sustainable resolution in Europe, coupled

with a sharp re-pricing upwards of global growth prospects, this could lead to

steepening trades being put on more broadly in the back end of the curve.

Following on from this, if an investor is more optimistic about global prospects,

believes the market has become too bearish, or simply does not have a strong

view on market direction, then paying the belly of the 2s5s10s fly (1:2:1) has

lower mark-to-market volatility than the 5s10s, and on the face of it offers

opportunities in terms of potential for mean reversion as the current 2s5s and

5s10s slopes are dislocated (Exhibits 5 and 6), with SGD 2s5s 31bp flat relative

to fair value when measured against 5s10s. However, we caution that in both low

volatility and low absolute yield environments, the butterfly tends to be more

directional and less mean-reverting, as levels pivot around the belly.

An alternative to the traditional 1:2:1 weighted 2s5s10s butterfly would be to use

the PCA methodology discussed earlier, as this better captures the influence of

the current drivers of the curve. Using this method and using spot 2yr, 5yr and

10yr IRS, the weight of the wings increase such that the SGD 2s5s10s butterfly is

1.1:2.0:1.3. While the PCA-weighted butterfly has some directionality, it is

currently less than the traditionally weighted 2s5s10s. That said, given the higher

weighting on the front end leg, driven by low and stable front end rates, should

there be a spike in the front end then this added weight would result in modestly

higher sensitivity of the overall structure to the sharp changes in levels. Similarly,

the structure is also more sensitive to sharp movements in the back end of the

curve. This change in weights improves the carry dynamics of the SGD 2s5s10s

modestly: paying the belly of a traditional weighted fly offers carry/roll of -13bp in

6M, while paying the belly of the PCA-weighted fly offers a slightly better -8bp in

6M.

Global FX Weekly



Exhibit. 5: Dislocation between the SGD 2s5s and SGD 5s10s slopes (bp)

y = 0.84x + 18.20R² = 0.60

0

20

40

60

80

100

120

140

0 20 40 60 80 100 120 140

SG

D 2

s5

s

SGD 5s10s

Past 1304 business daysPast 6 monthsPast 3 monthsPast monthToday


Exhibit. 6: Residuals of the relationship (bp)

-40

-20

0

20

40

60

07 08 09 10 11 12

Residuals - y:SGD 2s5s; x:SGD 5s10s

Source: Nomura

Global FX Weekly



Regional Article

HUF - a cheap hedge post “LTROQE”? 5

We recently published our view that EM assets would continue to see inflows (see

EM‟s forgotten inflows: To Rise Like the Phoenix). Nevertheless, we do believe that

there will be short-term corrections to this theme. In EEMEA, we believe that buying

1-month EUR/HUF can be a good hedge for this backdrop. Our medium conviction

level at this stage leads us to recommend a 1-month 302-308 call spread and we

only allocate 36bp for this trade. In other words, our maximum loss should be

US$72k on a US$20mn notional position (Hence this is rather an opportunistic

position which can benefit on the run-up to ECB LTRO). The maximum gain is

US$325 showing a 4.52:1 risk reward.

Yesterday, HUF ignored the MNB “LTROQE”

Hungarian assets had a very strong ride in 2012. HUF was the strongest currency

in EM as of the closing session of last week. Yesterday, HUF and bond markets

had a strong reaction to the monetary policy response from MNB and the

Hungarian version of LTRO, with the Bank buying mortgage bonds and providing a

two-year liquidity facility. The market‟s strong reaction and lack of weakness from

HUF can be explained by the credit-market-like nature of currency markets in high-

debt countries, in our view. The safety net probably required lower risk premium

and HUF‟s knee-jerk reaction, accordingly, was no change to looser monetary

policy. Furthermore, the lack of reaction on the currency could be explained by the

fact that the same mortgage facility in 2009 had very little impact and was only

used in small size.

However, it is not yet 2009

Mid-Q1 and Q2 of 2009 saw the currencies of the countries that are easing

monetary policy outperform. Is something similar happening now?

Looking at the currency performances since November and December we see that

the currencies with no easing or hawkish surprise led the pack in G10 (NZD, AUD,

CAD) in performance. Currencies where monetary policy loosened or had a dovish

surprise had the biggest underperformance, i.e., EUR, USD, and JPY. In EEMEA,

similarly, the most dovish countries have had the weakest currencies on a relative

basis since December: RUB, ILS and CZK are the worst performers. Central banks

with the most hawkish central banks had the best performance, i.e., PLN and TRY.

Hence, we see no reason to believe HUF will benefit from easing with the evidence

at hand.

Does the safety net stop deleveraging?

Looking at the framework we had (see our 2012 Outlook: Tethered by

deleveraging), the causality for deleveraging does not run from local developments

to external, but the opposite. Hence, even though an IMF balance of payment

safety net or local measures to improve domestic demand could make the

deleveraging somewhat softer, they do not change the outcome. Thus, we do

believe that when the moment comes for the market to look for a hedge, the market

may short HUF again for a short-term trade.

We also believe the new MNB liquidity facilities are a positive for the banking

system in times of stress though it may make it more difficult to raise rates given

5) First published as FX Portfolio Update on 16 February 2012

Olgay Buyukkayali +44 (0) 20 710 23242

[email protected]

Peter Attard Montalto +44 (0) 20 710 28440

[email protected]


http://intranet.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=478453

http://intranet.nomuranow.com/research/globalresearchportal/getpub.aspx?pid=478453

Global FX Weekly



the facilities re-price after a certain period. Equally, the effect on credit extensions

will likely be minimal as demand-side constraints (including credit quality) are the

main constraint and liquidity in the banking system on aggregate remains

satisfactory.

Our IMF-timing-view means higher EUR/HUF first

We continue to believe the government will take all steps necessary to get formal

negotiations started by mid-March. However, we think the gap between what the

IMF/EU requires and what Hungary is willing to give up is currently too large for a

backstop agreement. We therefore think negotiations will run till end-May/early

June and will likely require significant deterioration in Hungarian assets before an

eventual agreement is reached.

Global FX Weekly



Regional Article

Take half profit on Turkey eurobond trade 6

On 24 January we recommended buying Turkey 2017s against 5yr Treasuries and

SOVX CEEMEA, at a spread level of 80bp (see Turkey is NOT Hungary) as, given

our rebalancing views, we expected to see one-way traffic lower in spreads. We

added to this trade at 88bp two days later (see TRY: Hedge spot delta, double up in

Eurobonds, 26 January).

Today, the spread trades at 50bp and our return on the trade is 34bp or US$680K

(see Exhibit 1 for our activity on this spread). While we still believe in the

rebalancing story and see some further re-pricing in Turkey sovereign spreads

(relative to EEMEA), we believe the timing is right to take some profit. By reducing

half of our exposure, we book US$340K in our model portfolio.

Historically, risky asset volatility increases when US stock markets are at key

resistance levels. Furthermore, on a global correction of risky assets, we believe

Turkey eurobonds would outperform. In addition, local assets can underperform on

positioning. This allows us to switch to local government bonds – which is why we

are reducing our position.

Exhibit. 1: Our activity in Turkey 17s spread vs SOVEX CEEMEA

40

50

60

70

80

90

100

110

120

130

140

250

300

350

400

450

500

03-Jan 17-Jan 31-Jan 14-Feb

Spread (rhs)

Turkey 2017 7.5% spread to US5yr yield

SOVEX CEEMEA

bp

24 Jan - Bought USD DV01 10K at 80bp

26 Jan - Doubled up at 88bp

16 Feb - Take half profits at 50bp

bp




[email protected]




Global FX Weekly



Regional Article

Take profits on USD/ILS 7

Back on 17 January, we sold US$5mn USD/ILS at 3.8340 with a stop loss level of

3.91 and a target of 3.65 (see Sell overbought USD/ILS on yield differentials).

Our main premises were a widening yield differential with US and a less dovish

Bank of Israel and relative tranquility in Middle East worries. We expected the

trade to benefit from a short squeeze in EUR/USD higher. The trade horizon was

two to three weeks.

Since then, USD/ILS hit a low of 3.6980 and is currently trading at 3.75. We are

taking profit, banking 2.24% or US$112k.

There are three reasons for taking profits:

1. January PMI collapsed to 36.3 from December 2011‟s 42.7. The

sharp fall was driven by the production side, and new orders are

particularly soft for domestic market.

2. The rate market (front-end in particular) has started to outperform

the US again, tightening 15bp recent week.

3. Middle East concerns have picked up again.

Accordingly, we are now flat USD/ILS.


Olgay Buyukkayali

+44 (0) 207 102 3242

[email protected]


Global FX Weekly



Regional Article

Buy USD/TRY again for a delta hedge 8

Our advice on USD/TRY has been to own 30-delta strangles after we took profit on

our rate payers and 2v5 flatteners. Our favoured structure had strikes of 1.8250

and 1.9600 which we initiated on 12 January (see link). Then the vol was 13.1

(currently 12.7) and spot FX was 1.85 (currently 1.7610). The option was valued at

2.9% at the purchase and is currently worth 3.8%, following the recent TRY

appreciation.

We believe timing is now good for the second delta hedge due to local and global

factors. Locally, implied yields collapsed (1-week yield on FX forwards is at 7.5%

for instance today, whereas it was in double digits last week). The yield collapse,

coupled with a fairly crowded TRY long positioning built in the past three months,

can create significant two-way realised volatility. Globally, S&P500 is close to

testing multi-year-highs and we see potential for excitement, false breaks and

realised volatility.

Thus, for these reasons, we would like to perform our second delta hedge on our

option, with USD/TRY at 1.7610. Our delta – which we preferred to run since our

first delta hedge is currently -67%, i.e., given we previously bought US$1.75mn of

USD/TRY at 1.7975 with our delta at -36%, we are now buying US$1.5mn of

USD/TRY at 1.7610. As we pointed out on our initial delta hedge (see TRY: Hedge

spot delta, double up in Eurobonds), the beauty of this sort of option structure is if

USD/TRY goes back to 1.85 both the vol and the spot position will make money. If

USD/TRY goes back to the 1.65-1.7 area it will create a higher realised vol and our

short USD exposure will grow. Hence, our expected realised volatility is increasing,

making this structure attractive.

Elsewhere, we still like the Turkey rebalancing story and expect a very fast

reacceleration. We are long 2017 Turkey Eurobonds vs. US Treasuries and SOVX

CEEMEA (see Turkey is NOT Hungary). We are also watching the local bond

market with a dovish outlook to fade any sell-off as we believe rates will keep falling

in line with rebalancing.



[email protected]





Global FX Weekly



Regional Article

Mexico: An inflation shock in the making 9

Inflation will be above 4.0% y-o-y, the upper bound of the target interval, for most

of the year and this will likely trigger a sell-off in the short end of the curve as we

don‟t believe the market has priced it in. For this reason we recommend a tactical

trade of paying 3year TIIE.

Banxico will publish its Quarterly Inflation report on Wednesday and we expect it

to revise its inflation forecast for 2012 significantly. Most likely it will say that

annual inflation will be above 4.0% for 11 out of the 12 months in 2012. In fact,

we believe that inflation could even approach 5.0% in some months. Inflation will

only dip below 4.0% in December 2012 in our view.

There are several factors that explain our bearish view on inflation:

Agricultural inflation will remain under severe pressure due to one of the

worst droughts ever. (Exhibit 1)

Exhibit. 1: Mexico - agricultural goods inflation, m-o-m %

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

January March May July September November

2009 2010 2011 2012

Source: INEGI, Nomura.

Tortilla prices have been rising and therefore have pressured core inflation.

The output gap will be in positive territory due to an economy that will

continue to expand above 3.0% in 2012, which will put a floor to core-

services inflation (Exhibit 2).

9) First published as an FX Portfolio Update on 13 February 2012

Benito Berber

+1 212 667 9503

[email protected]

Tanuja Gupta

+1 212 667 1072

[email protected]

Global FX Weekly



Exhibit. 2: Mexico – Output gap estimation by Banxico

Source: Banxico: July – September 2011 Quarterly Inflation Report

Gasoline prices will continue to expand at MXN 9 cents per month.

A particularly low base of comparison in 2011 inflation after several

changes to the index that took place last year.

Exhibit. 3: Mexico: Nomura's inflation forecasts

4.0

4.3

4.44.4

4.5 4.5

4.34.4

4.6

4.4

4.2

3.9

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

3.4

3.6

3.8

4.0

4.2

4.4

4.6

4.8

Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12

%%

m/m, % (RHS) y/y, %

Source: Nomura, INEGI.

Inflation pressures not priced in by the market

If we take a look at the inflation forecasts by analysts in the Banxico and Banamex

surveys, we see that economists expect inflation to be around 3.79% by year end.

Looking at break even inflation for December 2012 as a measure of what traders

are expecting, we observe that they are forecasting inflation at 3.27%, which is

even more optimistic.

In order for annual inflation to remain below 4.0% this year, economic activity has

to fall of a cliff, the MXN has to appreciate below 11.50, and the agricultural

Global FX Weekly



negative shock has to revert soon. All of these scenarios seem extremely unlikely

to materialize soon or at all throughout 2012.

While we believe that inflation will dip below 4.0% in December and in 2013, there

could be a negative shock in “expectation” terms. Indeed, once the market realizes

that annual inflation will remain above 4.0% there could be an upward important

revision in inflation expectations that goes beyond 2012. (Exhibit 3)

Will Banxico hike given that inflation will be above 4.0% for most of 2012?

We don‟t think so. With the US FED guiding the market to a possible hike in 2014,

the increasing likelihood of Q3 happening in coming quarters (see Investor views

from West to East, February 10, 2012) and annual Mexican core-services inflation

below 3.0%, Banxico will find it hard to increase the policy rate. So without a rate

hike, how will Banxico moderate rising inflation expectations? We think that in the

Quarterly Inflation Report, Banxico will have to make a strong case about the

downward trajectory of inflation in 2013 even if it runs above 4.0% in 2012. In fact,

according Banxico inflation forecast published in the 3Q Quarterly Inflation Report,

headline inflation would likely run above 3.5% in 2012(Exhibit 4). This is in line with

the increasing role of the communication strategy in tandem with the policy rate

changes in the making of monetary policy.

Exhibit. 4: Mexico – headline inflation forecast by Banxico

Source: Banxico: July – September 2011 Quarterly Inflation Report

Strategy implications

We recommend paying 3year TIIE at 5.16% for a tactical trade. We target 5.40%

and put a stop loss at 4.95%. In addition to paying TIIE, short term inflation linkers

will likely do well.



Global FX Weekly



Regional Article

Forecast no shadow 10

An index for uncertainty in data forecasts

We created our growth surprise indices nearly two years ago (available on

Bloomberg at ALLX NGIS and on NomuraNow), designed to capture the

differences in economic data releases between the actual release and

expectations. In this paper, we extend the work to create data range indices (which

we are also planning to put on Bloomberg), which examine the uncertainty in

forecasts. We find that generally a smaller spread in economists’ forecasts tends to

be related to positive data surprises. Conversely, a large spread is generally

accompanied by adverse surprises in economic data. We discuss trading rules

using a combination of both our growth surprise and range indices. Our final trading

basket which uses these ideas has annualised returns of 4.4% and an information

ratio of 1.45 since 2003.

Introduction

In the past we have discussed growth surprises at length and we introduced our

indices nearly two years ago (see Nomura Growth Surprise Indices (GSI) –

Creating Nomura‟s growth surprise indices for G10 15 Feb 2010). The idea of our

growth surprises indices was to capture the difference between expectations and

actual data releases. We showed that could also be used to generate trading

signals. Later, we also used this concept within the macro model of Storm (see

Nomura Storm FX – Systematic trading model for G10 and EM deliverable FX 7

Apr 2011). However, one pertinent point is to understand the amount of uncertainty

contained in economic forecasts. One way to measure this is to look at the

difference between the survey high and low for a particular data release. If there is

a wide dispersion, it would indicate a significant amount of uncertainty. Conversely

a very small spread between the various economist estimates would indicate that

there is a significant amount of consensus among forecasts.

Exhibit. 1: USD overall surprise index (OSI) vs. overall range index (ORI) – suggests an inverse relationship between indices

-4

-3

-2

-1

0

1

2

3

4

5

6

2008 2009 2010 2011 2012

USD Overall Surprise IndexUSD Overall Range Index

Score


In this paper we create data range indices based on this premise. We use

precisely the same data releases as we do for our growth surprise indices. The

rationale is to make the data range indices comparable to our growth surprise

10) First published as an FX Quant Insight on 16 February 2012

Saeed Amen

+44 (0) 20 710 37119

[email protected]

Geoffrey Kendrick

+44 (0) 20 710 36589

[email protected]


http://go.nomuranow.com/research/globalresearchportal/GetPub.aspx?pid=359103



Global FX Weekly



indices. We create our data range indices for each of the G10 countries, defining

the data range as below:

Data range = highest economist expectation from Bloomberg – lowest

economist expectation from Bloomberg

As with our growth surprise indices, we use methods of standardisation for each

survey range observation, to make different sorts of data comparable, given that

the units of data can vary significantly. We focus on a headline overall range

index (ORI) for data, which encompasses a large array of economic data, and

compare this with our overall surprise index (OSI)11

.

In Exhibit 1, we plot our overall surprise index (OSI) for USD against our overall

range index (ORI). We see that during the financial crisis, there was considerable

dispersion in economic forecasts. At least looking at this plot, it appears that

greater uncertainty among forecasters is generally accompanied by downside

surprises. Conversely, when there is more consensus among forecasters, this

tends to be accompanied by positive growth surprises. Obviously, this is just a

single example. Hence, we later try to discuss this in a more statistical manner.

Relationship between range of forecasts and surprises

Here, we try to ascertain on a more rigorous basis, the nature of the relationship

between our overall surprise indices (OSI) and the overall range indices (ORI). To

do this we construct regressions using weekly data from 2003, between our

range and surprise indices. In Exhibit 2, we report T stats of our regressions. We

find that in the vast majority of cases there is indeed an inverse relationship

(although not statistically significant in lots of these). It nevertheless tallies with

our stylised example from Exhibit 2. Furthermore, it is an intuitive result, that

more uncertainty among market forecasters is generally accompanied by poor

data.

Exhibit. 2: Generally there is an inverse relationship between surprises and forecast dispersion

-5

-4

-3

-2

-1

0

1

2

3

EU

RU

SD

GB

PU

SD

US

DJP

Y

US

DC

HF

AU

DU

SD

NZ

DU

SD

US

DC

AD

US

DS

EK

US

DN

OK

AU

DJP

Y

EU

RJP

Y

NZ

DJP

Y

CA

DJP

Y

EU

RA

UD

EU

RC

AD

EU

RG

BP

T Stat (OSI vs. ORI)


Generating a trading signal using our indices

From Exhibit 1, we note that on average growth surprises tend to be mean-

reverting. The rationale is that as growth surprises extend in any particular

direction (whether positive or negative) market expectations will gradually adjust

to dissipate the surprises. As a result, in our original growth surprise paper12

, we

discussed how we essentially fade the growth surprises to create a trading signal.

11) For growth surprises as well as the headline overall surprise index (OSI) we also constructed various sub-indices for hard (HDSI), soft (SDSI) and inflation data (IDSI), where sufficient data was available. In addition we created an overall previous index, which measured changes in the data rather than surprises. 12) We discuss this trading rule in more detail in Nomura Growth Surprise Indices (GSI) – Creating Nomura’s growth surprise indices for G10 15 Feb 2010.



Global FX Weekly



For example if we were trading EUR/USD, we would look at the OSI of both EUR

and USD.

If momentum were rising in EUR OSI and falling in USD OSI, we would

sell EUR/USD

Conversely if momentum were falling in EUR OSI and rising in USD OSI,

we would buy EUR/USD

We also examine a filter based on the ORI (Overall Range Index), which we

detail below. The idea is to exclude those cases when forecasts are very widely

spaced, since it implies a lack of consensus, in which case a surprise is likely to

have less effect.

Say, for example, we are trading EUR/USD, the combined ORI, would simply be

EUR ORI minus USD ORI. We then smooth this quantity to reduce the number of

signals generated. Then we calculate the signal as follows:

If the smoothed EUR-USD ORI indicates very wide divergence between

forecasts, we go flat EUR/USD.

Otherwise when the smoothed EUR-USD ORI indicates that the

divergence between forecasts is not very large, we use the EUR/USD

OSI signal.

In Exhibit 3, we give an illustration of our ORI range filter for EUR/USD. We see

that for some of 2008 and 2009 during the most intense period of the financial

crisis, our smoothed ORI measure for EUR-USD spiked. With our filter, we would

have avoided trading during those periods, when uncertainty about data releases

was being reflected in the large spread in forecasts.

Exhibit. 3: EUR-USD Overall Range Index

1.2

1.3

1.4

1.5

1.6

1.7

-5

-4

-3

-2

-1

0

1

2

3

4

5

2008 2009 2010 2011 2012

Smoothed EUR-USD Overall Range Index

EURUSD Spot

ORI Spot


We give the historical results for our trading rules in Exhibit 4 (risk-adjusted

returns) and 5 (drawdowns) since 2003. Both carry and transaction costs are

included in our analysis. We have also included stops and take profits in both

trading rules. We find that the application of the ORI filter generally improves

information ratios by around 0.1 to 0.2. Drawdowns are generally very similar. For

both trading rules the top performers are USD/NOK, USD/SEK, AUD/USD and

EUR/USD. The worst performers in both cases are USD/JPY.

Global FX Weekly



Exhibit. 4: Risk adjusted returns for strategies

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4E

UR

US

D

GB

PU

SD

US

DJP

Y

US

DC

HF

AU

DU

SD

NZ

DU

SD

US

DC

AD

US

DS

EK

US

DN

OK

AU

DJP

Y

EU

RJP

Y

NZ

DJP

Y

CA

DJP

Y

EU

RA

UD

EU

RC

AD

EU

RG

BP

OSI IR

OSI (with filter) IR


Exhibit. 5: Drawdowns for strategies

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

EU

RU

SD

GB

PU

SD

US

DJP

Y

US

DC

HF

AU

DU

SD

NZ

DU

SD

US

DC

AD

US

DS

EK

US

DN

OK

AU

DJP

Y

EU

RJP

Y

NZ

DJP

Y

CA

DJP

Y

EU

RA

UD

EU

RC

AD

EU

RG

BP

OSI Draw

OSI (with filter) Draw


Creating a basket from our trading rules

Earlier we saw that both our growth surprises-based trading rule and the filtered

version (using range of analyst forecasts) were generally profitable. In this section,

we use the filtered version to create a trading rule. We present the portfolio

returns in Exhibit 6 and year-on-year returns in Exhibit 7. We find that our filtered

rule does outperform the unfiltered rule slightly over our sample, in particular

during 2008 and 2009. Although in 2011, both variants of the trading rule lost

money.

Exhibit. 6: Portfolio returns

95

105

115

125

135

145

155

165

2003 2005 2007 2009 2011

OSI Ret=4.1% Vol=3% IR=1.35 Draw=-4.4%

OSI (filtered by ORI) Ret=4.4% Vol=3% IR=1.45 Draw=-4.6%


Exhibit. 7: Year-on-year returns

-4%

-2%

0%

2%

4%

6%

8%

10%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

OSI

OSI (filtered)


Accessing our growth surprise indices and range indices

We are planning on putting our range indices on Bloomberg in the near future.

Our growth surprise indices are already available on Bloomberg (tickers below)

and on NomuraNow (at

http://go.nomuranow.com/fixedincome/tools/composite/nnpage/fi/fx/models/gsi).

ALLX NGIS <GO> to see all tickers in this series

Using USD as an example:

KEY INDEX: NGISOUSD Index <GO> / USD headline overall surprise

index (aggregate of hard, soft and inflation data)

NGISPUSD Index <GO> / USD previous data change index (measures

changes in data, rather than surprises)


Global FX Weekly



NGISHUSD Index <GO> / USD hard data surprise index (eg. GDP, IP

surprises etc)

NGISSUSD Index <GO> / USD soft data surprise index (on available for

major G10 – eg. PMI surprises)

NGISIUSD Index <GO> / USD inflation data surprise index (eg. CPI and

PPI surprises)

Conclusion

We have examined how we can use the dispersion of analyst forecasts to create

overall range indices (ORI), for G10 countries. Higher values of our range indices

indicate that the range of analysts‟ forecasts is greater indicating more

uncertainty among analysts concerning data. Conversely, low values indicate that

forecasts are tightly grouped together.

We found that, generally, when forecasts are more dispersed, this is

accompanied by negative surprises in data. Conversely, when forecasts exhibited

low dispersion, this was indicative of more positive surprises in the data.

Later, we used our overall range indices (ORI) to provide a filter for our overall

surprise indices (OSI). The idea behind our ORI filter was to avoid trading based

on growth surprises during periods when there was considerable uncertainty

among analyst forecasts.

Our final trading basket had returns of 4.4% and an information ratio of 1.45 since

2003.

Global FX Weekly



Appendix

In this section we show our OSI (overall surprise indices) and ORI (overall range

indices) for majors.

Exhibit. A: USD OSI and ORI

-4

-3

-2

-1

0

1

2

3

4

5

6

2008 2009 2010 2011 2012

USD Overall Surprise Index

USD Overall Range Index


Exhibit. B: EUR OSI and ORI

-6

-4

-2

0

2

4

6

8

2008 2009 2010 2011 2012

EUR Overall Surprise Index

EUR Overall Range Index


Exhibit. C: JPY OSI and ORI

-4

-3

-2

-1

0

1

2

3

4

5

6

2008 2009 2010 2011 2012

JPY Overall Surprise Index

JPY Overall Range Index


Exhibit. D: GBP OSI and ORI

-6

-4

-2

0

2

4

6

8

10

2008 2009 2010 2011 2012

GBP Overall Surprise Index

GBP Overall Range Index


Exhibit. E: AUD OSI and ORI

-3

-2

-1

0

1

2

3

4

2008 2009 2010 2011 2012

AUD Overall Surprise Index

AUD Overall Range Index


Exhibit. F: CHF OSI and ORI

-4

-3

-2

-1

0

1

2

3

4

5

6

2008 2009 2010 2011 2012

CHF Overall Surprise Index

CHF Overall Range Index


Global FX Weekly




Asia FX Positioning Indices Using option, implied yield and equity flow data to determine positioning

In an effort to gauge FX positioning13

for KRW, TWD, INR and IDR, we have

created indices based on option risk reversals, offshore-onshore implied yield

spreads and net foreign equity flow data.

Summary

Korea: The USD/KRW positioning index turned neutral on 15-Feb-12. Of the past

126 trading days, the positioning index was short for 51 sessions and long for 27.

Taiwan: The USD/TWD positioning index has been neutral since 10-Feb-12. Of

the past 126 trading days, the positioning index was short for 55 sessions and

long for 20.

India: The USD/INR positioning index has been short since16-Jan-12. Of the

past 126 trading days, the index was short for 24 sessions and long for 52.

Indonesia: The USD/IDR positioning index has been neutral since 7-Feb-12. Of

the past 126 trading days, the index was short for 21 sessions and long for 32.

This report is published every Thursday. The construction of this model is

detailed in FX Insights: Asia FX Positioning Indices (March 20, 2009).

17) See FX Insights: Nomura FX Positioning Index, 5-March-2009 for USD and JPY crosses positioning index.

Wee Choon Teo

+65 6433 6107

[email protected]

Craig Chan

+65 6433 6106

[email protected]

http://www.nomura.com/research/getpub.aspx?pid=313950&cid=44221

Global FX Weekly



Exhibit 1a. USD/KRW positioning index and spot FX Exhibit 1b. USD/TWD positioning index and spot FX

1100

1120

1140

1160

1180

1200

1220

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Sep-11 Oct-11 Nov-11 Dec-11 Jan-12

USD/KRW Positioning Index (LHS)

USD/KRW Spot (RHS)

Trending long USD Asia

Trending short USD Asia

29.4

29.6

29.8

30.0

30.2

30.4

30.6

30.8

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0


USD/TWD Positioning Index (LHS)

USD/TWD Spot (RHS)



Source: Bloomberg, Nomura Source: Bloomberg, Nomura

Exhibit 1c. USD/INR positioning index and spot FX Exhibit 1d. USD/IDR positioning index and spot FX

47.0

48.0

49.0

50.0

51.0

52.0

53.0

54.0

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0


USD/INR Positioning Index (LHS)

USD/INR Spot (RHS)



8800

8850

8900

8950

9000

9050

9100

9150

9200

9250

9300

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0


USD/IDR Positioning Index (LHS)

USD/IDR Spot (RHS)




Exhibit 2. Trading model Exhibit 3. Recent data points

Trading model details

15-Feb-12 USD/KRW USD/TWD USD/INR USD/IDR

Lower Threshold* 30% 30% 30% 30%

Upper Threshold* 70% 70% 70% 70%

Current level signal 34.1% 55.6% 13.5% 35.7%

Current trade signal hold hold short hold

Days in signal 1 4 23 7

Short signal (126 days) 51 55 24 21

Long signal (126 days) 27 20 52 32

YTD return** 1.75% -0.45% 4.98% 0.30%

Rolling 1Y return** 8.8% 1.2% 12.7% -2.8%

Rolling 1Y Ann. IR** 0.89 0.30 1.90 -0.45

* We long USD/Asia when signal rank > upper threshold and absolute index > 0, short

when signal rank < lower threshold and absolute index < 0, and hold otherwise. We

select an arbitrary threshold of 30/70% for all currency pairs.

** Return calculated assuming 5bp transaction cost.

Recent ranking percentile over past 6-month period

USD/KRW USD/TWD USD/INR USD/IDR

15-Feb-12 34.1% 55.6% 13.5% 35.7%

14-Feb-12 27.0% 52.4% 15.9% 31.0%

13-Feb-12 21.4% 46.8% 15.1% 38.1%

10-Feb-12 22.2% 31.0% 11.9% 42.1%

9-Feb-12 21.4% 25.4% 7.1% 33.3%

8-Feb-12 19.0% 23.0% 0.8% 23.0%

7-Feb-12 23.0% 36.5% 0.8% 21.4%

6-Feb-12 29.4% 45.2% 1.6% 14.3%

3-Feb-12 31.7% 29.4% 1.6% 18.3%

2-Feb-12 15.9% 27.8% 5.6% 23.0%

- co lor means to be neutral USD/Asia

- co lor means to be short USD/Asia

- co lor means to be long USD/Asia


Global FX Weekly



Exhibit. 4: Longer history with corresponding returns

Recent ranking percentile w ith corresponding daily return (include carry)

USD/KRW Daily Ret USD/TWD Daily Ret USD/INR Daily Ret USD/IDR Daily Ret

15-Feb-12 34.1% 55.6% 13.5% -0.1% 35.7%

14-Feb-12 27.0% 0.2% 52.4% 15.9% 0.0% 31.0%

13-Feb-12 21.4% -0.3% 46.8% 15.1% -0.2% 38.1%

10-Feb-12 22.2% 0.4% 31.0% 11.9% 0.7% 42.1%

9-Feb-12 21.4% -0.4% 25.4% -0.3% 7.1% -0.1% 33.3%

8-Feb-12 19.0% -0.3% 23.0% 0.2% 0.8% -0.6% 23.0%

7-Feb-12 23.0% 0.3% 36.5% 0.8% -0.3% 21.4%

6-Feb-12 29.4% 0.5% 45.2% 1.6% 0.2% 14.3% 0.5%

3-Feb-12 31.7% 29.4% -0.4% 1.6% -0.9% 18.3%

2-Feb-12 15.9% 0.0% 27.8% 0.0% 5.6% 0.9% 23.0%

1-Feb-12 8.7% 0.7% 31.7% 7.9% 0.3% 34.9%

31-Jan-12 7.9% -0.2% 27.8% -0.2% 7.1% 0.3% 40.5%

30-Jan-12 4.0% 0.9% 25.4% 0.8% 1.6% 0.5% 40.5%

27-Jan-12 2.4% -1.0% 38.1% 3.2% -0.7% 22.2%

26-Jan-12 0.8% 0.0% 37.3% 4.8% 1.9% 13.5% -0.2%

25-Jan-12 0.8% 0.8% 35.7% 4.0% -0.1% 8.7% 0.8%

24-Jan-12 0.8% 0.3% 34.9% 1.6% -0.3% 3.2% -0.7%

23-Jan-12 1.6% -0.5% 31.7% 1.6% 0.2% 4.0% -0.4%

20-Jan-12 1.6% 0.7% 39.7% 1.6% 0.6% 4.8% 0.8%

19-Jan-12 7.1% 0.1% 31.7% 2.4% -0.1% 6.3% -0.5%

18-Jan-12 10.3% 0.4% 29.4% 0.1% 4.0% 0.2% 15.1% 0.6%

17-Jan-12 23.0% 0.1% 27.8% -0.1% 4.8% 1.0% 34.9%

16-Jan-12 28.6% 23.0% 0.4% 5.6% 1.2% 29.4%

13-Jan-12 29.4% 19.0% -0.2% 7.1% 30.2%

12-Jan-12 31.7% 25.4% -0.2% 7.1% 35.7%

11-Jan-12 29.4% 28.6% -0.2% 8.7% 29.4%

10-Jan-12 20.6% -0.4% 32.5% 8.7% 14.3% -0.3%

9-Jan-12 11.9% 0.7% 37.3% 8.7% 13.5% 0.6%

6-Jan-12 11.1% -0.1% 38.1% 10.3% 7.9% -0.9%

5-Jan-12 10.3% -0.3% 25.4% 0.2% 24.6% 2.4% 0.7%

4-Jan-12 13.5% -0.5% 19.8% 0.1% 26.2% 1.6% -0.5%

3-Jan-12 20.6% -0.1% 12.7% -0.1% 38.1% 2.4% -0.1%

2-Jan-12 21.4% 0.7% 13.5% 0.2% 52.4% 11.9% -0.6%

30-Dec-11 17.5% 0.5% 7.9% 0.0% 53.2% 11.9% 1.2%

29-Dec-11 25.4% 10.3% -0.1% 52.4% 18.3%

28-Dec-11 30.2% 16.7% 0.1% 63.5% 25.4%

27-Dec-11 33.3% 17.5% 0.0% 64.3% 19.8%

26-Dec-11 40.5% 23.8% 0.0% 58.7% 23.0%

23-Dec-11 44.4% 27.0% 0.0% 72.2% 0.0% 23.0%

22-Dec-11 50.8% 32.5% 63.5% 24.6%

21-Dec-11 56.3% 38.9% 66.7% 37.3%

20-Dec-11 62.7% 42.1% 73.0% -0.8% 44.4%

19-Dec-11 57.9% 41.3% 77.8% 0.3% 55.6%

16-Dec-11 57.9% 34.1% 77.8% 0.2% 59.5%

15-Dec-11 53.2% 35.7% 79.4% -2.0% 65.1%

14-Dec-11 43.7% 33.3% 91.3% -0.1% 58.7%

13-Dec-11 38.9% 26.2% -0.1% 69.8% 38.1%

12-Dec-11 38.9% 23.8% 0.0% 54.0% 19.0%

9-Dec-11 40.5% 22.2% -0.1% 55.6% 15.1% 0.0%

8-Dec-11 28.6% 16.7% -0.2% 54.0% 10.3% -0.7%

7-Dec-11 18.3% -0.2% 9.5% 0.0% 42.9% 11.1% 0.3%

6-Dec-11 14.3% 0.0% 11.9% 0.1% 24.6% 22.2%

5-Dec-11 5.6% -0.5% 11.1% -0.1% 50.8% 28.6%

2-Dec-11 8.7% 0.4% 11.1% 0.0% 52.4% 46.8%

1-Dec-11 7.1% -0.5% 15.1% -0.1% 61.1% 41.3%

30-Nov-11 50.8% 22.2% 83.3% -1.9% 50.8%

29-Nov-11 57.1% 27.0% 83.3% 0.6% 57.9%

28-Nov-11 87.3% -0.8% 31.7% 88.9% 0.1% 58.7%

25-Nov-11 88.9% -1.3% 38.9% 92.9% -0.8% 58.7%

24-Nov-11 83.3% 1.1% 43.7% 85.7% 0.3% 64.3%

- color means to be short USD/Asia

- color means to be long USD/Asia

- color means to be neutral USD/Asia (corresponding return w ill be left as blank)

Source: Bloomberg, Nomura


Global FX Weekly



Asia Local Market Rate Expectations14

Summary of Expected Rate Changes15:

Japan: The swap curve is pricing in -3bp of rate changes in 3M (1W change at 0bp) and -2bp of changes in 12M (1W change at -1bp) on 16-Feb-12.

Korea: The swap curve is pricing in -6bp of rate changes in 3M (1W change at -3bp) and -20bp of changes in 12M (1W change at -8bp) on 16-Feb-12.

Australia: The swap curve is pricing in -16bp of rate changes in 3M (1W change at 0bp) and -39bp of changes in 12M (1W change at -3bp) on 16-Feb-12.

New Zealand: The swap curve is pricing in -3bp of rate changes in 3M (1W

change at 0bp) and 9bp of changes in 12M (1W change at 1bp) on 16-Feb-12.

China: The swap curve is pricing in -45bp of rate changes in 3M (1W change at -18bp) and -66bp of changes in 12M (1W change at -37bp) on 16-Feb-12.

Hong Kong: The swap curve is pricing in -5bp of rate changes in 3M (1W change at 0bp) and -14bp of changes in 12M (1W change at 3bp) on 16-Feb-12.

Taiwan: The swap curve is pricing in 3bp of rate changes in 3M (1W change at 0bp) and 0bp of changes in 12M (1W change at 1bp) on 16-Feb-12.

India: The swap curve is pricing in -84bp of rate changes in 3M (1W change at -10bp) and -153bp of changes in 12M (1W change at 2bp) on 16-Feb-12.

Malaysia: The swap curve is pricing in -10bp of rate changes in 3M (1W

change at -1bp) and -20bp of changes in 12M (1W change at -2bp) on 16-Feb-

12.

Singapore: The swap curve is pricing in -12bp of rate changes in 3M (1W change at 0bp) and -23bp of changes in 12M (1W change at -3bp) on 16-Feb-12.

Thailand: The swap curve is pricing in 8bp of rate changes in 3M (1W change at 3bp) and -14bp of changes in 12M (1W change at 0bp) on 16-Feb-12.

8) For the methodology to extract interest rate expectations, please refer to Asia Local Market Rate Expectations: A Factor Decomposition Approach (December 16, 2008) and Asia interest rate strategy - Extending our rates expectations model to the AUD market (October 5, 2009).

Kewei Yang +65-6433-6246

[email protected]

Craig Chan +65-6433-6106

[email protected]

Simon Flint +65-6433-6105

[email protected]

Wee Choon Teo +65-6433-6107

[email protected]

http://www.nomura.com/research/getpub.aspx?pid=302440

http://www.nomura.com/research/getpub.aspx?pid=341428&cid=43402


Global FX Weekly


Japan Interest Rate Expectation (Libor: 6m)2

Exhibit 1a. Japan – Accumulated change Exhibit 1b. Japan – Change between N-3 and N month

-25

0

25

50

75

100

0Y 1Y 2Y 3Y 4Y 5Y

Expected Rate Change: JPY *(Accumulated change by the N-month, bp)

16-Feb-12 (Latest) 1-week ago

1-month ago 3-month ago

-25.0

-12.5

0.0

12.5

25.0

37.5

50.0

3M 6M 9M 1Y 2Y 3Y 4Y 5Y

Expected Rate Change: JPY **(Change between N-3 and N month, bp)

16-Feb-12 (Latest)

1-week ago

1-month ago

3-month ago


Exhibit 1c. Japan – Quarterly breakdown of expected rate change

JPY Expected Rate Change, bp 3M 6M 9M 1Y 2Y 3Y 4Y 5Y

16-Feb-12 Accumulated change by the N month* -3 -1 2 -2 -4 -3 3 14 (Latest) Change in between** -3 2 3 -4 -2 1 6 10

1-week ago Accumulated change by the N month* -3 0 1 -2 1 4 12 25

Change in between** -3 3 2 -3 3 3 7 13

1-month ago Accumulated change by the N month* 1 0 -1 0 -2 -1 5 14

Change in between** 1 -1 -1 1 -1 0 6 9

3-month ago Accumulated change by the N month* -2 1 4 0 -4 -2 5 16

Change in between** -2 3 3 -4 -4 1 7 11

6M Libor: 0.34

Term premium/yr: 10bp


South Korea Interest Rate Expectation (CD: 3m)

Exhibit 2a. S.Korea – Accumulated change Exhibit 2b. S.Korea – Change between N-3 and N month

-75

-50

-25

0

25

50

0M 3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: KRW *(Accumulated change by the N-month, bp)



-25.0

-12.5

0.0

12.5

25.0

37.5

50.0

3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: KRW **(Change between N-3 and N month, bp)

16-Feb-12 (Latest)

1-week ago

1-month ago

3-month ago


2 The asterisks alongside the chart titles are for mapping the values plotted to the values entered in the corresponding table.


Global FX Weekly


KRW Expected Rate Change, bp 3M 6M 9M 1Y 15M 18M 21M 2Y

16-Feb-12 Accumulated change by the N month* -6 -12 -15 -20 -24 -26 -26 -24 (Latest) Change between N-3 and N month** -6 -6 -4 -4 -4 -2 0 1

1-week ago Accumulated change by the N month* -3 -6 -9 -12 -15 -17 -18 -20

Change between N-3 and N month** -3 -3 -3 -3 -3 -2 -1 -1

1-month ago Accumulated change by the N month* -10 -20 -26 -34 -41 -44 -43 -41

Change between N-3 and N month** -10 -9 -6 -7 -8 -3 1 2



3M CD: 3.52



Australia Interest Rate Expectation (Bank Bill: 3m)

Exhibit 3a. Australia – Accumulated change Exhibit 3b. Australia – Change between N-3 and N month

-150

-125

-100

-75

-50

-25

0

25

0M 3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: AUD *(Accumulated change by the N-month, bp)



-100.0

-75.0

-50.0

-25.0

0.0

25.0

3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: AUD **(Change between N-3 and N month, bp)

16-Feb-12 (Latest)

1-week ago

1-month ago

3-month ago


AUD Expected Rate Change, bp 3M 6M 9M 1Y 15M 18M 21M 2Y

16-Feb-12 Accumulated change by the N month* -16 -33 -38 -39 -38 -35 -32 -36 (Latest) Change between N-3 and N month** -16 -17 -6 -1 1 3 4 -4


Change between N-3 and N month** -16 -16 -4 1 2 2 2 0





3M Bank Bill: 4.36




Global FX Weekly


New Zealand Interest Rate Expectation (Bank Bill: 3m)

Exhibit 4a. NZ– Accumulated change Exhibit 4b. NZ– Change between N-3 and N month

-50

-25

0

25

50

75

100

125

0M 3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: NZD *(Accumulated change by the N-month, bp)



-25.0

-12.5

0.0

12.5

25.0

37.5

50.0

3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: NZD **(Change between N-3 and N month, bp)

16-Feb-12 (Latest)

1-week ago

1-month ago

3-month ago


NZD Expected Rate Change, bp 3M 6M 9M 1Y 15M 18M 21M 2Y

16-Feb-12 Accumulated change by the N month* -3 -4 2 9 13 21 32 42 (Latest) Change between N-3 and N month** -3 -1 6 7 4 8 11 10

1-week ago Accumulated change by the N month* -3 -4 1 8 12 19 29 37

Change between N-3 and N month** -3 -1 5 7 4 7 9 9

1-month ago Accumulated change by the N month* -7 -12 -7 -1 2 9 18 28


3-month ago Accumulated change by the N month* -9 -15 -8 0 5 14 29 45


3M Bank Bill: 2.73



China Interest Rate Expectation (7d-repo IRS: 3m)

Exhibit 5a. China – Accumulated change Exhibit 5b. China – Change between N-3 and N month

-150

-125

-100

-75

-50

-25

0

25

50

0M 3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: CNY *(Accumulated change by the N-month, bp)



-100.0

-87.5

-75.0

-62.5

-50.0

-37.5

-25.0

-12.5

0.0

12.5

25.0

3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: CNY **(Change between N-3 and N month, bp)

16-Feb-12 (Latest)

1-week ago

1-month ago

3-month ago



Global FX Weekly


CNY Expected Rate Change, bp 3M 6M 9M 1Y 15M 18M 21M 2Y

16-Feb-12 Accumulated change by the N month* -45 -49 -63 -66 -68 -67 -62 -58 (Latest) Change between N-3 and N month** -45 -4 -14 -3 -2 1 5 5


Change between N-3 and N month** -27 -9 12 -5 -4 -1 2 0


Change between N-3 and N month** -66 -23 -10 -5 -4 1 7 8



3M IRS: 3.75



Hong Kong Interest Rate Expectation (Hibor: 3m)

Exhibit 6a. HK – Accumulated change Exhibit 6b. HK – Change between N-3 and N month

-25

0

25

50

75

100

0M 3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: HKD *(Accumulated change by the N-month, bp)



-25.0

-12.5

0.0

12.5

25.0

37.5

50.0

3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: HKD **(Change between N-3 and N month, bp)

16-Feb-12 (Latest)

1-week ago

1-month ago

3-month ago


HKD Expected Rate Change, bp 3M 6M 9M 1Y 15M 18M 21M 2Y




1-month ago Accumulated change by the N month* -2 -2 0 2 3 7 13 19


3-month ago Accumulated change by the N month* 12 22 21 16 14 17 25 32

Change between N-3 and N month** 12 9 0 -6 -2 3 8 7

3M Hibor: 0.40




Global FX Weekly


Taiwan Interest Rate Expectation (CP: 3m)

Exhibit 7a. Taiwan – Accumulated change Exhibit 7b. Taiwan – Change between N-3 and N month

-25

0

25

50

75

0M 3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: TWD *(Accumulated change by the N-month, bp)



-25.0

-12.5

0.0

12.5

25.0

37.5

50.0

3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: TWD **(Change between N-3 and N month, bp)

16-Feb-12 (Latest)

1-week ago

1-month ago

3-month ago


TWD Expected Rate Change, bp 3M 6M 9M 1Y 15M 18M 21M 2Y

16-Feb-12 Accumulated change by the N month* 3 5 4 0 -3 -3 0 3 (Latest) Change between N-3 and N month** 3 2 -2 -4 -3 0 3 3

1-week ago Accumulated change by the N month* 3 5 3 -1 -4 -4 0 3

Change between N-3 and N month** 3 2 -2 -4 -3 0 3 3

1-month ago Accumulated change by the N month* 2 3 1 -3 -7 -7 -3 1


3-month ago Accumulated change by the N month* 2 4 1 -4 -7 -7 -4 1


3M CP: 0.80



India Interest Rate Expectation (MIBOR OIS: 3m)

Exhibit 8a. India – Accumulated change Exhibit 8b. India – Change between N-3 and N month

-250

-200

-150

-100

-50

0

0M 3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: INR *(Accumulated change by the N-month, bp)



-112.5

-100.0

-87.5

-75.0

-62.5

-50.0

-37.5

-25.0

-12.5

0.0

12.5

25.0

37.5

50.0

3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: INR **(Change between N-3 and N month, bp)

16-Feb-12 (Latest)

1-week ago

1-month ago

3-month ago



Global FX Weekly


INR Expected Rate Change, bp 3M 6M 9M 1Y 15M 18M 21M 2Y

16-Feb-12 Accumulated change by the N month* -84 -98 -119 -153 -182 -196 -192 -188 (Latest) Change between N-3 and N month** -84 -15 -20 -35 -29 -13 4 4







3M OIS: 8.75



Malaysia Interest Rate Expectation (Klibor: 3m)

Exhibit 9a. Malaysia – Accumulated change Exhibit 9b. Malaysia – Change between N-3 and N month

-50

-25

0

25

50

75

0M 3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: MYR *(Accumulated change by the N-month, bp)



-37.5

-25.0

-12.5

0.0

12.5

25.0

37.5

50.0

3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: MYR **(Change between N-3 and N month, bp)

16-Feb-12 (Latest)

1-week ago

1-month ago

3-month ago


MYR Expected Rate Change, bp 3M 6M 9M 1Y 15M 18M 21M 2Y





Change between N-3 and N month** -13 -10 -1 0 -2 1 4 5


Change between N-3 and N month** -24 -18 -1 3 -2 2 7 8

3M Klibor: 3.19




Global FX Weekly


Singapore Interest Rate Expectation (SOR: 6m)

Exhibit 10a. SG – Accumulated change Exhibit 10b. SG – Change between N-3 and N month

-50

-25

0

25

50

75

100

0M 3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: SGD *(Accumulated change by the N-month, bp)



-25.0

-12.5

0.0

12.5

25.0

37.5

50.0

3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: SGD **(Change between N-3 and N month, bp)

16-Feb-12 (Latest)

1-week ago

1-month ago

3-month ago


SGD Expected Rate Change, bp 3M 6M 9M 1Y 15M 18M 21M 2Y

16-Feb-12 Accumulated change by the N month* -12 -22 -24 -23 -22 -18 -13 -8 (Latest) Change between N-3 and N month** -12 -10 -2 1 1 4 5 5



1-month ago Accumulated change by the N month* -11 -18 -17 -14 -10 -2 7 16


3-month ago Accumulated change by the N month* -8 -13 -7 2 10 18 26 34


6M SOR: 0.52



Thailand Interest Rate Expectation (FX Implied: 6m)

Exhibit 11a. Thailand – Accumulated change Exhibit 11b. Thailand – Change between N-3 and N month

-75

-50

-25

0

25

50

75

100

0M 3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: THB *(Accumulated change by the N-month, bp)



-50.0

-37.5

-25.0

-12.5

0.0

12.5

25.0

37.5

50.0

3M 6M 9M 1Y 15M 18M 21M 2Y

Expected Rate Change: THB **(Change between N-3 and N month, bp)

16-Feb-12 (Latest)

1-week ago

1-month ago

3-month ago



Global FX Weekly


THB Expected Rate Change, bp 3M 6M 9M 1Y 15M 18M 21M 2Y

16-Feb-12 Accumulated change by the N month* 8 -13 -30 -14 -3 3 3 5 (Latest) Change between N-3 and N month** 8 -21 -17 16 11 5 1 1

1-week ago Accumulated change by the N month* 5 -12 -29 -15 -4 1 2 5

Change between N-3 and N month** 5 -17 -17 15 11 5 1 2

1-month ago Accumulated change by the N month* 11 -15 -40 -25 -14 -11 -13 -15

Change between N-3 and N month** 11 -26 -25 15 11 4 -2 -2

3-month ago Accumulated change by the N month* 1 -3 -11 -13 -12 -6 1 4

Change between N-3 and N month** 1 -4 -8 -2 1 6 7 3

FX Implied 6M: 2.88




Global FX Weekly



Asia Local Market Rates Liquidity Monitor 16

Introduction

In our bi-weekly Asia Local Market Rates Liquidity Monitor, we endeavour

to capture money market-specific flows, capital flows and key economic

data that may impact local rate markets. With an estimation of overall

liquidity conditions17

, the net flows we monitor allow us to gauge the

implications for money market liquidity.

The main components in our liquidity monitor include:

Open market operations

Issuance

Coupon payments

Redemption of government and corporate securities.

Other market components in our liquidity monitor include:

Public offerings

Changes in foreign holdings of equity and debt

Government spending – central government‟s deposits with the central

bank

Reserve requirement maintenance status.

We also include key economic indicators in this report:

External commercial borrowing (India)

FX reserve changes

Broad money growth

Loan/deposit ratio

Inflation.

Lastly, we also monitor seasonal factors that have historically affected

money market liquidity, such as large equity dividend payments and tax

payments.

16) We define overall liquidity in each market as the total outstanding of short-term debt securities. For South Korea, we take call market borrowing, CDs, bills, MSBs, repos/reverse repos, beneficial certificates and short-term financial debentures. This will reflect the total volume of short-term borrowing/lending in the market.

Simon Flint

+65-6433-6105 [email protected]

Craig Chan +65-6433-6106

[email protected]

Wee Choon Teo +65-6433-6107

[email protected]

Kewei Yang +65-6433-6246

[email protected]

Prateek Gupta +65-6433-6197

[email protected]

Prashant Pande +65-6433-6198

[email protected]


Global FX Weekly

Source: RBI, IMF, CEIC, Bloomberg, Nomura

Aggregate net inflows in both OMOs and the bond market totalled INR13.2trn from 02-Feb-12 to 15-Feb-12.

Over the past two weeks (02-Feb-12 to 15-Feb-12), net foreign equity holdings have increased by USD1.8bn and net foreign debt holdings have increased by

USD270mn.

(INR bn)

Date Weekday 1st LAF 2nd LAF

Special

LAF

LAF

Matured SubTotal

Total

(Weekly)

Govt

Auction

Corp

Auction

Govt

Cpn

Corp

Cpn

Govt

Redemption

Corp

Redemption SubTotal

Total

(Weekly) SubTotal

Total

(Weekly) EQ DT SubTotal

Total

(Weekly)

2/2/2012 THU 1,203 1,203 80 0 11 0 91 435 92 526

2/3/2012 FRI 1,108 1,108 3 0 102 105 199 -53 146

2/4/2012 SAT 10 2 11

2/5/2012 SUN 4 0 9 13

2/6/2012 MON 988 988 -13 2 0 -11 227 -27 199

2/7/2012 TUE 911 911 -11 10 0 0 142 -48 94

2/8/2012 WED 1,049 1,049 5,259 1 1 211 0.00 92 169 260 1226

2/9/2012 THU 1,313 1,313 3 0 2 6 294 -107 188

2/10/2012 FRI 439 867 1,306 -120 26 0 88 0 -6 69 348 417

2/11/2012 SAT

2/12/2012 SUN 8 0 8

2/13/2012 MON 1,661 1,661 -17 0 0 -17 131 -39 92

2/14/2012 TUE 1,702 1,702 0 0 0 232 -64 169

2/15/2012 WED 1,684 1,684 7,666 74 1 6 81 72 0.00 866

2/16/2012 THU 3 0 30 0 33

2/17/2012 FRI 40 3 43

2/18/2012 SAT 7 2 1 10

2/19/2012 SUN 1 1 6 7

2/20/2012 MON 8 1 1 7 17

2/21/2012 TUE 0 0 2 2

2/22/2012 WED 0 1 1 113 0.00 0

2/23/2012 THU 2 1 2 4

2/24/2012 FRI 9 2 110 1 122

2/25/2012 SAT 6 2 8

2/26/2012 SUN 2 1 8 10

2/27/2012 MON 1 0 1 1 4

2/28/2012 TUE 50 0 6 56

2/29/2012 WED 0 1 2 0 3 207 0.00 0

3/1/2012 THU 0 3 4 7

3/2/2012 FRI 5 1 79 84

3/3/2012 SAT 41 41

3/4/2012 SUN 1 1

3/5/2012 MON 1 1 2

3/6/2012 TUE 0 0 1 0 2

3/7/2012 WED 0 3 0 20 1 24 162 0.00 0

3/8/2012 THU 2 1 4

3/9/2012 FRI 21 1 136 11 170

3/10/2012 SAT 4 2 1 7

3/11/2012 SUN 13 1 4 18

3/12/2012 MON 7 2 5 13

3/13/2012 TUE 1 1 13 14

3/14/2012 WED 0 2 1 0 3 229 0.00 0

Local Market Liquidity: IndiaIssuance/CpnPayment/RedemptionOMOs

Change of Foreign Holdings

USD mnPublicOfferings


Global FX Weekly

Source: RBI, IMF, CEIC, Bloomberg, Nomura

India‟s liquidity position tightened by INR2.6trn in December 2011.

Headline FX reserves decreased by USD2.8bn m-o-m in January. Adjusting for FX changes and coupons, reserves decreased by USD3.4bn.

Real GDP grew by 6.7% y-o-y in Q3 2011, compared with 8.5% in Q2 2011.

WPI inflation decreased to 2.3% y-o-y in January 2011 from 3.1% in December 2011.

INR

1M 2M 3M 4M 5M 6M

Liquidity Position (INR bn) Dec-11 6,648 9,305 6,719 6,793 7,129 7,092 7,004

Chg -2,657 2,586 -74 -336 37 87 200

FX reserve (USD bn) Jan-12 260 263 273 282 276 286 286

Chg, mom -2.8 -9.8 -9.3 6.4 -10.3 -0.1 2.7

(Adjusted for FX changes & coupon payments) Chg, mom -3.4 -7.2 -7.0 3.6 -4.6 0.1 1.9

FX Forward Outstanding (USD mn) - Net Long Position Dec-11 -1370 -1620 0 0 0 0 0

Chg 250 -1620 0 0 0 0 0

Central Govt deposit in central bank (net; Rs. Crore.) Jan-12 101 100 100 100 101 101 101

Chg, mom 1 0 0 -1 0 0 1

Loan/Deposit Ratio Dec-11 75 75 74 74 74 73 75

Monetary Supply (M3) Pct Chg (mom) Jan-12 -0.5% 2.6% 0.7% 1.4% 0.4% 0.4% 1.8%

Pct Chg (yoy) Jan-12 14.4% 15.6% 15.2% 14.6% 16.4% 16.9% 16.7%

Inflation - WPI (mom) Jan-12 0.9% -1.9% -0.8% 0.3% 1.8% 0.6% 1.2%

(qoq) Jan-12 -1.9% -2.5% 1.2% 2.7% 3.6% 2.3% 0.7%

(yoy) Jan-12 2.3% 3.1% 8.9% 11.0% 12.2% 12.5% 11.5%

- Excl. food (mom) Jan-12 2.4% 1.1% -1.0% -3.0% 1.2% 3.2% -2.7%

(qoq) Jan-12 2.5% -2.9% -2.9% 1.2% 1.6% -0.7% -8.3%

(yoy) Jan-12 0.6% 1.5% 3.4% 7.4% 14.6% 18.2% 15.8%

Foreign Equity Holdings (M; net; USD mn) Jan-12 2,037 31 -787 347 7 -2,394 1,807

Foreign Debt Holdings (M; net; USD mn) Jan-12 3,049 4,163 201 288 -349 628 592

Foreign Equity Holdings (M; net; Rs. Crore.) Jan-12 10,358 98 -4,198 1,677 -158 -10,834 8,030

Foreign Debt Holdings (M; net; Rs. Crore.) Jan-12 15,971 21,775 935 1,401 -1,707 2,931 2,623

ECB, USD bn Dec-11 4.47 1.59 2.48 2.36 3.71 4.17 3.34

Chg, mom 2.88 -0.89 0.11 -1.35 -0.46 0.83 0.68

1W 2W 3W 4W 5W 6W

Central Govt deposit in central bank (net; Rs. Crore.) 03-Feb-12 100 101 100 101 100 100 100

Chg, wow -1 1 -1 1 0 0 0

1Q 2Q 3Q 4Q 5Q 6Q

Growth (Q) - real GDP (qoq) Sep-11 0.4% -10.5% 7.2% 10.7% 2.1% -11.1% 8.7%

(yoy) Sep-11 6.7% 8.5% 7.7% 9.2% 8.6% 9.1% 12.6%

1Y 2Y 3Y 4Y 5Y 6Y

Credit outstanding - non-food sector (INR tn) 2011 37 30 26 22 18 14 10

Chg, yoy 6 4 4 4 4 4 3

Current CRR Latest 6.00% (effective since 4/24/10, previous ratio at 5.75%)

Reserve maintenance/required reserve 2/11/2012 98%

(Latest) 2-week maintenance cycle ends on 2/24/12 (2/11/11-2/24/12)

Note: There are regular quarterly tax payments (Mar 15, Jun 15, Sep 15 and Dec 15). * The data only reflects information known by the time of update.

Prior historical dataUp-to-date data

Economic Data Summary: India


Global FX Weekly

Source: BoK18

, MoFE, Reuters, Bloomberg, CEIC, Nomura

Aggregate net inflows in both OMOs and the bond market totalled KRW5trn from 02-Feb-12 to 15-Feb-12.

KTB auctions in February 2011: KRW1.4trn 3yr KTB auctioned on 3 February, KRW1.85trn 5yr KTB auctioned on 13 February, KRW1.65trn 10yr KTB to be

auctioned on 20 February and KRW0.9trn 20yr KTB to be auctioned on 27 February .

- The bid/cover ratios for the auctions in February were 4.49-4.84x compared with 4.49-4.67x for January.

Foreign equity holdings have increased by USD2.2bn over the past two weeks.

18) MSB regular issuance to be announced on Fridays and auctioned on the following Monday; regular repo auctions are to be held on Thursdays.

(KRW bn)

Date Weekday

MSB

Issuance

Repos

Net Flow SubTotal

Total

(Weekly)

Govt

Auction

Corp

Auction

Govt

Cpn

Corp

Cpn

Govt

Redemption

Corp

Redemption SubTotal

Total

(Weekly) SubTotal

Total

(Weekly) EQ

Total

(Weekly)

2/2/2012 THU -380 290 52 8,580 450 8,992 913

2/3/2012 FRI -1,540 8 70 30 566 -866 -116

2/4/2012 SAT 21 64 1 256 342

2/5/2012 SUN 6 56 1,499 1,560

2/6/2012 MON -1,750 -1,750 -1,400 -2,343 21 49 260 756 -2,658 141

2/7/2012 TUE -1,745 17 35 1,200 357 -135 -12 315

2/8/2012 WED -1,750 -350 10 66 210 -64 7,172 -12.2 362 1,615

2/9/2012 THU -1,557 105 105 2,240 412 1,306 99

2/10/2012 FRI -787 9 53 219 -507 95

2/11/2012 SAT 10 44 150 490 694

2/12/2012 SUN 23 55 360 438

2/13/2012 MON -2,320 -2,320 -1,850 -240 45 48 995 -1,002 148

2/14/2012 TUE -1,040 17 38 1,841 327 1,182 12

2/15/2012 WED -2,320 -340 11 58 20 -251 1,861 0.0 215 570

2/16/2012 THU -2,013 21 38 690 -1,264 -42

2/17/2012 FRI -660 2 8 200 1,010 560

2/18/2012 SAT 11 74 720 805

2/19/2012 SUN 22 78 150 645 895

2/20/2012 MON -1,650 -115 18 72 320 463 -892

2/21/2012 TUE -445 10 29 1,290 687 1,571

2/22/2012 WED 0 -100 10 23 182 116 1,792 0.0 -42

2/23/2012 THU -540 22 61 1,182 724

2/24/2012 FRI -180 20 79 300 333 552

2/25/2012 SAT 24 114 50 956 1,145

2/26/2012 SUN 24 106 253 1,005 1,388

2/27/2012 MON -900 46 89 960 195

2/28/2012 TUE 87 110 1,522 261 1,980

2/29/2012 WED 0 234 97 1,348 397 2,076 8,060 0.0 0

3/1/2012 THU 16 27 43

3/2/2012 FRI 387 81 250 530 1,248

3/3/2012 SAT 25 57 170 232 485

3/4/2012 SUN 27 48 300 656 1,031

3/5/2012 MON 18 80 150 1,115 1,363

3/6/2012 TUE 11 35 1,750 110 1,906

3/7/2012 WED 0 6 42 49 6,124 0.0 0

3/8/2012 THU 34 80 50 287 450

3/9/2012 FRI 5,368 75 9,744 206 15,393

3/10/2012 SAT 40 39 230 310

3/11/2012 SUN 11 53 149 212

3/12/2012 MON 16 44 390 450

3/13/2012 TUE 14 37 1,310 1,041 2,402

3/14/2012 WED 0 24 89 529 642 19,859 0.0 0

Local Market Liquidity: S. KoreaChange of Foreign Holdings

USD mnPublicOfferingsOMOs Issuance/CpnPayment/Redemption


Global FX Weekly

Source: BoK, MoFE, Reuters, Bloomberg, CEIC, Nomura

Headline FX reserves increased by USD4.9bn m-o-m in January. On an adjusted basis, FX reserves increased by USD3.8bn m-o-m.

M2 growth increased to 5.3% y-o-y in December from 4.3% in November 2011.

FX forward net long positions decreased by USD8.8bn in October 2011 from September 2011.

CPI inflation decreased to 3.4% in January from 4.2% y-o-y in December.

Real GDP grew by 3.4% y-o-y in Q4 2011, compared with 3.6% in Q3 2011.

KRW

1M 2M 3M 4M 5M 6M

Liquidity Position (KRW tn) Dec-11 417 424 421 422 423 421 414

Chg -7 3 -1 -1 2 7 -4


Chg, mom 4.9 -2.2 -2.3 7.6 -8.8 1.2 6.5

(Adjusted for FX changes & coupon payments) Chg, mom 3.8 0.7 0.2 4.5 -2.5 1.4 5.7

FX Forward Outstanding (USD mn) - Net Long Position Oct-11 38160 47004 51920 53442 53158 59002 61953

Chg -8844 -4916 -1522 284 -5844 -2951 9563

Govt deposit in central bank (net; KRW tn) Dec-11 7 3 4 3 3 3 0

Chg 4 -1 1 0 0 2 -4


Monetary Supply (sa; new M2) Pct Chg (mom) Dec-11 -0.7% 0.1% 1.0% 0.9% 0.3% 2.1% 0.1%

(yoy) Dec-11 5.3% 4.3% 4.4% 4.7% 4.0% 4.1% 2.9%

Inflation (sa) - CPI (mom) Jan-12 0.5% 0.4% 0.1% -0.2% 0.1% 0.9% 0.7%

(qoq) Jan-12 1.0% 0.3% -0.2% 0.8% 1.7% 1.7% 0.8%

(yoy) Jan-12 3.4% 4.2% 4.2% 3.9% 4.3% 5.3% 4.7%

1Q 2Q 3Q 4Q 5Q 6Q

Growth (sa; Q) - real GDP (qoq) Dec-11 0.4% 0.8% 0.9% 1.3% 0.5% 0.6% 1.4%

(yoy) Dec-11 3.4% 3.6% 3.4% 3.9% 4.7% 4.4% 7.3%

Foreign Equity Holdings (Q; net; USD bn) Sep-11 199 252 245 235 196 164 177

Chg, qoq -53 7 10 39 33 -13 12

Foreign Debt Holdings (Q; net; USD bn) Sep-11 158 151 143 142 142 135 130

Chg, qoq 7 7 2 0 6 6 4

Note: March and April are equity dividend season in Korea. * The data only reflects information known by the time of update.

Economic Data Summary: S. KoreaPrior historical dataUp-to-date data


Global FX Weekly

Source: BNM19

, Bloomberg, CEIC, Nomura

Aggregate net inflows in both OMOs and the bond market totalled MYR1,395mn from 19-Jan-12 to 1-Feb-12.

The changes in the banking system‟s liquidity position are largely because of private sector bond issuance, payments and redemptions as the impact of

government market activities has been neutralised by BNM.

19) Note: BNM conducts regular operations (money market tenders: ~4 times each day) to mop up liquidity released from the government. Related liquidity components include, a) BNM MM and repo, b) other BNM market and non-market activities, c) government operations, d) BNM and govt. securities redemption/(issuance), e) coupon and dividend payments, and f) statutory reserves. Source: Bank Negara Malaysia (BNM) (https://fast.bnm.gov.my/).

(MYR mn)

Date Weekday SubTotal

Total

(Weekly)

Corp

Auction

Corp

Cpn

Corp

Redemption SubTotal

Total

(Weekly) SubTotal

Total

(Weekly)

2/2/2012 THU -35 9 9

2/3/2012 FRI 66 70 10 80

2/4/2012 SAT

2/5/2012 SUN

2/6/2012 MON

2/7/2012 TUE

2/8/2012 WED -25 6 -570 239 645 314 403 0.0

2/9/2012 THU 5 -105 4 159 57

2/10/2012 FRI -39 -30 28 182 180

2/11/2012 SAT

2/12/2012 SUN

2/13/2012 MON 85 -75 7 125 57

2/14/2012 TUE -26 -1 2 1

2/15/2012 WED 80 105 44 120 164 460 0.0

2/16/2012 THU -233 8 267 275

2/17/2012 FRI

2/18/2012 SAT

2/19/2012 SUN

2/20/2012 MON -25 169 144

2/21/2012 TUE -75 85 10

2/22/2012 WED -233 22 54 76 504 0.0

2/23/2012 THU 65 126 190 -85.0

2/24/2012 FRI -20 13 354 347 -211.9

2/25/2012 SAT

2/26/2012 SUN

2/27/2012 MON 166 64 230

2/28/2012 TUE 24 24

2/29/2012 WED 0 46 400 446 1,237 -296.9

3/1/2012 THU 55 15 70

3/2/2012 FRI 3 335 338

3/3/2012 SAT

3/4/2012 SUN

3/5/2012 MON 21 145 166

3/6/2012 TUE 45 60 105

3/7/2012 WED 0 38 160 198 877 0.0

3/8/2012 THU 3 665 668

3/9/2012 FRI 6 158 164

3/10/2012 SAT

3/11/2012 SUN

3/12/2012 MON 42 42

3/13/2012 TUE 9 75 84

3/14/2012 WED 0 9 25 34 993 0.0

PublicOfferingsIssuance/CpnPayment/Redemption (Corp)Chg of Liquidity Position (BNM)

Local Market Liquidity: Malaysia


Global FX Weekly

Source: BNM, Bloomberg, CEIC, Nomura

Headline FX reserves increased by USD0.4bn in January. On an adjusted basis, FX reserves remained unchanged.

FX forward net long positions decreased by USD900mn in December.

Inflation on a year-on-year basis in December 2011 was 3.0%, decreasing from 3.3% in November.

Real GDP growth was 5.2% y-o-y in Q4 2011, compared with 5.8% in Q3 2011.

MYR

1M 2M 3M 4M 5M 6M

Liquidity Position (MYR bn) Dec-11 28 28 27 28 29 29 29

Chg, mom 0 1 -1 -1 0 0 -3


Chg, mom 0.4 -1.1 0.0 3.8 -5.3 0.8 1.1

(Adjusted for FX changes & coupon payments) Chg, mom 0.0 0.0 1.1 2.6 -2.6 0.9 0.8

FX Forward Outstanding (USD mn) - Net Long Position Dec-11 6600 7500 7270 12700 15055 15320 15530

Chg -900 230 -5430 -2355 -265 -210 260

Fed Govt deposit in central bank (net; MYR bn) Jan-12 8 11 25 19 15 27 34

Chg, mom -3 -15 7 4 -13 -6 7

Loan/Deposit Ratio Dec-11 80.9 81.7 82.5 81.9 82.9 82.2 81.8

Monetary Supply (M2) Pct Chg (mom) Dec-11 2.4% 2.4% -0.4% 2.6% 0.5% -0.4% 1.3%

Pct Chg (yoy) Dec-11 14.6% 12.8% 11.8% 13.0% 10.8% 11.6% 12.4%

Inflation -CPI (mom) Dec-11 0.1% 0.1% 0.2% 0.2% 0.2% 0.2% 0.3%

(qoq) Dec-11 1.5% 1.9% 2.3% 2.3% 2.7% 3.1% 3.1%

(yoy) Dec-11 3.0% 3.3% 3.4% 3.4% 3.3% 3.4% 3.5%

Foreign Debt Holdings (net; MYR bn) Dec-11 164 169 172 167 186 187 185

Chg, mom -5 -2 4 -19 0 2 3

1Q 2Q 3Q 4Q 5Q 6Q

Growth (Q) - real GDP (qoq) Dec-11 1.2% 3.8% 2.8% -2.5% 1.7% 2.3% 3.8%

(yoy) Dec-11 5.2% 5.8% 4.3% 5.2% 4.8% 5.3% 9.0%

1Y 2Y 3Y 4Y 5Y 6Y

Foreign Equity Holdings (annual; net; MYR bn) 2010 126 74 55 184 143 109 115

Chg, yoy 52 18 -129 41 34 -7 40

Foreign Debt Holdings (annual; net; MYR bn) 2010 160 121 111 107 61 49 69

Chg, yoy 38 10 4 46 11 -19 66

Note: * The data only reflects information known by the time of update.

Up-to-date data Prior historical data

Economic Data Summary: Malaysia


Global FX Weekly

Source: CBC, MoF Taiwan, Bloomberg, CEIC, Nomura

Aggregate net outflows from both OMOs and the bond market totalled TWD2.3trn from 02-Feb-12 to 15-Feb-12.

Bond auctions in Q1 2012: TWD40bn 5yr (101A1) on 3 January, TWD40bn 20yr (101A2) on 17 January, TWD30bn 2yr (101A3) on 1-February, TWD35bn 30yr

(101A4) on 8 February, TWD40bn 10yr (101A1) on 3 March and TWD40bn 20yr (101B2) on 13 March.

Foreign equity holdings have increased by USD1.2bn in the past two weeks.

(TWD bn)

Date

CDs

Matured

CDs

Issued

Sub-

Total

Total

(Weekly)

Govt

Auction

Corp

Auction

Govt

Cpn

Corp

Cpn

Govt

Redemption

Corp

Redemption

Sub-

Total

Total

(Weekly)

Sub-

Total

Total

(Weekly) EQ

Total

(Weekly)

2/2/2012 THU 83.7 -228.9 -145.3 0.1 5.3 5.4 230

2/3/2012 FRI 174.0 -245.0 -71.0 29

2/4/2012 SAT -169.5 -169.5 0.1 0.1 -52

2/5/2012 SUN 1.7 0.2 3.2 5.1

2/6/2012 MON 136.5 -392.3 -255.8 115

2/7/2012 TUE 22.0 -208.9 -186.9 0.0 0.0 0.0 227

2/8/2012 WED 51.8 -239.4 -187.7 -1016.0 -35 0.1 6.0 -28.9 -18.3 0.0 387 936.2

2/9/2012 THU 51.9 -162.0 -110.2 0.0 0.0 154

2/10/2012 FRI 50.4 -525.9 -475.5 1.9 40.0 41.9 -110

2/11/2012 SAT

2/12/2012 SUN 0.0 0.0

2/13/2012 MON 87.4 -499.0 -411.6 3.0 0.1 3.1 -142

2/14/2012 TUE 15.4 -173.7 -158.3 2.6 0.0 2.6 55

2/15/2012 WED 55.4 -256.3 -200.9 -1356.4 0.1 0.1 47.7 0.0 325 281.9

2/16/2012 THU 18.2 -157.3 -139.1 1.3 0.0 0.5 1.8 -64

2/17/2012 FRI 26.1 26.1

2/18/2012 SAT 1.6 1.6

2/19/2012 SUN

2/20/2012 MON 32.2 32.2 2.1 2.1

2/21/2012 TUE 7.3 7.3

2/22/2012 WED 12.8 12.8 -60.8 2.7 0.1 2.8 8.3 0.0 -63.7

2/23/2012 THU 15.0 15.0

2/24/2012 FRI 22.6 22.6 1.1 0.0 1.1 -0.1

2/25/2012 SAT 1.4 1.4

2/26/2012 SUN 0.1 0.2 0.3

2/27/2012 MON 12.9 12.9

2/28/2012 TUE 5.3 5.3

2/29/2012 WED 11.4 11.4 67.2 0.0 0.0 2.9 -0.1 0.0

3/1/2012 THU 12.7 12.7 0.2 0.2

3/2/2012 FRI 24.4 24.4 0.1 0.1

3/3/2012 SAT -40 -40.0

3/4/2012 SUN 1.8 1.8

3/5/2012 MON 35.6 35.6 1.1 0.1 1.2

3/6/2012 TUE 5.4 5.4 2.3 2.3

3/7/2012 WED 58.7 58.7 136.7 1.3 0.0 0.0 1.3 -33.1 0.0 0.0

3/8/2012 THU 15.7 15.7 2.0 0.2 50.0 52.2

3/9/2012 FRI 34.8 34.8 0.1 0.1

3/10/2012 SAT 1.1 0.3 1.4

3/11/2012 SUN 2.1 0.1 30.0 32.2

3/12/2012 MON 52.1 52.1 0.1 0.1

3/13/2012 TUE 40.0 40.0 -40 0.0 -40.0

3/14/2012 WED 83.1 83.1 225.6 4.8 0.0 4.8 50.8 0.0 0.0

Local Market Liquidity: TaiwanPublicOfferingsIssuance/CpnPayment/Redemption

Chg of Foreign

HoldingsOMOs


Global FX Weekly

Source: CBC, MoF Taiwan, Bloomberg, CEIC, Nomura

Headline FX reserves increased by USD4.8bn m-o-m in January. On an adjusted basis, FX reserves increased by USD3.3bn

m-o-m.

Government deposits with the central bank decreased by NTD2bn in January.

CPI inflation increased to 2.4% y-o-y in January from 2.0% in December.

Real GDP growth decreased to 1.9% y-o-y in Q4 2011 from 3.4% y-o-y in Q3 2011.

TWD

1M 2M 3M 4M 5M 6M

Liquidity Position (TWD bn) Dec-11 1,705 1,771 1,635 1,670 1,612 1,668 1,621

Chg, mom -66 136 -35 58 -56 46 -52


Chg, mom 4.8 -2.4 -5.4 4.2 -11.1 -0.5 0.4

(Adjusted for FX changes & coupon payments) Chg, mom 3.3 1.3 -2.1 0.2 -3.0 -0.2 -0.6

Govt deposit in central bank (net; NTD bn) Jan-12 179 182 199 198 251 220 265

Chg, mom -2 -17 1 -53 31 -45 8


Monetary Supply (M2) Pct Chg (mom) Dec-11 1.0% 0.2% 0.5% 0.3% -0.1% 0.9% 0.5%

Pct Chg (yoy) Dec-11 4.8% 5.1% 5.3% 5.7% 5.8% 6.3% 5.9%

Inflation - CPI (mom) Jan-12 0.3% 0.2% 0.0% 0.5% 0.1% 0.0% -0.3%

(qoq) Jan-12 2.1% 2.9% 2.5% 2.8% -0.6% 1.4% 2.0%

(yoy) Jan-12 2.4% 2.0% 1.0% 1.3% 1.4% 1.3% 1.3%

- Excl. food (mom) Jan-12 0.7% -0.3% -0.1% 0.5% -0.2% -0.3% -0.1%

(qoq) Jan-12 1.2% 0.3% 0.6% 0.0% -2.2% 0.6% 1.5%

(yoy) Jan-12 1.5% 0.7% 1.0% 1.3% 1.2% 1.3% 1.2%

1Q 2Q 3Q 4Q 5Q 6Q

Growth (Q) - real GDP (qoq) Dec-11 1.8% 3.4% 3.4% -6.5% 3.3% 4.5% 5.5%

(yoy) Dec-11 1.9% 3.4% 4.5% 6.6% 6.5% 11.2% 13.0%

Foreign Equity Holdings (Q; net; USD bn) Sep-11 -19.3 8.7 -1.0 10.9 -0.8 7.4 4.8

Chg, qoq -28.0 9.7 -11.9 11.6 -8.1 2.6 -6.8

Foreign Debt Holdings (Q; net; USD bn) Sep-11 1.5 9.5 7.1 9.7 8.3 2.6 3.4

Chg, qoq -8.1 2.4 -2.6 1.4 5.7 -0.8 -2.7

1Y 2Y 3Y 4Y 5Y 6Y

Foreign Equity Holdings (annual; net; USD bn) 2010 89 80 34 71 94 88 49

Chg, yoy 9 46 -37 -23 6 39 16

Foreign Debt Holdings (annual; net; USD bn) 2010 -155 -128 -113 -104 -102 -93 -70

Chg, yoy -27 -15 -8 -3 -8 -23 -17

Note: August is equity dividend season in Taiwan. * The data only reflects information known by the time of update.

Up-to-date data Prior historical data

Economic Data Summary: Taiwan



Global FX Weekly

Global FX Forecasts

FX Forecasts

16-Feb Q1 12 Q2 12 Q3 12 Q4 12 End 2013

G10

US Dollar Index (DXY) 80.0 81.9 85.0 83.4 82.4 80.5

Japanese yen (USD/JPY) 78.9 75.0 80.0 80.0 81.0 85.0

(EUR/JPY) 103 94 96 98 101 111

Euro (EUR) 1.30 1.25 1.20 1.23 1.25 1.30

Sw iss Franc (CHF) 0.93 0.96 1.00 0.98 0.96 0.92

(EUR/CHF) 1.21 1.20 1.20 1.20 1.20 1.20

British Pound (GBP) 1.57 1.52 1.46 1.48 1.51 1.57

(EUR/GBP) 0.83 0.82 0.82 0.83 0.83 0.83

Australian Dollar (AUD) 1.07 1.05 1.05 1.07 1.08 1.08

Canadian Dollar (CAD) 1.00 1.01 0.99 0.97 0.95 0.95

New Zealand Dollar (NZD) 0.83 0.83 0.85 0.87 0.88 0.90

Norw egian Krone (EUR/NOK) 7.55 7.80 7.70 7.60 7.50 7.50

Sw edish Krona (EUR/SEK) 8.81 9.00 9.15 9.00 8.90 8.80

Asia

Chinese Renminbi (CNY) 6.30 6.28 6.18 6.17 6.15 6.00

Hong Kong Dollar (HKD) 7.76 7.76 7.75 7.75 7.75 7.75

Indonesian Rupiah (IDR) 9093 8900 8800 8700 8600 8200

Indian Rupee (INR) 49.3 49.0 48.5 47.9 47.2 45.5

Korean Won (KRW) 1132 1130 1120 1110 1090 1050

Malaysian Ringgit (MYR) 3.06 2.99 2.96 2.95 2.93 2.82

Philippine Peso (PHP) 42.9 42.2 42.0 41.7 41.3 40.0

Singapore Dollar (SGD) 1.27 1.24 1.23 1.22 1.20 1.15

Thai Baht (THB) 30.9 30.6 30.3 30.2 30.0 29.0

Taiw an Dollar (TWD) 29.6 29.6 29.4 29.3 29.1 28.0

Europe and Africa

Czech Koruna (EUR/CZK) 25.3 25.1 25.5 25.5 25.0 24.5

Hungarian Forint (EUR/HUF) 293 315 295 295 290 285

Polish Zloty (EUR/PLN) 4.23 4.35 4.70 4.40 4.10 3.90

Israeli Shekel (ILS) 3.78 3.72 3.70 3.68 3.65 3.50

Russian Ruble (RUB) 30.3 30.1 30.0 29.8 29.6 29.0

Turkish Lira (TRY) 1.77 1.76 1.74 1.72 1.70 1.70

South African Rand (ZAR) 7.84 8.00 8.50 8.00 7.25 8.00

Latin America

Brazilian Real (BRL) 1.73 1.80 1.80 1.75 1.70 1.65

Chilean Peso (CLP) 488 500 500 480 475 460

Mexican Peso (MXN) 12.92 13.25 13.50 13.15 12.80 12.50

Colombian Peso (COP) 1802 1850 1840 1830 1825 1750

Argentine peso (ARS) 3.98 4.39 4.52 4.69 4.90 5.65

Note: Forecasts are for end of quarter




Global FX Weekly

February 16, 2012

CONTACTS

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LatAm Research [email protected] +1 212 667 9503

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Yujiro Goto (Vice President)


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AEJ Rates Research [email protected] +65 6433 6555

Kewei Yang (Vice President)

AEJ Rates Research [email protected] +65 6433 6246

Vivek Rajpal (Vice President)

AEJ Rates Research [email protected] +91 22 403 74438

Martin Whetton (Vice President)

AEJ Rates Research [email protected] +61 2 8062 8611

Wee Choon Teo AEJ Research [email protected] +65 6433 6107

Prateek Gupta AEJ Research [email protected] +65 6433 6197

Prashant Pande AEJ Research [email protected] +65 6433 6198

FOREIGN EXCHANGE RESEARCH TOKYO

Yunosuke Ikeda (Executive Director) G10 Research [email protected] +81 3 6703 3885

Masanari Takada G10 Research [email protected] +81 3 6703 3889

Shinya Harui G10 Research [email protected] +81 3 6703 3884

Kota Hirayama G10 Research [email protected] +81 3 6703 3887



Global FX Weekly

February 16, 2012



Global FX Weekly

February 16, 2012

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