How IDEAglobal Moves Markets

Reliable, informed, and precise information is the key to seeing and assessing risk; IDEAGlobal allows you have a clear vision of where the markets are heading and here we provide a reecap of key calls over the last 6 months 

1. Kroger Bonds Offer Value and Defense

Date: 24th June, 2009

Kroger Bonds Offer Value and Defense

Key Message: we recommended exposure in Kroger cash corporate bonds, noting positive leverage trajectory, a more conservative fiscal policy, and compelling valuation comps relative to levels at various stages of the economic crisis. “Progressions in Kroger credit spreads are far from exciting, with the latest 91bp 5y CDS level just 3bp wider net of the June-to-date but still 20bp tighter net of the 2Q-to-date and 9bp tighter YTD. There remains solid upside scope with latest levels still 30bp wide of where they were just after the Lehman collapse and 50bp wide of levels at the end of 2007. There appears to be very good value a bit further out the curve in cash bond exposure with the 6.4% 8/15/17 notes at 103.5 for a 219bp Z-spread and 250bp OAS – on a Z-spread basis, this compares with 190bp ahead of the Lehman collapse and 85bp before the crisis onset in summer 2007. It may not be a rapid move, but a 18-24 month horizon should see a halving of current credit spreads with cash exposure offering compelling basis.”

Outcome: While CDS levels have ebbed less aggressively to 82bp from 91bp, the 6.4% 8/15/17 notes rallied to 109.875 on 24th August from the 103.5 on 24th June, driving the Z-spread to 139bp from 219bp and the OAS to 168bp from 250bp. This is a reduction in Z-spread of more than one-third in two months with progressions on a solid track to achieving our medium-term target of a 50% reduction from levels at recommendation.

2.AUDCAD appreciation

Date: 19 June 2009

Trade for AUDCAD appreciation

Key Message: We feel that sentiment is shifting toward AUDCAD appreciation. We expect Chinese economic numbers to continue to strengthen, which will be a positive development for AUD. Moreover we feel that the recent strength in oil prices has been exacerbated by investment demand, as investors demand more tangible assets. This is at a time when the underlying fundamentals for oil are somewhat soft. We feel a move in AUDCAD will occur in coming days. A break above last week's high of 0.9115 should signal a period of further strength targeting 0.9300 initially, with longer-term targets at 0.9515 and the July 2008 high at 0.9840.

Outcome: AUDCAD jumped to 93.70 in just over a week.

3.  EURGBP

Date: 17 Aug 2009

EURGBP Ready For a Move

Key Message: look for the pair to target 0.8535/0.8490 initially. EURGBP is, as a result of recent data, moving back toward Friday’s highs, and is currently sitting at 0.8640, eyeing resistance at 0.8700. Resistance in the 0.87/0.88 region should provide solid resistance and we feel this is an attractive area to look to be short, or art least take profit if longs are already established. With the additional QE activities being priced in, but with policymakers not as proactive in Europe, look for the pair to target 0.8535/0.8490 initially.

Outcome: EURGBP dropped from highs around 0.8640 on the 17th, to lows near 0.8520 the following day

4.September Bund Contract

Date: Fri 7 Aug 2009

Eurozone fixed-income strategy says sell bunds

Key message: The consensus expectation is for a NFP print of about -350k, and, although highly uncertain of course, we think it risks improving further. Upon such a result, the Sep Bund faces immediate support at 121.00, which would be followed by a test of its swing lows of 120.00...In terms of the yield curve, the German 2/10yr spread is still testing key support at around 190bps, but we would look for a post-payrolls bounce.

Outcome: On Friday 7 Aug, following the US payrolls report, the Sep Bund fell from 121.20 to 120.00 exactly. The 2/10yr German curve also expanded gradually from a narrow point of 191bps on 6th Aug to 205bps on 13th Aug.

5. Latin American Market Strategy: Play the COP from the long side and the MXN short

Date: July 01, 2009

Play the COP from the long side and the MXN short.

Key message: The MXN has recovered some ground against the COP during June, after enduring a strong period of depreciation in this cross-rate. Excesses on the side of the COP against the greenback have slowly started to adjust, while the MXN has bolted forward using recent USD weakness against the Euro to push the cross to 162 MXN/COP. ….. We find both these currencies to be the weakest fundamentally within the LATAM region. However, in this particular instance, we would side with playing the COP from the long side and the MXN short, banking that the near 13.00 levels in the USD/MXN leg will hold and allow the COP to rise against the Peso. Look for levels in the 158 area on the side of gains, while stopping if the cross breaks the 168 area.

Outcome: COP accelerated appreciation against the MXN from the date of this recommendation all the way to July 15th, with the cross-rate ultimately stalling at 148.77. Our objective of 158 was reached within 3 days of suggested position inception.