HomeResearch and NewsNegative yields are not forever: debt market bubble will explode someday
Alexey Golubovich CIO, Chief Strategist, Managing Direcor

Negative yields are not forever: debt market bubble will explode someday

EQUITIES The start of the bear market is not far away, but now the market is only forming the top

  • Trade S&P500 equity index at 2100-2250 range with short position and put options purchase priority.

  • Short Russian equity index / ETF (RTS, RSX) and the most liquid single stocks (Sberbank, Yandex) with RTS target of 750-800 points.

  • Short country-specific ETFs on «Fragile Five» states and weak emerging markets, such as TUR (Turkey), EWZ (Brazil) and EZA (South Africa).

  • Long oil and oil-service single stocks and industry-specific ETFs, such as XOP, OIH, MRO, RIG in a case of Brent crude oil price drop to $40 per bbl.

  • Short overvalued Metals & Mining stocks (FMG.AX, AAL.L, XME, ABX, VALE) to buy them 20-25% lower (Chinese demand deterioration, large inventories and speculative long positions liquidation).

  • Short China-specific ETFs and Chinese single stocks with high liquidity on US stock exchanges (ASHR, CHAD and ADRs: BIDU, BABA, WUBA, CTRP, LFC).

  • Long / short speculative trade: buy deeps in MU, M, CNX, FSLR in the USA and in Magnit, etalon and VIP in Russia, short strengths in FB, Amazon, Netflix, Google, Tesla and large US banks.

CURRENCIES A break in US dollar strengthening is close to the end, Euro further weakening is highly probable

  • Short EUR/USD at 1.13-1.14 with a target of 1.08 and 1.05.

  • Short USD/JPY at 108-110 with a target of 90-95 (disappointment in «Abenomics» and BOJ actions).

  • Trade AUD/USD at 0.73-0.80 range and GBP/USD at 1.25-1.33 range.

COMMODITIES The worst is over, but large inventories and sluggish demand will determine volatile side trading

  • Short silver above $19.0 with a target of $17.0. Long gold below $1200 with a target of $1400.

  • Long wheat and corn long-dated futures, e.g. Jul and Dec (La Niña will result in droughts and poor crops harvest in 2017).

FIXED INCOME The market undervalues a probability of Fed’s rate raise as well as European debt bubble problem

  • Short long-dated European sovereigns (Germany, Italy) with a target price 6-8% lower, short Japan sovereigns at yield below -0.2% with a target yield of 0.2% and short 10-year US Treasuries at yield of 1.55-1.60% with a target yield of 2.0-2.25%.

  • Short long-dated emerging markets Eurobonds (Turkey, Kazakhstan, Russia) with a target of YTD lows.

  • Long short-dated Russian Eurobonds (Russia-20, Russia-23, Lukoil-19) at yields above 3.5-4.0% to reduce a cost of carry produced by other short positions in fixed income instruments.


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Report Banking Sector Report - March 2018 Mikhail Zavaraev

US banks finished the quarter in the red zone (-0.2% ytd) despite in January they demonstrated the most impressive start of the year since 2010. In March banks lost 5.5% MoM vs -2.7% MoM of SPX index, after -2.3% MoM decline in February. Banks significantly underperform broad-based index in March, after four consecutive months of outperformance. Absolute March performance on MoM basis was -0.9 StD from the mean performance and it is in the bottom 14% absolute monthly performance of BKX Index.

investment, banks;

Report Oil Market Report - March 2018 Vitaly Gromadin

In March crude oil market had been mostly in consolidation phase before breaking through technical resistance level and recovering to local maximum.

Geopolitical risks were believed to support the returning of bullish sentiment. The risks of trading war between China and the USA were also taken as a positive sign for crude oil market somehow due to possible limitation of shale oil growth in the USA because of service costs inflation and investors preference to see positive free cash flow.

oil, investment, equity

Report Banking Sector Report - February 2018 Mikhail Zavaraev

US banks were sold off in February after they had demonstrated the most impressive start of the year since 2010. In February US banks decreased by 2.3% MoM vs -3.9% of SPX index. But banks added +5.6% YTD significantly outperforming S&P 500 which increased only by +1.5% YTD. Banks were outperforming SPX index for the past 4 months in a row.

investment, banks;