Medium term
Trade view / 11 November 2016 at 9:09 GMT

EM, commodity basket weak as Trump boosts USD flows — #SaxoStrats

Head of Equity Strategy / Saxo Bank
Denmark
Instrument: GLEN:xlon
Price target:
Market price:
SaxoStrats
 
Background

Investors are realising here, two days after Trump won the US presidential election, that his administration will likely be a massive upside driver for USD and we are now witnessing the ramifications in emerging market assets and commodity markets (most notably in copper which smells of an unsustainable rally driven by Chinese activity).

EMB:arcx weekly share price
EMB price chart
Source: Saxo Bank

Based on what is unfolding, we are launching a new basket trade where we are buying Mexican equities while selling Brazilian equities (equal nominal amount in USD) and selling Glencore because of its exposure to copper.

Management and risk description

The biggest risk here if we get central bank intervention stopping the FX flows currently ripping EM assets apart. Worse than expected US macro or no Fed rate hike in December would also hurt our basket trade

Parameters

Five-year weekly barchart on EWZ:arcx, EWW:arcx and GLEN:lon
Charts

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Source: Saxo Bank

Entries:

sell at market Brazilian equities (EWZ:arcx)
buy at market Mexico equities (EWW:arcx)
sell at market Glencore (GLEN:xlon)

Stops:

EWZ:arcx $35
EWW:arcx $41
GLEN:xlon $287

Targets:

EWZ:arcx $25
EWW:arcx $50
GLEN:xlon $200

Time horizon: medium-term but obviously very dependent on the longevity of USD strengthening.

— Edited by Michael McKenna

For more on equities click here.

Non-independent investment research disclaimer applies. Read more
3y
Peter Garnry Peter Garnry
You cannot set up a short position in EWZ yet as we are locating shares. But it should be available a couple of hours before US markets open.
3y
Klauss Klauss
Thanks, I'll make this trade, before US markets open.
3y
Aleksa06 Aleksa06
Thanks Peter.
3y
spispi spispi
Hi Peter, I would like to ask if Glencore's price is at $ or at GBp?
3y
AlexF AlexF
Hi Peter 287 USD SL on Glen ? what is SL in GBP 287 very tight....?
3y
Peter Garnry Peter Garnry
hiked SL to 293 - it's the London ticker
3y
AlexF AlexF
Yep have 300 on it thanks
3y
AlexF AlexF
Hi Peter would you have a view on PBR after earnings I have a put option on it
3y
AlexF AlexF
Looking how low could it go in next week
3y
Peter Garnry Peter Garnry
Shorting is now available in EWZ (Brazilian equities)
3y
Peter Garnry Peter Garnry
Well PBR looks vulnerable as rest of EM due to stronger USD and oil price still being capped due to supply/demand dynamics.
3y
AlexF AlexF
Thanks Peter lets see slightly down pre market
3y
Peter Garnry Peter Garnry
EWZ is holding the line around the open
3y
Peter Garnry Peter Garnry
EWW saw bids in early trading but has been back again as USDMXN looks to break above 21 again
3y
Klauss Klauss
Peter, thks, already Short in EWZ now (before the market open I cannot Short)
3y
ChristianK ChristianK
Hi Peter. Would you lower the SL on EWZ from 35 given the decline so far today? Thx
3y
AlexF AlexF
Only short Glen for now
3y
Peter Garnry Peter Garnry
EWZ stop loss lowered to $33
3y
SierraPt. SierraPt.
Peter, can you please share update of your positions? It's long time since last update, and maybe I wasn't closely following, but for example in US equities most of positions should've been closed - only RL and TWTR (and maybe TSLA short) are still in play?
3y
ChristianK ChristianK
Agree - it would be good to get an updated position list
3y
ChristianK ChristianK
Good calls on Glencore and Mexico index so far. Do you recommend to lower the SL or change to a trailing SL? Are you still short the Brazil index?

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