Waiting on Greece: euro below EUR/USD 1.30, but how far below? The Bank of England refrained from adding monetary stimulus, but sterling only rose slightly: all eyes are now on next week’s Inflation Report...
Sign up for our free newsletter to receive weekly news from BONDWorld
Click here to register for your free copy
For professional investors and advisers only
GBP – Next week should prove important for the pound. The key event will be the release of the Inflation Report on Wednesday. In the meantime, the Bank of England left rates unchanged – as widely expected – and, most importantly, it announced no further monetary stimulus. The decision to leave the APF unchanged was not totally taken for granted: in recent days, doubts had arisen that the BoE could have opted for a last-minute “act of generosity”, given the latest negative developments in the euro area. In our view, the central bank’s inaction could mark the end of the expansive phase. The Inflation Report should shed light on this. We expect inflation projections to be revised upwards, as opposed to a lowering of growth estimates for this year. Estimates for next year should stay broadly unchanged. In an alternative scenario, the BoE could decide not to revise growth expectations downwards, neither in the short term, nor in the medium. In this case, we would change our projections for sterling, eliminating levels lower than GBP/USD 1.55 on the 1m and 3m horizons (see table). If on the other hand, some downside risk to growth is kept incorporated in the BoE’s scenario, and the central bank lets on that the door on further monetary stimulus still hasn’t been definitively closed, we would keep open the possibility of a correction towards GBP/USD 1.55 or just under, albeit probably only on a 1m or 3m horizon, and not on both. In either case, we do not see conditions for the start of an uptrend between 1.60 and 1.65, capable of raising to GBP/USD 1.60 the floor of the exchange rate fluctuation range on the 1m-3m horizon. Such an assumption would in fact seem consistent with the start of an exit strategy, that seems unlikely any time soon. The pound’s inability to overcome the GBP/USD 1.6200 threshold following the BoE’s announcement also seemed to be a signal of sluggishness for the UK currency.
JPY – No major stories for the yen. In the event of lingering uncertainty/tensions tied to the Greek crisis, the USD/JPY exchange rate could struggle to definitively break through the 80.00 mark on the upside – barring surprisingly negative Japanese data, to the point of triggering the intervention of the BoJ (at least in vocal terms), or especially positive US data.
The financial analysts who prepared this report, and whose names and roles appear on the first page, certify that: (1) The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views; (2) No direct or indirect compensation has been or will be received in exchange for any views expressed. Specific disclosures: The analysts who prepared this report do not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions.
This research has been prepared by Intesa Sanpaolo S.p.A. and distributed by Banca IMI S.p.A. Milan, Banca IMI SpA-London Branch (a member of the London Stock Exchange) and Banca IMI Securities Corp (a member of the NYSE and NASD). Intesa Sanpaolo S.p.A. accepts full responsibility for the contents of this report. Please also note that Intesa Sanpaolo S.p.A. reserves the right to issue this document to its own clients. Banca IMI S.p.A. and Intesa Sanpaolo S.p.A. are both part of the Gruppo Intesa Sanpaolo. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. are both authorised by the Banca d’Italia, are both regulated by the Financial Services Authority in the conduct of designated investment business in the UK and by the SEC for the conduct of US business.
Opinions and estimates in this research are as at the date of this material and are subject to change without notice to the recipient. Information and opinions have been obtained from sources believed to be reliable, but no representation or warranty is made as to their accuracy or correctness. Past performance is not a guarantee of future results. The investments and strategies discussed in this research may not be suitable for all investors. If you are in any doubt you should consult your investment advisor.
This report has been prepared solely for information purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any financial products. It should not be regarded as a substitute for the exercise of the recipient’s own judgement.
No Intesa Sanpaolo S.p.A. or Banca IMI S.p.A. entities accept any liability whatsoever for any direct, consequential or indirect loss arising from any use of material contained in this report.
This document may only be reproduced or published together with the name of Intesa Sanpaolo S.p.A. and Banca IMI S.p.A.. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. have in place a Joint Conflicts Management Policy for managing effectively the conflicts of interest which might affect the impartiality of all investment research which is held out, or where it is reasonable for the user to rely on the research, as being an impartial assessment of the value or prospects of its subject matter. A copy of this Policy is available to the recipient of this research upon making a written request to the Compliance Officer, Intesa Sanpaolo S.p.A., 90 Queen Street, London EC4N 1SA.
Intesa Sanpaolo S.p.A. has formalised a set of principles and procedures for dealing with conflicts of interest (“Research Policy”). The Research Policy is clearly explained in the relevant section of Banca IMI’s web site (www.bancaimi.com).
Member companies of the Intesa Sanpaolo Group, or their directors and/or representatives and/or employees and/or members of their households, may have a long or short position in any securities mentioned at any time, and may make a purchase and/or sale, or offer to make a purchase and/or sale, of any of the securities from time to time in the open market or otherwise. Intesa Sanpaolo S.p.A. issues and circulates research to Qualified Institutional Investors in the USA only through Banca IMI Securities Corp., 245 Park Avenue, 35th floor, 10167 New York, NY,USA, Tel: (1) 212 326 1230. Residents in Italy: This document is intended for distribution only to professional investors as defined in art.31, Consob Regulation no. 11522 of 1.07.1998 either as a printed document and/or in electronic form. Person and residents in the UK: This document is not for distribution in the United Kingdom to persons who would be defined as private customers under rules of the FSA.
US persons: This document is intended for distribution in the United States only to Qualified Institutional Investors as defined in Rule 144a of the Securities Act of 1933. US Customers wishing to effect a transaction should do so only by contacting a representative at Banca IMI Securities Corp. in the US (see contact details above).
Trading Ideas are based on the market’s expectations, investors’ positioning and technical, quantitative or qualitative aspects. They take into account the key macro and market events and to what extent they have already been discounted in yields and/or market spreads. They are also based on events which are expected to affect the market trend in terms of yields and/or spreads in the short-medium term. The Trading Ideas may refer to both cash and derivative instruments and indicate a precise target or yield range or a yield spread between different market curves or different maturities on the same curve. The relative valuations may be in terms of yield, asset swap spreads or benchmark spreads.
Coverage Policy And Frequency Of Research Reports
Intesa Sanpaolo S.p.A. trading ideas are made in both a very short time horizon (the current day or subsequent days) or in a horizon ranging from one week to three months, in conjunction with any exceptional event that affects the issuer’s operations. In the case of a short note, we advise investors to refer to the most recent report published by Intesa Sanpaolo S.p.A’s Research Department for a full analysis of valuation methodology, earnings assumptions and risks. Research is available on IMI’s web site (www.bancaimi.com) or by contacting your sales representative.
Source: BONDWorld – Intesa Sanpaolo – Research Department