Highlights

All of our recent investment recommendations have performed very strongly but have further to go:

1.   Own a combination of European banks plus U.S. T-bonds.

2.   Overweight EM versus DM.

3.   Overweight European versus U.S. equities.

4.   Overweight Italian assets versus European assets.

5.   Overweight the JPY.

Feature

Chart of the Week
Bank Outperformance Corroborates A Growth Rebound
Chart of the Week

Fullscreen        Interactive Chart

2019 will be the investment mirror-image of 2018. Last year started with growth fading and inflation on the cusp of picking up, both in Europe and around the world. This year has started with the European and global economies in the mirror-image configuration: growth likely to rebound, albeit modestly, and inflation set to fade (Chart I-2).

Chart I-2
Why 2019 Is The Mirror-Image Of 2018
Chart I-2

Fullscreen        Interactive Chart

However, as 2019 unfolds, the configuration will reverse, requiring a flip from a pro-cyclical to a pro-defensive investment tilt later in the year. This contrasts with 2018 which started pro-defensive and ended pro-cyclical. In this regard, the economic and investment shape of 2019 will be the mirror-image of 2018.

Growth To Rebound, Inflation To Fade

A tell-tale sign of a growth rebound is the recent outperformance of banks. Around the world, yield curves have flattened – or even inverted – meaning that banks’ net interest margins have compressed. This compression of bank profit margins is normally bad news for bank equities. Yet banks have been outperforming, not just in Europe but globally (Chart I-3). If margins are compressing, the plausible explanation for outperformance would be an improved outlook for asset growth, reflecting both a reduction in bad debt provisioning and a pick-up in bank credit growth.

Chart I-3
Banks Have Been Outperforming Since October
Chart I-3

Fullscreen        Interactive Chart

Independently and reassuringly, our proprietary credit impulse analysis supports this thesis (Chart of the Week). Six-month credit impulses have been rebounding not only in Europe, but also in the United States and very impressively in China (Chart I-4).

 

Chart I-4
6-Month Credit Impulses Have Rebounded Everywhere
Chart I-4

Fullscreen        Interactive Chart

At the same time, inflation is set to disappoint as the recent near-halving of the crude oil price feeds into both headline and core consumer price indexes. With central banks now promising even greater “dependence on the incoming data”, this unfolding dynamic will force them to temper any hawkish intentions and rhetoric, limiting the extent of upside in bond yields.

In this configuration, the combination of European banks plus U.S. T-bonds which we first recommended in November is still appropriate (Chart I-5). The position is up 3 percent in little more than a month and has further to go.1

Chart I-5
Own A Combination Of Banks And Bonds
Chart I-5

Fullscreen        Interactive Chart

Europe’s largest economy, Germany, should benefit from another support to growth. Last year, the auto sector – a major engine of the German economy – spluttered as it absorbed the new WLTP emissions testing standard. Through the middle of 2018 German motor vehicle exports suffered a €20 billion hit which shaved 0.6 percent from Germany’s €3.4 trillion economy (Chart I-6). Now, if auto exports stabilize, this drag will disappear. And if auto exports recover to the pre-WLTP level after this one-off and temporary shock, Germany will receive a 0.6% mirror-image boost to growth.2

Chart I-6
German Auto Exports Suffered A WLTP Hit
Chart I-6

Fullscreen        Interactive Chart

Regional Allocation Is Always And Everywhere About Sectors

The European equity earnings cycle is tightly connected with global growth oscillations (Chart I-7). The simple reason is that the European equity market is over-exposed to classically growth-sensitive sectors such as banks and industrials.

Chart I-7
The European EPS Cycle Is Tightly Connected With Global Growth Oscillations
Chart I-7

Fullscreen        Interactive Chart

The emerging market earnings cycle is also connected with global growth oscillations (Chart I-8) because emerging markets have a very high exposure to banks. But the much less understood reason is that emerging markets have a near-zero exposure to healthcare (Table I-1). In sharp contrast, the U.S. equity earnings cycle has almost no connection with global growth oscillations (Chart I-9) because the U.S. equity market is over-exposed to technology and healthcare, neither of which are classically cyclical sectors.

Chart I-8
The EM EPS Cycle Is Also Connected With Global Growth Oscillations...
Chart I-8

Fullscreen        Interactive Chart

Chart I-9
...But The U.S. EPS Cycle Is Not Connected With Global Growth Oscillations
Chart I-9

Fullscreen        Interactive Chart

Table I-1
Each Major Stock Market Has A Distinguishing Fingerprint
Table I-1

Fullscreen

Hence the allocation to emerging market (EM) versus developed market (DM) equities, and to Europe versus the U.S. reduce to simple equity sector calls. A quick glance at Chart I-10 and Chart I-11 will reveal two fundamental and inescapable truths:

Chart I-10
EM Outperforms DM When Global Banks Outperform Healthcare
Chart I-10

Fullscreen        Interactive Chart

Chart I-11
European Equities Outperform U.S. Equities When Global Banks Outperform Technology
Chart I-11

Fullscreen        Interactive Chart

  1. EM outperforms DM when global banks outperform global healthcare.
  2. European equities outperform U.S. equities when global banks outperform global technology.

But is this just about so-called ‘beta’? No, banks can outperform in a rising market by going up more or, as recently, in a falling market by going down less. So this is always and everywhere about head-to-head sector relative performances.

My colleague Arthur Budaghyan, our chief emerging market strategist, remains steadfastly pessimistic on the structural outlook for EM versus DM. We agree with Arthur, albeit we arrive at the structural conclusion from a completely different perspective. To reiterate, for EM to outperform DM global banks must outperform global healthcare. However, over an extended period this will prove to be an extremely tall order.

As detailed in European Banks: The Case For And Against, blockchain is a long-term extinction threat to banks’ business models and profitability. Whereas healthcare is still a major growth sector as people focus more spending on improving the quality and quantity of their lifespans.3 

Nevertheless, from a purely tactical perspective, the growth up-oscillation phase that started in October can continue for a little while longer allowing the recent countertrend moves to persist – especially as the recent decline in bond yields could further spur credit growth in the near term. So for the moment stay overweight:

  1. EM versus DM.
  2. European equities versus U.S. equities.
  3. Italian assets versus European assets.

Bargain Basement Currencies

Another of my colleagues Doug Peta, our chief U.S. strategist, has coined a lovely metaphor: “you cannot get hurt falling out of a basement window”. The metaphor beautifully captures the asymmetry when you are near the floor or ‘zero-bound’. Doug uses it to explain that small contributors to an economy have a limited capacity to damage economic growth because they cannot fall very far. We think the metaphor applies equally to interest rates when they are at or near their lower bound, which is to say, in the basement.

This begs the obvious question: if interest rates are in the basement, then what is it that cannot get hurt much? The answer is: the exchange rate.

The payoff profile for exchange rates just tracks expected long-term interest rate differentials. This means that when the expected interest rate is in or near the basement, the currency possesses a highly attractive payoff profile called positive skew.

In essence, for any central bank already at the realistic limit of ultra-loose policy – such as the BoJ and ECB – policy rate expectations are effectively in the basement. They cannot go significantly lower. In contrast, policy rate expectations for the Federal Reserve are somewhere between the seventh and twelfth storey of the building (Chart I-12). From which you can get seriously hurt if you fall out of the window!

Chart I-12
You Cannot Get Hurt Falling Out Of A Basement Window
Chart I-12

Fullscreen        Interactive Chart

The upshot is that currency investors should always own at least one currency whose interest rate is in the basement against one whose interest rate is high up in the building, susceptible to fall out at some point, and get seriously hurt.

The near term complication is the risk, albeit low, of a no-deal Brexit which would hurt European economies and currencies to a greater or lesser extent. Until the Brexit fog shows some signs of clearing, we would prefer the currency whose interest rate is in the basement to be a non-European currency.

So for the moment, our favourite major currency remains the JPY.

Dhaval Joshi, Senior Vice President
Chief European Investment Strategist
dhaval@bcaresearch.com

Fractal Trading System*

We are pleased to report that the 50:50 combination of Litecoin and Ethereum has surged by 42 percent in just two weeks! Also, long EUR/NZD achieved its 2.5 percent profit target and is now closed.

This week’s trade is in line with the recommendation in the main body of this report to become pro-cyclical. Go long global industrials versus global utilities with a profit target of 3 percent and a symmetrical stop-loss.

For any investment, excessive trend following and groupthink can reach a natural point of instability, at which point the established trend is highly likely to break down with or without an external catalyst. An early warning sign is the investment’s fractal dimension approaching its natural lower bound. Encouragingly, this trigger has consistently identified countertrend moves of various magnitudes across all asset classes.

Chart I-13Chart I-13

Fullscreen        Interactive Chart

The post-June 9, 2016 fractal trading model rules are:

  1. When the fractal dimension approaches the lower limit after an investment has been in an established trend it is a potential trigger for a liquidity-triggered trend reversal. Therefore, open a countertrend position.
  2. The profit target is a one-third reversal of the preceding 13-week move. Apply a symmetrical stop-loss.
  3. Close the position at the profit target or stop-loss. Otherwise close the position after 13 weeks.
  4. Use the position size multiple to control risk. The position size will be smaller for more risky positions.

 

*  For more details please see the European Investment Strategy Special Report “Fractals, Liquidity & A Trading Model,” dated December 11, 2014, available at eis.bcaresearch.com

Footnotes

  • 1 The European banks position is relative to the broader equity market, and the recommended combination is 25 cents in the banks and 75 cents in the bonds.
  • 2 German auto net exports and GDP are quoted at annualized rates. The Worldwide Harmonized Light Vehicle test Procedure (WLTP) is a new standard for auto emissions that took effect on September 1, 2018.
  • 3 Please see the European Investment Strategy Special ReportEuropean Banks: The Case For And Against”, November 8, 2018 available at eis.bcaresearch.com.

Fractal Trading System

POSITIONS INITIATION
DATE
PROFIT TARGET /
STOP-LOSS
(%)
POSITION
SIZE
MAXIMUM
RETURN
(%)*
TRADING RULE
RETURN**
(%)
COMMENTS
LONG GLOBAL INDUSTRIALS VERSUS UTILTIES10 Jan 20193.01OPEN POSITION
LONG LITECOIN AND ETHEREUM20 Dec 201860.00.0542.02.1OPEN POSITION
LONG EUR/NZD13 Dec 20182.513.02.5
LONG MIB VERSUS EUROSTOXX29 Nov 20185.00.53.71.4OPEN POSITION
LONG EM / SHORT DM22 Nov 20182.517.72.5
LONG NICKEL / SHORT PALLADIUM15 Nov 201814.00.25NONE-3.5
LONG PORTUGAL / SHORT HUNGARY25 Oct 20186.00.51.0-3.0
SHORT AUSTRALIAN TELECOMS VERSUS INSURANCE18 Oct 20187.00.5NONE-3.5
LONG CRB INDUSTRIALS VERSUS MSCI WORLD11 Oct 20182.0115.92.0
LONG EUROSTOXX50 VERSUS NIKKEI22504 Oct 20183.5110.13.5
SHORT U.S. TELECOM / LONG U.S. AUTOS20 Sep 20189.00.339.1-3.0
SHORT PALLADIUM/LONG COPPER13 Sep 20186.00.50.2-3.0
LONG CHINA / SHORT INDIA06 Sep 20189.00.339.53.0
SHORT EUROPEAN HEALTHCARE VERSUS BANKS31 Aug 201810.00.258.20.6
LONG BASIC RESOURCES / SHORT CHEMICALS23 Aug 20183.513.63.5
LONG EM / SHORT DM02 Aug 20182.51NONE-2.5
LONG GOLD19 Jul 20183.010.2-3.0
SHORT TRADE-WEIGHTED DOLLAR05 Jul 20182.010.8-0.8
SHORT CONSUMER SERVICES VERSUS CONSUMER GOODS28 Jun 20182.511.2-2.5
SHORT EURO AREA ENERGY VERSUS FINANCIALS14 Jun 20186.00.50.6-2.3
LONG PLATINUM / SHORT NICKEL07 Jun 201814.00.257.82.0
LONG PLN / USD31 May 20183.513.12.1
LONG POLAND / SHORT ITALY17 May 20185.00.57.82.5
SHORT EURO AREA ENERGY VERSUS GLOBAL BASIC MATERIAL03 May 20185.00.56.32.5
LONG SEK / GBP 19 Apr 20183.013.93.0
10-YEAR BONDS: SHORT SPAIN / LONG GERMANY12 Apr 20181.025.52.0
LONG AUD/NOK05 Apr 20182.013.22.0
SHORT NICKEL / LONG LEAD22 Mar 20188.00.54.0-4.0
SHORT HELSINKI OMX/ LONG EUROSTOXX 60015 Mar 20183.013.63.0
SHORT CHILEAN PESO / USD08 Mar 20182.716.12.7
LONG GLOBAL UTILITIES VERSUS MARKET08 Feb 20183.515.43.5
LONG USD/ZAR01 Feb 20186.00.56.53.0
SHORT JAPANESE ENERGY VERSUS MARKET25 Jan 20188.00.59.44.0
SHORT S&P500 / LONG EUROSTOXX 5011 Jan 20182.010.1-2.0
SHORT PALLADIUM04 Jan 20186.00.515.03.0
SHORT BITCOIN21 Dec 2017$12750/280000.1139.52.9
LONG SILVER14 Dec 20174.5111.64.5
SHORT WTI CRUDE30 Nov 20177.50.332.6-2.5
SHORT NIKKEI 225 / LONG EUROSTOXX5009 Nov 20173.011.0-3.0
LONG NZD / USD02 Nov 20173.016.83.0
SHORT COPPER / LONG TIN26 Oct 20175.00.55.92.5
SHORT NORWAY / LONG SWITZERLAND19 Oct 20172.011.5-2.0
LONG IBEX35 / SHORT EUROSTOXX5012 Oct 20172.512.11.7
10-YEAR BONDS: LONG CANADA / SHORT GERMANY05 Oct 20171.021.72.0
LONG U.K. PERSONAL AND HOUSEHOLD GOODS / SHORT U.K. FOOD AND BEVS.21 Aug 20174.50.51.50.1
LONG USD / CAD14 Sep 20172.515.92.5
SHORT BASIC MATERIALS VERSUS MARKET07 Sep 20172.512.52.5
SHORT NICKEL / LONG SILVER31 Aug 20178.00.59.24.0
SHORT MSCI TURKEY / LONG EUROSTOXX60017 Aug 20175.00.59.7-2.5
SHORT MSCI CHINA / LONG MSCI EM03 Aug 20172.51NONE-2.5
LONG USD/CAD27 Jul 20172.513.52.5
LONG MEDIASET ESPANA / SHORT IBEX3520 Jul 20175.00.52.5-2.5
LONG DM / SHORT EM29 Jun 20173.01NONE-3.0
LONG NICKEL / SHORT PALLADIUM15 Jun 201710.00.529.75.0
SHORT EURO / DOLLAR08 Jun 20172.011.2-2.0
LONG NICKEL / SHORT TIN25 May 20176.50.527.03.3
SHORT CAC40 / LONG EUROSTOXX60011 May 20171.511.30.7
10-YEAR BONDS: SHORT PORTUGAL / LONG SPAIN04 May 20172.51NONE-2.5
LONG FTSE100 / SHORT IBEX3527 Apr 20174.014.74.0
LONG SUGAR / SHORT ALUMINIUM13 Apr 201710.00.51.5-5.0
SHORT AEX16 Mar 20172.510.8-2.5
SHORT RUB / USD09 Mar 20173.011.5-3.0
LONG TIN / SHORT COPPER23 Feb 20175.00.513.42.5
SHORT MSCI AC WORLD09 Feb 20172.51NONE-2.5
SHORT BASIC MATERIAL EQUITIES02 Feb 20173.512.50.8
LONG NOK/RUB26 Jan 20172.013.22.0
SHORT ITALY MIB / LONG HONG KONG HANG SENG12 Jan 20176.00.58.53.0

* THE MAXIMUM RETURN CAPTURES THE POSITION'S POINT OF MAXIMUM PROFIT (UNWEIGHTED BY THE POSITION SIZE).
** THE TRADING RULE RETURN IS WEIGHTED BY THE POSITION SIZE.

Recommendations

Asset Allocation

ASSET ALLOCATION INITIATION/
MODIFICATION DATE
RETURN (%) COMMENTS
LONG INDUSTRIAL COMMODITIES VERSUS EQUITIES11 Oct 201810.1

Equity Regional and Country Allocation

EQUITY REGIONAL AND COUNTRY ALLOCATION INITIATION/
MODIFICATION DATE
RETURN (%) COMMENTS
LONG FRANCE, IRELAND AND SWITZERLAND VERSUS MARKET18 Sep 20186.2RETURN IS BASED ON EVOLVING ALLOCATION. INITIATION DATE WAS 13-NOV-14.
SHORT NORWAY AND DENMARK VERSUS MARKET18 Oct 20182.6RETURN IS BASED ON EVOLVING ALLOCATION. INITIATION DATE WAS 13-NOV-14.

Equity Sector Allocation

EQUITY SECTOR ALLOCATION INITIATION/
MODIFICATION DATE
RETURN (%) COMMENTS
LONG EUROPEAN CLOTHES VERSUS MARKET06 Dec 20181.9
LONG EUROPEAN BANKS RELATIVE PLUS U.S. T-BOND (25:75 COMBINATION)29 Nov 20183.0
LONG EUROPEAN AIRLINES VERSUS MARKET01 Feb 2018-16.1
LONG ANIMAL CARE BASKET VERSUS EUROSTOXX60010 Aug 20175.3LONG TERM INVESTORS CAN GO LONG ONLY
LONG EURO AREA RETAILERS / SHORT U.S RETAILERS15 Jun 2017-30.5
LONG FTSE100 VERSUS FTSE25023 Feb 2017-1.2
LONG EUROSTOXX VERSUS EUROSTOXX5023 Feb 20172.3
LONG EURO STOXX AND SHORT VIX TERM STRUCTURE (100:40 COMBINATION)30 Mar 201634.5was 100:20 UNTIL 30-MAR-16. initiation date was 13-mar-14.
LONG GERMAN CONSUMER SERVICES / SHORT GERMAN EXPORTERS24 Sep 2015-9.3
LONG SPANISH REAL ESTATE EQUITIES VERSUS MARKET23 Apr 2015-0.9LEVERED DOWN 0.2 TIMES
LONG SWISS EQUITIES AND CASH (50:50 COMBINATION)22 Jan 201511.3
LONG SPANISH BANK EQUITIES / SHORT AUSTRALIAN BANK EQUITIES18 Jun 2014-4.0LEVERED DOWN 0.2 TIMES
LONG EURO AREA TELECOMS VERSUS MARKET08 Aug 20136.2
SHORT U.K. CONSUMER SERVICES VERSUS THE MARKET07 Mar 2013-10.2
LONG GERMAN CONSUMER SERVICES VERSUS THE MARKET 24 Jan 20134.8
LONG GERMAN REAL ESTATE EQUITIES / SHORT EURO AREA EQUITIES05 Apr 201282.4
LONG PERSONAL PRODUCTS VERSUS MARKET22 Dec 201140.3
LONG COMPUTER HARDWARE VERSUS MARKET22 Dec 201145.2
LONG HEALTHCARE VERSUS MARKET14 Apr 201126.0

Bond and Interest Rate Allocation

BOND AND INTEREST RATE ALLOCATION INITIATION/
MODIFICATION DATE
RETURN (%) COMMENTS
LONG 10-YEAR ITALIAN BTPS / SHORT 10-YEAR SPANISH BUNOS20 Dec 20180.0
LONG DEC 2022 EURODOLLAR / SHORT EURIBOR FUTURES30 Nov 2017-1.5LEVERED UP 5 TIMES
LONG 10-YEAR NORWEGIAN BONDS / SHORT 10-YEAR GERMAN BUNDS30 Nov 2017-1.4
LONG 10-YEAR U.K. GILTS / SHORT 10-YEAR IRISH BONDS30 Nov 20173.1
LONG 10-YEAR ITALIAN BONDS / SHORT 10-YEAR FRENCH OATS16 Nov 2017-5.5
LONG 10-YEAR U.K. GILTS / SHORT 10-YEAR GERMAN BUNDS09 Nov 20170.4
LONG DEC 2019 3M STERLING FUTURE25 Feb 2016-0.2LEVERED UP 5 TIMES
LONG DEC 2019 EURODOLLAR FUTURE25 Feb 2016-5.8LEVERED UP 5 TIMES
LONG 10-YEAR SPANISH BONDS / SHORT 10-YEAR FRENCH OATS12 Nov 20154.5
LONG 10-YEAR DANISH BONDS / SHORT 10-YEAR GERMAN BUNDS05 Nov 20152.6
LONG 5-YEAR U.K. GILTS08 Oct 201410.7
LONG 5-YEAR GERMAN CPI INFLATION SWAP14 Nov 20130.2
LONG 10-YEAR PORTUGUESE BONDS VERSUS EURO AREA24 Oct 201336.7
OVER 10-YEAR BONDS: LONG U.S. / SHORT GERMANY25 Jul 2013-5.0
LONG 10-YEAR U.K. GILTS / SHORT 10-YEAR SWEDISH BONDS14 Feb 2013-0.7

Currency and Other Allocation

CURRENCY AND OTHER ALLOCATION INITIATION/
MODIFICATION DATE
RETURN (%) COMMENTS
LONG YEN / SHORT EURO18 Jan 20189.3
LONG EURO AND SWEDISH KRONA / SHORT DOLLAR (50:50)24 Aug 201710.3WAS LONG EUR/GBP FROM 31-MAR-16 TO 29-JUN-17 AND LONG EURO/USD FROM 29-JUN-17 TO 24-AUG-17
LONG EURO / SHORT YUAN22 Dec 20168.3
LONG HEALTHCARE AND U.S. T-BOND (40:60 COMBINATION)13 Mar 201447.4GERMAN BUND SWITCHED TO T-BOND ON 23-APR-15
VIX FUTURE: LONG NEAR-MONTH / SHORT FAR-MONTH 27 Feb 20141.3LEVERAGED DOWN 0.25 TIMES
SHORT SOVEREIGN YIELD SPREAD FUTURES (ITALY VS. GERMANY)03 Nov 20122
LONG VIX (S&P 500) / SHORT VDAX (DAX) (10% EXPOSURE)20 Oct 20116.2EXPOSURE CUT ON SEPT 27 2012

Closed Fractal Trades

TRADES CLOSED IN 2018 INITIATION
DATE
PROFIT TARGET /
STOP-LOSS
(%)
POSITION
SIZE
MAXIMUM
RETURN
(%)*
TRADING RULE
RETURN**
(%)
SHORT RUB / USD09 Mar 20173.011.5-3.0
LONG TIN / SHORT COPPER23 Feb 20175.00.513.42.5
SHORT MSCI AC WORLD09 Feb 20172.51NONE-2.5
SHORT BASIC MATERIALS EQUITIES02 Feb 20173.512.50.8
LONG NOK / RUB26 Jan 20172.013.22.0
SHORT ITALY MIB / LONG HONG KONG HANG SENG12 Jan 20176.00.50.53.0

* THE MAXIMUM RETURN CAPTURES THE POSITION'S POINT OF MAXIMUM PROFIT (UNWEIGHTED BY THE POSITION SIZE).
** THE TRADING RULE RETURN IS WEIGHTED BY THE POSITION SIZE.

TRADES CLOSED IN 2017 INITIATION
DATE
PROFIT TARGET /
STOP-LOSS
(%)
POSITION
SIZE
MAXIMUM
RETURN
(%)*
TRADING RULE
RETURN**
(%)
SHORT AEX16 Mar 20172.510.8-2.5
LONG GOLD15 Dec 20164.018.84.0
SHORT GREEK 10-YEAR BOND08 Dec 20164.017.24.0
LONG ITALY / SHORT FRANCE 10-YEAR BOND05 Dec 20160.621.31.2
LONG PLATINUM / SHORT PALLADIUM24 Nov 20168.00.59.84.0
SHORT FRENCH BANKS / LONG CAC4003 Nov 20166.00.51.7-3.0
LONG SILVER / SHORT LEAD13 Oct 20168.00.55.5-4.0

* THE MAXIMUM RETURN CAPTURES THE POSITION'S POINT OF MAXIMUM PROFIT (UNWEIGHTED BY THE POSITION SIZE).
** THE TRADING RULE RETURN IS WEIGHTED BY THE POSITION SIZE.

TRADES CLOSED IN 2016 INITIATION
DATE
PROFIT TARGET /
STOP-LOSS
(%)
POSITION
SIZE
MAXIMUM
RETURN
(%)*
TRADING RULE
RETURN**
(%)
LONG U.K. HEALTHCARE VERSUS MARKET10 Nov 20163.012.5-3.0
LONG COPPER / SHORT TIN27 Oct 20166.50.526.53.3
LONG SEK / NOK06 Oct 20162.011.9-2.0
LONG PLATINUM / SHORT PALLADIUM06 Oct 20167.50.513.43.8
SHORT ALUMINIUM / SHORT LEAD22 Sep 20166.50.58.33.3
LONG U.K. TELELCOMS / SHORT FTSE 10008 Sep 20164.011.3-4.0
SHORT MSCI EMERGING MARKETS25 Aug 20163.514.03.5
SHORT SEMICONDUCTORS11 Aug 20166.50.50.1-3.3
SHORT U.K. A-RATE CORPORATE BONDS11 Aug 20164.015.14.0
SHORT U.K. A-RATED CORPORATE BONDS28 Jul 20162.610.3-2.6
LONG SWISS / SHORT U.K. 10-YEAR21 Jul 20161.710.5-1.7
LONG U.K. TELECOMS / SHORT U.K. ENERGY14 Jul 20168.00.512.24.0
LONG U.K. HOMEBUILDERS / SHORT EUROSTOXX 60030 Jun 201612.00.516.66.0
LONG U.K. CLOTHING AND ACCESSORIES09 Jun 20166.0119.4-6.0
SHORT EUROPEAN COMPUTER SERVICES02 Jun 20164.5112.54.5
SHORT SOYBEAN FUTURES19 May 2016100.52.0-1.5
SHORT CONSTRUCTION AND BUILDING MATERIALS12 May 20163.0173.0
SHORT BASIC MATERIALS28 Apr 201610.00.56.61.4
SHORT EQUITIES (MSCI WORLD)21 Apr 20164.013.63.6
SHORT TURKEY ISTANBUL 100 / LONG EUROSTOXX 5007 Apr 20165.00.510.52.5
SHORT GERMAN INDUSTRIALS / LONG DAX24 Mar 20162.00.5NONE-3.6
SHORT 30-YEAR JGBS / LONG CANADIAN 30-YEAR BONDS24 Mar 2016100.51.2-0.6
SHORT AEX / LONG EUROSTOXX 5003 Mar 20164.011.71.6
LONG CAC 40 / SHORT FTSE10025 Feb 20163.013.33.0
SHORT U.K. GOLD MINERS18 Feb 201620.00.25NONE-4.2
LONG SWISS BONDS / SHORT GERMAN BOND18 Feb 20160.830.1-3.3
LONG EUROPEAN CONSUMER FINANCE / SHORT EUROSTOXX 60004 Feb 201610.00.52.30.9
LONG POUND / DOLLAR21 Jan 20164.012.90.5
SHORT IRISH EQUITIES / LONG EUROSTOXX 5014 Jan 20168.00.54.21.5
SHORT EUROPEAN RENEWABLE ENERGY07 Jan 20165.0117.65.0
SHORT EUROPEAN BREWERS10 Dec 20155.018.34.3

* THE MAXIMUM RETURN CAPTURES THE POSITION'S POINT OF MAXIMUM PROFIT (UNWEIGHTED BY THE POSITION SIZE).
** THE TRADING RULE RETURN IS WEIGHTED BY THE POSITION SIZE.

TRADES CLOSED IN 2015 INITIATION
DATE
TARGET /
RETURN
(%)
POSITION
SIZE
MAXIMUM
RETURN
(%)*
TRADING RULE
RETURN
(%)
SHORT 7-YEAR GERMAN BUNDS / LONG CANADIAN 7-YEAR BONDS03 Dec 20155.013.12.2
SHORT GERMAN TECHNOLOGY VERSUS THE MARKET19 Nov 201551.1-2.5
LONG 10-YEAR DANISH BONDS / SHORT 10-YEAR GERMAN BUNDS05 Nov 201550.80.7
SHORT EUROPEAN TOYS SECTOR21 Oct 201553.8-2.5
SHORT CAC40 / LONG EUROSTOXX 5007 Oct 201552.41.2
LONG ZAR / YEN09 Sep 20152.56.32.5
LONG AEX / SHORT ISEQ09 Sep 201556.3-2.5
LONG ZAR / YEN02 Sep 20152.52.0-1.3
LONG GOLD12 Aug 201553.80.0
LONG CAD / GBP22 Jul 20152.51.2-0.9
LONG NZD /AUD AND NZD / CAD01 Jul 20152.53.82.5
LONG GERMAN BUND10 Jun 201553.83.0
SHORT SHANGHAI A SHARE / LONG EUROSTOXX 60003 Jun 2015526.8-2.5
SHORT SHANGHAI A SHARE / LONG EUROSTOXX 60027 May 2015522.15.0
SHORT HANG SENG15 Apr 201553.41.3
LONG TIN08 Apr 20155NONE-5.0
SHORT GBP / EUR01 Apr 20152.52.61.7
SHORT GBP / EUR04 Mar 20152.52.20.4
SHORT GERMAN AUTOS VS. THE MARKET18 Feb 201552.0-1.7
LONG AUD / USD04 Feb 20152.51.81.0
LONG TRADE WEIGHTED EURO28 Jan 201551.30.3
LONG MXN / USD14 Jan 20152.50.7-1.7
SHORT EUROPEAN RETAILERS, LONG EUROSTOXX 60007 Jan 201550.40.2

* WITHIN 8 WEEKS OF INITIATION.

Trades

Closed Trades

TRADES CLOSED IN 2018 INITIATE DATE CLOSE DATE TOTAL RETURN (%) LINK TO REPORTS
LONG EUROSTOXX 600 / SHORT MSCI WORLD EX. U.S. (CURRENCY UNHEDGED)20 Sep 201229 Oct 2018-17.8NOV 1/18
LONG IRELAND / SHORT SPAIN12 Apr 201226 Oct 201817.7NOV 1/18
SHORT BASIC MATERIALS VERSUS MARKET30 Nov 201704 Oct 20187.1SEP 20/18
LONG GLOBAL 30-YEAR GOVERNMENT BONDS10 May 201804 Oct 20180.0SEP 20/18
SHORT BANKS VERSUS HEALTHCARE01 Feb 201830 Aug 201822.6AUG 30/18
SHORT TURKISH LIRA / LONG SOUTH AFRICAN RAND20 Mar 201423 Aug 2018104.9AUG 23/18
SHORT POLAND / LONG EUROSTOXX60029 Jun 201717 May 201811.9MAY 17/18
LONG EQUITY PLUS AT-THE-MONEY PUT OPTION (MARCH 2018 EXPIRY)27 Jul 201731 Mar 20188.5JUL 27/17

TRADES CLOSED IN 2017 INITIATE DATE CLOSE DATE TOTAL RETURN (%) LINK TO REPORTS
SHORT EURO AREA BANKS VERSUS MARKET03 Dec 201514 Sep 20174.8SEP 14/17

TRADES CLOSED IN 2016 INITIATE DATE CLOSE DATE TOTAL RETURN (%) LINK TO REPORTS
LONG 10-YEAR U.K. GILTS AND SPANISH BONOS (50:50 COMBINATION)07 Apr 201622 Sep 20166.6SEP 22/16
LONG U.K. A RATED CORPORATE BONDS13 Oct 201128 Jul 201642.4JUL 28/16
LONG EURO / SHORT DOLLAR30 Oct 201431 Mar 2016-11.4MAR 31/16
SHORT POUND / LONG DOLLAR20 Feb 201431 Mar 201617.2MAR 31/16
LONG DEC 2018 EURODOLLAR / SHORT DEC 2018 EURIBOR05 Nov 201525 Feb 20163.9FEB 25/16
LONG DEC 2017 3M STERLING FUTURE11 Jun 201525 Feb 20165.2FEB 25/16

TRADES CLOSED IN 2015 INITIATE DATE CLOSE DATE TOTAL RETURN (%) LINK TO REPORTS
LONG OVER 10-YEAR AGGREGATE EURO AREA BOND28 Nov 201310 Dec 201531.7DEC 10/15
ITALIAN GOVT. BONDS: 2-10 YEAR FLATTENER27 Sep 201210 Dec 201533.2DEC 10/15
LONG DEC 2017 EURODOLLAR / SHORT DEC 2017 EURIBOR23 Apr 201505 Nov 20151.5NOV 5/15
LONG NETHERLANDS EQUITIES / SHORT U.K. EQUITIES28 Mar 201318 Jun 201530.4JUN 18/15
LONG JUNE 2016 3M STERLING FUTURE (LEVERED UP 5 TIMES)27 Feb 201411 Jun 20150.5JUN 11/15
LONG EURO AREA LARGE CAPS / SHORT EURO AREA SMALL CAPS01 Nov 201205 Mar 2015-12.1MAR 5/15
PROTECTOR PORTFOLIO04 Aug 201122 Jan 201544.1JAN 22/15

TRADES CLOSED IN 2014 INITIATE DATE CLOSE DATE TOTAL RETURN (%) LINK TO REPORTS
LONG GERMAN EQUITIES / SHORT SWISS EQUITIES09 Jun 201413 Nov 2014-7.6NOV 13/14
LONG GERMAN AND ITALIAN EQUITIES / SHORT FRENCH AND SPANISH EQUITIES08 Mar 201213 Nov 2014-2.8NOV 13/14
SHORT SEPTEMBER 2014 EURO / DOLLAR CALL OPTION STRIKE 1:4520 Mar 201425 Sep 20141.4SEP 25/14
LONG POLISH AND CZECH EQUITIES (50:50) VERSUS EUROPE07 Nov 201305 Aug 2014-1.4AUG 7/14
LONG GREEK EQUITIES VERSUS EURO AREA17 Oct 201305 Aug 2014-2.1AUG 7/14
LONG SWISS EQUITIES / SHORT EURO AREA EQUITIES08 Sep 201105 Jun 20142.3JUN 5/14
SHORT COPPER21 Feb 201429 May 20142.9MAY 29/14
LONG SWISS AND ITALIAN 10-YEAR BONDS (50:50) RATIO09 Aug 201203 Apr 201414.8APR 3/14
SHORT TURKISH LIRA / LONG U.S. DOLLAR07 Nov 201320 Mar 201410.1MAR 20/14
LONG DOW JONES LUXURY INDEX / SHORT EURO STOXX14 Apr 201120 Mar 201432.5MAR 20/14
SHORT MARCH 2014 EURO / DOLLAR CALL OPTION STRIKE 1.4531 Oct 201306 Mar 20140.9OCT 31/13
LONG JUNE 2014 3M STERLING FUTURE (LEVERED UP 5 TIMES)04 Jul 201327 Feb 20140.6FEB 27/14
VIX FUTURE: LONG NEAR-MONTH / SHORT FAR-MONTH (20% EXPOSURE)09 Jan 201430 Jan 20143.1JAN 30/14
EURO STOXX VOLATILITY FUTURES 1-MONTH / SHORT 6-MONTH (10% EXPOSURE)16 May 201309 Jan 20140.1JAN 9/14

Asset Performance

Currency & Bond

CURRENCY PERFORMANCES VERSUS THE DOLLAR* LAST 1-WEEK (%) 1-MONTH (%) YEAR-TO-DATE (%)
EURO/USD1.100.10.60.8
GBP/USD1.300.01.61.0
CHF/USD1.000.00.90.9
SWE/USD8.90-0.61.91.0
DEN/USD8.501.10.22.0
NOR/USD6.50-0.20.70.9

10-YEAR GOVERNMENT BOND YIELD LAST (%) 1-WEEK (BPs) 1-MONTH (BPs) YEAR-TO-DATE (BPs)
U.K.1.308.0-0.63.5
GERMANY0.207.3-1.83.7
SWITZERLAND-0.107.63.84.6
SWEDEN0.404.4-4.2-10.7

Equity Sector

EQUITY SECTOR PERFORMANCE** 1-WEEK (%) 1-MONTH (%) YEAR-TO-DATE (%)
ENERGY3.41.62.0
MATERIALS2.65.03.5
CAPITAL GOODS3.32.64.0
COMMERCIAL SERVICES & SUPPLIES 2.13.32.6
TRANSPORTATION4.71.44.0
AUTOMOBILES & COMPONENTS3.83.95.4
CONSUMER DURABLES & APPAREL2.14.02.7
HOTELS, RESTAURANTS & LEISURE2.72.72.9
MEDIA3.44.53.8
RETAILING8.2-6.97.2
FOOD & STAPLE RETAILING3.92.64.2
HOUSEHOLD & PERSONAL PRODUCTS-0.7-3.6-0.7
HEALTH CARE & EQUIPMENT SERVICES-0.2-2.4-0.1
PHARMACEUTICALS & BIOTECHNOLOGY2.51.12.2
BANKS3.42.23.8
DIVERSIFIED FINANCIALS 4.24.13.9
INSURANCE 1.21.81.8
REAL ESTATE3.6-0.94.0
SOFTWARE & SERVICES 1.40.41.4
TECHNOLOGY HARDWARE & EQUIPMENT 2.92.43.4
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENTS0.2-1.7-0.3
TELECOMMUNICATION 1.60.61.5
UTILITIES 2.04.11.4

* POSITIVE PERCENTAGE CHANGE DENOTES APPRECIATION VERSUS THE US DOLLAR.
** BASED ON 10 GICS SECTORS; EXPRESSED IN LOCAL CURRENCY TERMS; SOURCE: MSCI INC.

Country Equity

COUNTRY EQUITY PERFORMANCE - LARGE CAP* 1-WEEK CHANGE (%) 1-MONTH CHANGE (%) YEAR-TO-DATE CHANGE (%)
U.K. 1.61.31.5
SWITZERLAND2.40.92.4
FRANCE0.80.51.6
GERMANY2.61.72.4
AUSTRIA6.4-4.07.3
ITALY 3.63.03.6
SPAIN3.83.53.5
PORTUGAL0.90.62.5
IRELAND 3.17.93.5
BELGIUM5.1-0.75.7
FINLAND3.35.23.3
DENMARK4.32.32.9
NORWAY4.50.43.9
SWEDEN3.72.03.8

COUNTRY EQUITY PERFORMANCE - SMALL CAP* 1-WEEK CHANGE (%) 1-MONTH CHANGE (%) YEAR-TO-DATE CHANGE (%)
U.K. 4.44.73.9
SWITZERLAND4.32.54.3
FRANCE3.73.24.3
GERMANY5.13.14.3
NETHERLANDS2.92.73.1
AUSTRIA4.53.73.3
ITALY 4.63.83.9
SPAIN3.32.13.6
PORTUGAL4.93.44.7
IRELAND 4.31.03.3
BELGIUM5.13.45.4
FINLAND6.04.34.1
DENMARK5.94.33.6
NORWAY5.61.94.9
SWEDEN4.23.43.7

* EXPRESSED IN LOCAL CURRENCY TERMS; SOURCE: MSCI INC

Indicators

Bond Yields

Chart II-1
Indicators To Watch - Bond Yields
Chart II-1

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Chart II-2
Indicators To Watch - Bond Yields
Chart II-2

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Chart II-3
Indicators To Watch - Bond Yields
Chart II-3

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Chart II-4
Indicators To Watch - Bond Yields
Chart II-4

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Interest Rate

Chart II-5
Indicators To Watch - Interest Rate Expectations
Chart II-5

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Chart II-6
Indicators To Watch - Interest Rate Expectations
Chart II-6

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Chart II-7
Indicators To Watch - Interest Rate Expectations
Chart II-7

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Chart II-8
Indicators To Watch - Interest Rate Expectations
Chart II-8

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