IDEA of the month: Shorting the Eurozone bonds and buying commodities
With this issue we sell the 20% iBoxx Euro Germany Index and we buy t he Short IBOXX Eurozone sovereign Eurozone TR index with 10% weight and we buy the DBLCI OY Balanced Commodity Index with 10% weight. With this move we return closer to the positions we owned until mid-march……
Directly after the Japan catastrophe we had expected a longer term shift to safety and into the bond market. This trend was indeed visible in the first days after the Japan catastrophe, but bond yields bottomed soon and started to rise again. We expect continuing rising bond yields supported by 3 rate hikes of the ECB in 2011, starting in April. Our economists expect the German 10-year interest rate to continue to rise to 3.5% in 3 months and to 4.1% in 12 months.
Furthermore, we buy the DBLCI OY Balanced Commodity Index with 10% weight. Inflows into commodities are now at a new all time high. We expect this trend to continue for several reasons: 1) investors attempt to exploit strong EM growth, 2) the risks of higher inflation ahead and 3) as a hedge against tail events. Our commodity analysts have recently increased their oil forecasts significantly by 16% to US-$ 117 (2011E average for Brent oil).
Over the last days the equity market has recovered to Dec 2010 levels. We position our portfolio more cyclical via commodities rather than equities due short term downside risks, in our view: 1) a further rising oil price due to political unrest in the Arab region, 2) a worsening of the situation in Japan (today our economist has downgraded Japanese GDP growth 2011 to -2.0% and Japanese 2011 earnings by 15%) and global production disruptions due to missing parts from
Japanese suppliers (especially Auto secto r), and 3) an escalation of the peripheral issues in the Eurozone. Therefore we stick to our low net equity weight of 0% for now.
The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively «Deutsche Bank»). The information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Deutsche Bank makes no representation as to the accuracy or completeness of such information. Deutsche Bank may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. In addition, others within Deutsche Bank, including strategists and sales staff, may take a view that is inconsistent with that taken in this research report. Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Prices and availability of financial instruments are subject to change without notice. This report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecise and a product of the analyst judgement.
As a result of Deutsche Bank’s recent acquisition of BHF-Bank AG, a security may be covered by more than one analyst within the Deutsche Bank group. Each of these analysts may use differing methodologies to value the security; as a result, the recommendations may differ and the price targets and estimates of each may vary widely.
Deutsche Bank has instituted a new policy whereby analysts may choose not to set or maintain a target price of certain issuers under coverage with a Hold rating. In particular, this will typically occur for «Hold» rated stocks having a market cap smaller than most other companies in its sector or region. We believe that such policy will allow us to make best use of our resources. Please visit our website at http://gm.db.com to determine the target price of any stock.
The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. Stock transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in currency other than an investor’s currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future results. Deutsche Bank may with respect to securities covered by this report, sell to or buy from customers on a principal basis, and consider this report in deciding to trade on a proprietary basis.
Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor’s home jurisdiction. In the U.S. this report is approved and/or distributed by Deutsche Bank Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In Germany this report is approved and/or communicated by Deutsche Bank AG Frankfurt authorized by the BaFin. In the United Kingdom this report is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange and regulated by the Financial Services Authority for the conduct of investment business in the UK and authorized by the BaFin.
This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. This report is distributed in Singapore by Deutsche Bank AG, Singapore Branch, and recipients in Singapore of this report are to contact Deutsche Bank AG, Singapore Branch in respect of any matters arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), Deutsche Bank AG, Singapore Branch accepts legal responsibility to such person for the contents of this report. In Japan this report is approved and/or distributed by Deutsche Securities Inc. The information contained in this report does not constitute the provision of investment advice. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10). Additional information relative to securities, other financial products or issuers discussed in this
report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank’s prior written consent. Please cite source when quoting.
Source: Trading Ideas ETF: Ideas and Flows – Deutsche Bank AG