| Highlights from our FX strategy meeting |
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Dear Madam/Sir, Kindly find below the main take-aways from Head of FX Strategy presentation today in Geneva: (i) Increasing correlations between asset classes and "Risk on/Risk off". In the past 2 years assets have become increasingly correlated. This is very unusual at a time when risk assets have been rising (usually assets' correlations increases in falling markets). The implications are that it has become increasingly difficult to diversify. Also, in a world like this it becomes difficult to find pockets of value. (ii) Why has the world turned so risk on/risk off? With interest rates at close to zero in most Developed markets, investors no longer have a measure to "gauge" economic strength (previously interest rates anchored investors' expectations of growth). As a result the market becomes very "jekyll-and-hydish" moving from one extreme theme to another. (iii) USDJPY. We maintain 95 target. We believe that if the Japanese want to get their currency down and avoid making the mistake of the SNB, they need to intervene very ferociously very soon or their efforts will be wasted (iv) Government "tampering" in financial markets (especially in OECD10) is here to stay. Expect rates to stay low and growth to stay anaemic for medium term. (v) Caution on rally in AUD is warranted. We maintain 0.85 target. (vi) USD, GBP, EUR or JPY? It is a tough choice between four "ugly" sisters.....which is the least ugly? As a side note, Euro will NOT break down (vii) Buy EM currencies/assets for the long run. Buy on dips. Regards Roy ABOUASSALY DIRECTOR | HSBC Financial Services (Lebanon) SAL - Member of HSBC Private Bank |