From: Paul Morris

From: Paul Morris To: "'Jeffrey E."' <[email protected]> Subject: RE: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I] Date: Fri, 11 Sep 2015 23:02:14 +0000 Inline-Images: ATT00005.png; ATT00002.png; ATT00001.png; ATT00006.png; ATT00004.png; ATT00007.png; ATT00003.png; ATT00009.png; ATT00010.png; ATT00008.png Talk to you on Monday Original Message From: Jeffrey E. [jeevacation®gmail.corn] Sent: Friday, September 11, 2015 06:43 AM Eastern Standard Time To: Paul Moths Subject: Re: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I] what are the trades? do you see it? On Fri, Sep 11, 2015 at 12:20 PM, Paul Moths < > wrote: Not sure on the oil idea, he sent over other yesterday but seemed complicated and was planning to talk to him this am about it Original Message-- From: Jeffrey E. [jeevacation®gmail.com] Sent: Friday, September 11, 2015 04:21 AM Eastern Standard Time To: Paul Moths; Richard Kahn Subject: Fwd: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I] ???? what is he suggesting? Forwarded message From: Daniel Sabba Date: Fri, Sep 11, 2015 at 3:26 AM Subject: Re: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I] To: "[email protected]" <jeevacation®gmail.com> Classification: For Internal Use Only Ok. There are two trades I would like you to look at. One a cheap long term play in crude, other a play on global central bank liquidity coming down. From: Jeffrey E. [mailto:jeevacS@gmail com Sent: Thursday, September 10, 2015 04:21 AM To: Daniel Sabba Subject: Re: Fw: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence [I] speak later today I am in europe EFTA01195656 On Thu, Sep 10, 2015 at 4:48 AM, Daniel Sabba < > wrote: Classification: For Internal Use Only Thought provoking charts. From: Isin Sumengen-Ziel (DEUTSCHE BANK AG, LO) [mailto:[email protected]] Sent: Wednesday, September 09, 2015 10:09 AM Subject: Gautam:EMEA FX Chartpack: high yielders vs. low yielders divergence Given the volatile price action in the EMEA high betas (TRY, RUB, ZAR), the below charts may be informative: 1) Stretchometer: Price action is certainly stretched (on the weaker side) across the board, but especially in MYR and BRL. TRY ZAR RUB price action is also stretched, but not as much as before the rally over the past two days. USD/EM FX Stretch-o-meter V u ic 3.5 - &I*: 3.0 2.5 - a Z0 1.5 .g 1.0 0.5 0.0 - -0.5 - 5.0 4.5 - 4.0 - 2std dev bend — lstd dev bend — 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ?P' ?'s- "Po tt l:Pt tt c? 10_ "pi e 4) 0 r q, t "t. -•• Looking specifically at USDTRY, price action is now stretched to the extent we saw earlier this year and more importantly at the start of 2014 (when the CBT undertook an emergency rate hike). EFTA01195657 3.25 - 3.00 - 2.75 - 2.50 - 2.25 - 2.00 - 1.75 - 1.50 - 1/4 1.25 - 2010 2011 2012 2013 2014 2015 3.5 - 3.0 - 2.5 - 2.0 - 1.5 - 1.0 - 0.5 - 0.0 - -0.5 - -1.0 - -1.5 - USDTRY Spot, Ills —'Stretch' (Standardized residual of spot vs 200dma), rhs The stretchometer for USDZAR is at 5-yr highs, but has retraced somewhat in the last 2 days (in line with the risk-on appreciation move observed across the EMEA high-yielders). 14 - - 10 13- - 2.5 12- I - 2.0 10 - 9 - 8 - 6 - 2010 2011 2012 2013 2014 2015 - 1.0 - 0.5 - 0.0 - -0.5 -1.0 - USDZAR Spot, Ihs — 'Stretch' (Standardized residual of spot vs 200dma), rhs USDRUB price action is also stretched, but we are still far below the 'stretch' levels we have seen in the recent past. EFTA01195658 70 1 12.5 65 60 - 55 7.5 50 - 45 - 40 - - 2.5 35 - 30 - 25 - -2.5 2010 2011 2012 2013 2014 2015 10.0 - 0.0 - USDRUB Spot, lhs — 'Stretch' (Standardized residual of spot vs 200dma), rhs 5.0 2) Financial fair value (based on a regression of spot on S&P, VIX, Crude, CRB, US 10y, DXY, carry): According to our short term 'financial fair value' metric, EM FX is cheap almost across the board, with ZAR being the the most undervalued currency. TRY is also cheap, while RUB less so. However, these results should be taken with a pinch of salt, as the short-term valuation metric provides a better picture when currencies are trading within relatively tight ranges, rather than trending strongly and breaking new ground (as is the case currently for many EM currencies) due to domestic factors/factors not captured by the model. Financial fair value (USD crosses): 5 - -1 - EM FX Cheap lamb _m ev,p47),-0,9024.2c3/40ANoNoots tolesclef50,4,t(ceo+ EFTA01195659 As the charts below show, the extent of undervaluation (i.e. the magnitude of the model residual) is at 1y extremes for TRY and ZAR, but not for RUB. USDTRY: 3.1 3.0 2.9 2.8 2.7 2.6 2.5 2.4 2.3 2.2 2.1 2.0 To 0.100 3,33 0.000 2 -0.100 Sep Oct Nov Dec Jan Feb Mar 2014 Apr May Jun 2015 Jul Aug Sep — financial fair-value — spot +/-2 std dev band — residual mean — residual +/-2 std dev band USDZAR: EFTA01195660 I I 14.0 13.5 13.0 12.5 12.0 - 11.5 - 11.0 - 10.5 e D 0.4 To 0.0 -0.4 \.,. •""r•Nare5"C-...,, • • — Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2014 2015 —"financial fair value" — spot al +/-2 std dev band — residual — residual mean +/-2 std dev band USDRUB: EFTA01195661 SO 75 70 65 - 60 55 50 45 40 - 35 30 25 - 7.5 72 0.0 <V co I- -7.5 rminomPar~e~i Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2014 2015 —financial fair value —spot +/-2 std dev band — residual mean — residual +/-2 std dev band Another point to highlight from the financial fair value metric, other than the cheapness of TRY and ZAR in particular, is the resilience of Central Europe (HUF, CZK, PLN, RON). We have been highlighting our bullish bias on the region (HUF and PLN in particular), and the financial fair value metric corroborates the fact that these currencies have been mostly immune to the recent sell-off in EM FX. They have the best performing EM currencies (vs USD) since the yuan deval. Over this period, there has certainly been differentiation within EMEA— weakening bias in the high yielders TRY RUB ZAR and resilience in Central Europe fx. This differentiation is also evident in the chart below, which indicates that the average correlation between the EMEA fx currencies (USD crosses) has come down sharply in the past few months. EFTA01195662 Average correlation within EMEA FX (daily changes) 0.8 0.7 - 0.6 - 0.5 - e 0.4 - 0.3 - 0.2 - 0.1 - 0.0 I 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Best, Gautam Gautam Kalani, EconomisUStrategist Deutsche Bank AG. Filiale London Emerging Markets Research Winchester House 1 Great Winchester Street. 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If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. EFTA01195665