EFTA02455442.pdf

From: jeffrey E. <jeevacation@gmail.com> Sent: Tuesday, August 9, 2016 3:43 PM To: Ens, Amanda Subject: Re: MEGA AM: Risk Panty Scenario Tool No more general emails please On Tuesday, 9 Augus= 2016, Ens, Amanda < <mailto: > wrote: <=body> <=pan style="font-size:10.0ptfont-family:"Verdana","sans-s=rir>Summary: *=A0 We expect US nonfarm productiv=ty to increase 0.6% qoq saar, up from -0.6% in 1=. Japan: After a decent JGB auction, if yields decline further in the super long secto=, domestic investors seeking positive yields could lose the last destinati=n for their demand. <http://rsch.baml.com/r?q=8d6sHl!D069R9b3Trj=m2Q&e=jeevacation%40gmail.com&h=lc000A> <=>* =C2• Global Equity Volatility Insights: Last week's sharp=sell-off in JGBs renewed concerns of forced selling by risk parity funds.<=span> <http://rsch.baml.com/r?q=HU9Lw0n0RR- JBtutliAQUA&=e=jeevacation%40gmail.com&h=Az3eXg> We provide a simple scenario tool. •China: July CPI inflation eased to 1=8% yoy from 1.9% in Jun on lower food inflation.=span style="font-size:10.0ptIont- family:"Verdana","sans-=erif""> </=pan>The Reserve Bank=of India held the repo rate unchanged in today's policy meeting =iting continued upside risks to the 5% inflation target to be achieved by =arch 2017 <http://rsch.=aml.com/r?q=cBi971EQ5psYN2afhlilEA&e=jeevacation%40gmail.com&h=3DUfcyuw> . =p class="MsoNormal"> We expect US nonfarm productivity to increase 0.6% <=pan>qoq saar, up from -0.6% in 1Q. However, it would still result in the year-over-year rate slowing to 0=1% from 0.7% in 10. With productivity improving, unit labor costs likely s=owed to a 2.1% pace from 4.5% in 10. This translates to a 3.1% year-over-y=ar pace versus 3.0% in 10. =span style="font-size:10.0ptfont-family:"Verdana","sans-=erif—> Japan: If yields decline further in the sup=r long sector, domestic investors seeking positive yields could lose the I=st destination for their demand. EFTA_R1_01558084 EFTA02455442 chttp://rsch.baml.com/r?q=8d6sH!!DD69R=b3Trj2m2Q&e=jeevacation%40gmail.com&h=lc000A> Ex=essive easing by the central bank could end up depriving the market of low=r risk assets and raising systemic risk. Japan: All eyes were on the 30Y JGB Auction and rate= are stable post the results. The bid-to-cover ratio in the 30y JGB =uction was of 3.07 and stronger than prior 2.64. H=wever, we are seeing very limited flows post auction results and no follow=through buying interests for now. Whi=e 10y JGB yields fell after the auction, the 40y did not. In equities, TPX is down 1% MTD but cro=ded defensive sectors are down 6% MTD and unloved high beta sectors are up=3%. =b>Global Equity Volatility Insights= Last week's sharp sell-off in JGBs renewed concerns of forced selling=by risk parity funds. While the draw downs in US Treasuries, US equities, =nd ultimately risk parity portfolios were small (i) leverage is still near=max levels across a variety of risk parity parameterizations, <http://rsch.baml.com/r?q=HU9L=0n0RR- lBtutliAQUA&e=jeevacatiorrY040gmail.com&h=Az3eXg> </=pan> (ii) bond allocations are historically elevated,=and (iii) markets continue to be skeptical of a 2016 Fed hike= Hence we provide a simple scenario tool. For example, a -2% daily decline=in the S&P 500 coupled with a -0.6% fall in 10y Treasury prices (poor =iversification) could trigger a 25% deleveraging (of unlevered notional) t=day, whereas a -4% SPX drop and +1% bond rally (good diversification) woul= generate no selling pressure, underscoring the critical role played by bo=d-equity correlation in governing the severity of risk parity unwinds.<=u> </=> <=pan style="font-size:10.0ptfont-family:"Verdana","sans-s=rif—> UK: GBP traded below 1.3000, after comments from the <=pan>BoE's Ian McCafferty. In a= op-ed in The Times, he noted that if the UK economy proves to have turned=down in line with initial survey signals, he believes more easing would li=ely be required. At the same time he acknowledges that rates can be cut cl=ser to zero and QE could be stepped up. The article goes on to say that th= BoE should follow a gradual approach in how it responds to Brexit given i=formation on the exact reaction is still very limited. While McCafferty was in favour of last week=E2 s rate cut, he was one of three officials to vote against more QE.=/span> =C2 UK: J-Curve worsens the trade balance Situation Room: We find that the BOE and=ECB corporate bond QE programs are creating a lot of attractive relative v=lue in the dollar market <http://rsch.baml.com/r7q=HKeFNr9v9=ylBtutliAQUA&e=jeevacation%40gmail.com&h=Lhb8pg> Spanish l0y Bond Yields fall be=ow 1% for the first time.<=b> 2 EFTA_R1_01558085 EFTA02455443 =C2 In Gold we a=e still seeing further interest by investors to buy year-end upsides, so sentiment still remains bullish but perhaps the timi=g for higher prices is now being put towards the back of the year, coincid=ng with the US presidential election. AUSTRALIAN JULY BUSINESS CONDITIONS FALLS TO = AUSTRA=IAN JULY BUSINESS CONFIDENCE FALLS TO 4 =/p> A sharp drop in conditions but stil= above the 5 average. More in line with our expectation for a slower profi=e of growth to justify the rate cut last week. Greg Kaldor Managi=g Director</=> US MEGA (Macro Equity &=mp; Global Alpha) </=pan> Bank of America =errill Lynch T +1-646=855-2572 B/Berry +1-347-276-9374 apan style="font-size:10.0pt;font-family:"Verdana","sans-s=rif";color:blue"> /=> <javascript:_e(%7B%7D,Jcvma> This message, and any attachments, is for the intended recipient(=) only, may contain information that is privileged, confidential and/or pr=prietary and subject to important terms and conditions available at http:/=www.bankofamerica.com/emaildisclaimer. If you are not the intende= recipient, please delete this message. 2048694c=> This message, and any attachments, is for the intended recipient(s)=only, may contain information that is privileged, confidential and/or prop=ietary and subject to important terms and conditions available at http://=ww.bankofamerica.com/emaildisclaimer. 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