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PASSWORD 'The BNP Paribas Markets Call'
13SEP
2017
EVERY WEDNESDAYLIVE
All the dial-in details are available at the back of this document
Market dislocations ahead of Fed balance sheet unwind
ROBERT MCADIE
Global Head of Strategy
MICHAEL SNEYDGlobal Head of FX Strategy
& Cross Asset Strategist
Key contributors
2
Cross-Asset Strategy – BNP Paribas London Branch
Robert McAdie Global Head of Strategy Research 44 20 7595 8885 [email protected]
Pierre Mathieu Cross-Asset Strategist 44 20 7595 8730 [email protected]
Michael Sneyd Global Head of FX Strategy & Cross Asset Strategist 44 20 7595 1307 [email protected]
We would like to thank Gabriel Gersztein (Head of Latam Strategy) and
the Global Rates Strategy team for their contributions:
Market dislocations appear concentrated in rates, while data disruption
and elevated positioning suggest vol may rise in all asset classes
Sources: Bloomberg, BNP Paribasunderline denotes a change from previous call
3
� Economic data are generally firm and inflation, while still benign, appears to
making central banks more confident to tighten policy at a gradual pace. At
the margin central banks are turning more hawkish, with inflation headwinds from
appreciating currencies appearing to draw limited attention.
� The Fed is likely to announce its balance sheet reduction next week, at a time
when global yields curves are very flat. Flattening yield curves are often
interpreted as a sign that economic growth may slow in the future, or (as we believe)
it may be an indication that bond market pricing is too pessimistic, especially as
higher vol and Fed balance sheet argue for term premium to rise going forward. We
continue to favour steepener trades, especially in the 2s10s part of the US curve.
� Our MarFA™ correlation framework identifies that 2y real yields, G10
economic surprises and global inflation pressures are key for asset
performance. 10y real bond yields in US, Germany and the UK appear too low, as
do long-term bond yields in Canada (10y and 30y).
� Estimates of the neutral equilibrium interest rate (also known as r*) provide a
fundamental anchor for 30y yields. These estimates suggest that US 30y yields
are unlikely to rise at the same pace as 10y yields (causing a slight flattening of the
10s30s curve), while 30y yields in the UK, Germany, and Canada have room to rise.
� Global balance sheet expansion has continued at a reasonable pace in 2017
by historical standards. Heading into 2018 the amount of global quantitative
easing is likely to slow sharply. This means support for risk assets may fade in
2018, but for now there continues to be solid support.
� We expect vol to continue to rise over the months ahead. US economic data
are likely to be disrupted by recent storms, while positioning appears extreme in
rates, equities and the USD. We favour long vol ideas, especially in rates and FX.
� Our trades of the week focus on curve steepener trades: US, EUR and Gilts.
13/09/2017 LDN open
1-month prognosisPrognosis vs
current
EURUSD 1.199 1.190 -0.77%
GBPUSD 1.331 1.310 -1.6%
USDJPY 109.98 113.00 2.75%
10y Gilt 1.13% 1.15% 0.02%
10y Bund 39bp 40 1.2bp
10y Tsy 2.16% 2.25% 0.09%
10y JGB 3bp 5 2bp
S&P 2,496 2,500 0.14%
SX5E 3,509 3,440 -1.97%
SX7E 134 132 -1.38%
FTSE 100 7,344 7,350 0.08%
Nikkei 225 19,866 19,870 0.02%
Gold 1,333 1,340 0.55%
Oil (CL1) 48 50 3.54%
Itraxx Main S27 52bp 56 4bp
Itraxx Xover S27 227bp 245 18bp
CDX IG S28 56bp 61 5bp
Accommodative financial conditions and solid growth are currently supportive for
markets, but central banks are increasingly heading to the exit, albeit at a gradual pace
4
Chart 1: US 2, 5 and 10y real yields
Chart 2: Impact of y/y in FX on headline inflation, calculated
using estimates of exchange-rate pass through
Chart 3: Global 2s10s curves are generally very flat,
suggesting that either economic data is expected to slow or bond markets are very pessimistic
All sources: Bloomberg, BNP Paribas
� Real and nominal yields are rising again, largely due to the fact
that global risk has subsided. This means strong global growth is
a dominant driver of asset prices again.
� Furthermore, several major central banks (eg the ECB and BoC)
are, at the margin, signalling that accommodative policy is slowly
being pared back.
� Surprisingly, several major central banks appear undeterred
by the negative headwinds for inflation created by currency
appreciation. Currency headwinds are affecting the ECB, BoC,
RBA and Riksbank, while the BoJ is experiencing a tailwind.
� As a result, central banks are encouraging trends of USD
weakness and higher rates, rather than leaning against them.
ECB: Markets appear complacent on ECB tapering
5
Chart 1: EURUSD is still very cheap vs its long-term fair value, but
the ECB is concerned about EUR ‘volatility’
Chart 2: EUR 5y5y rate expectations anchored, despite rising
FX headwinds, likely due to strong eurozone activity
Chart 3: The ECB appears comfortable with tapering, despite
forecasting inflation to decline to 1.2% (on average) in 2018
All sources: Bloomberg, BNP Paribas
� Rates and FX markets appear complacent, ignoring ECB President Draghi’s
comments on the impact of currency vol and the fact that the ECB is set to
announce its changes to its purchase program me in October .
� The ECB appears mindful of currency volatility, but not too concerned about
the current absolute level. As such, EURUSD has consolidated around 120.
� While in the short term we continue to expect EURUSD to remain at
current levels, we expect EURUSD to retrace lower into 2018, driven largely
by a recovery of the USD, which should ease currency concerns at the ECB.
� We expect the ECB to announce an open-ended six-month extension to its
QE programme, effective from January 2018.
� Bund yields are pricing in a too dovish outcome, in our view, and are likely
to adjust higher to reflect the reduced purchases of the ECB’s PSPP.
Market inflation
expectations have been
anchored, suggesting
markets are looking
through FX headwinds
and focusing on the
eurozone’s strong growth
For further information see ECB: The long goodbye , 13 Sep 2017
0.65
0.85
1.05
1.25
1.45
1980 1985 1990 1995 2000 2005 2010 2015BNP Paribas FEER EURUSD
OECD "Synthetic" EUR
prior to 1999
770
820
870
920
970
1020
1070
01-Jan-2017 01-Apr-2017 01-Jul-2017
MarFA Macro MSCI Korea, Total Returns
BNP Paribas MarFA™ Macro – Identify driving factors and asset mispricings
Source: Bloomberg, BNP Paribas
6
MarFA™ (Market Factor Analysis) monitors cross-asset correlations and identifies the following variables to be the main drivers of assets.
These should be monitored carefully.
� Macro factor #1: US 2y real yields
- This is the single most important factor, explaining around 60% of the total variance of our entire asset universe and is an
important driver of rates, equities, FX, credit and commodities.� Macro factor #2: Economic activity, captured by G10 economic surprises.
- Important for 10y bond yields and curves, as well as credit indices.
� Macro factor #3: China prices paid component of PMI
- A gauge of global inflation pressures which is correlated with real rates and commodity prices.
See Introducing MarFA™: BNP Paribas Market Factor Analysis for further details.
MarFA™ indicates that there are several mispriced assets at
the moment. The following assets are likely to correct over thenext 1-2 months:
� In equities, MSCI China and Brazil appear overvalued by
5.0% and 10% respectively, while MSCI Korea andTurkey appear undervalued by around 3.5%.
� In rates, Australian 10y yields appear too high, while 2s10s
curves in Canada appears too flat. 10y real rates inGermany, UK and US appear too low.
� In FX, EURCHF, EURUSD and EURPLN appear
overvalued by 2-3%, while EURNOK and USDCADappear undervalued by around 5%.
� In commodities, copper appears overvalued by 6% and
gold appears overvalued by 3%.
� This week we focus on MarFA signals forinterest rates
Deviation caused by idiosyncratic risk
premia and typically correct in 1-2
months for MarFA™ Macro
Fair value based on Macro Factors
Chart 1: BNP Paribas MarFA™ provides a fair value for assets based
on broad drivers of market pricing. Deviations tend to be temporary
Tota
l re
turn
s index
60
70
80
90
100
110
120
130
140
01-Sep-2016 01-Dec-2016 01-Mar-2017 01-Jun-2017 01-Sep-2017
MarFA Macro US 2s10s
65
75
85
95
105
115
125
135
01-Jan-2017 01-Apr-2017 01-Jul-2017
MarFA Macro UK 2s10s
bp
7
MarFA™ dislocations: Rising real yields and stronger economic data
needed to drive steeper 2s10s curves
All sources: Bloomberg, BNP Paribas
Chart 2: Canada’s 2s10s curve appears too flatChart 1: US 2s10s curve has flattened to fair value since August
Chart 4: The German 2s10s has flattened to fair value since JulyChart 3: In the UK, the 2s10s curve appears too steep
Sustained rise in 2s10s
conditional on rise in 2y real
yields and firm economic data
MarFA indicates that much of the flattening of 2s10s curves can be explained by the Macro Factors (identified as economic data surprises
and 2y real yields). A rise in these would drive steeper curves. Meanwhile, curves in Canada and UK appear too flat vs current fair value
bp
bp
bp
85
90
95
100
105
110
115
120
125
130
01-Jan-2017 01-Apr-2017 01-Jul-2017
MarFA Macro Germany 2s10s
40
50
60
70
80
90
100
110
01-Jan-2017 01-Apr-2017 01-Jul-2017
MarFA Macro Canada 2s10s
Correlation and causation: Data leading rates or market leading data?
Source: Bloomberg, BNP Paribas
8
Chart 2: Decline in US 2s10s appears to have been correlated
with decline in 2y real yields
Chart 1: G10 data surprises are identified as being correlated
with US yield curve steepness by MarFA
Chart 3: Is global curve steepness a leading indicator of growth?
29
-1
1
2
3
4
5
6
7
8
15
40
65
90
115
140
165
Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17
Global slope 10y-2y: USA, Eurozone, Canada, UK, Japan, Australia; GDPweighted. Calculation: spread in bp between 10y and 2y adjusted by the
Central Bank rate (in bp; 3m lagged)
Conference Board Leading Indicator (rhs)
catch up
?
• MarFA identifies that 2s10s curves have been driven
by a combination of G10 data surprises and 2y US realrates (Charts 1 and 2). It appears that a rise in both these
variables is required to support a steepening of curves.
• Global curves are very flat, which is often interpreted asa sign that economic growth may slow in the future.
However, we think this is an indication that bond market
pricing is too pessimistic, especially as higher vol and Fed
balance sheet argue for term premium to rise goingforward.
bp
bp
9
MarFA™ dislocations: 10s30s curves fair value
All sources: Bloomberg, BNP Paribas
Chart 2: Canada 10s30s also appears too flatChart 1: US 10s30s appears at fair value on a 1-2 month view
Chart 4: Germany 10s30s has recently steepened back to fair value
20
30
40
50
60
70
80
01-Jan-2017 01-Apr-2017 01-Jul-2017
MarFA Macro Canada 10s30s
60
65
70
75
80
85
90
01-Jan-2017 01-Apr-2017 01-Jul-2017
MarFA Macro Germany 10s30s
50
55
60
65
70
75
01-Jan-2017 01-Apr-2017 01-Jul-2017
MarFA Macro UK 10s30s
bp
Chart 3: UK 10s30s appears at fair value on a 1-2 month view
45
50
55
60
65
70
75
01-Jan-2017 01-Apr-2017 01-Jul-2017
MarFA Macro US 10s30s
At the 10s30s part of the curve, MarFA explains less of the total variation. Nevertheless, deviations away from MarFA’s estimates of fair
value have tended to be temporary. We view that structural analysis, such as r* estimates, are more important for the long end.
bp
bp
bp
10
MarFA™ dislocations: 10y real cash yields appear too low on a 1-2
month view
All sources: Bloomberg, BNP Paribas
Chart 2: UK 10y real yields appear too lowChart 1: German 10y real yields appear too low
Chart 3: US 10y real yield has recently triggered an undervalued
signal
-1.20
-1.10
-1.00
-0.90
-0.80
-0.7001-Jun-2016 01-Dec-2016 01-Jun-2017
BNP Paribas MarFA Ger 10y real yield-3.30
-3.10
-2.90
-2.70
-2.50
-2.30
-2.1001-Jan-2017 01-Jul-2017
BNP Paribas MarFA UK 10y real yield
0.15
0.25
0.35
0.45
0.55
0.65
0.75
01-Jan-2017 01-Jul-2017
BNP Paribas MarFA Ger 10y real yield
• The MarFA fair values for 10y real bond yields in Germany,
US and UK have declined in recent weeks.
• This appears to have been driven by a rise in global
inflation pressures, captured by China input prices.
• However, even taking this into consideration, 10y real bond
yields appear to have declined too far.
• MarFA signals that 10y real yields, especially in US andGermany, are likely to rise over the next 1-2 months.
%
%%
Structural drivers of the long end of the yield curve – misalignments
according to the natural equilibrium rate of interest (ie R-star)
11
Table 1: Current r* estimates provide a long-term fair value for 30y
bond yields
Chart 3: Estimates of r* (real rate) according to Holston,
Laubach and Williams (2016)
� The natural equilibrium interest rate is an interest rate thatwould be ‘neutral’ for an economy –representing neither easy
monetary policy which stimulates growth and inflation to pick
up, nor tighter monetary policy to prevent the economy from
overheating.
� Estimates of this vary, but the natural interest rate appears to
have fallen since the financial crisis, as expectations for
economic growth over the long term have declined asproductivity growth has been slower.
� r* is the real equilibrium rate of interest, while the nominal
neutral rate is essentially calculated by adding the centralbank’s inflation target.
Implications of r* and the natural equilibrium rate of interest
� Long-end yields should reflect that interest rates should, on
average, trade around the natural interest rate.
� Using estimates of the real natural interest rate from Holston,Laubach and Williams (2016), Table 1 suggests that
Canadian and UK 30y yields are much lower than what the
natural interest rate is.
� German 30y yields appear to be trading only slightly below
their nominal equilibrium interest rate estimates.
� The US stands out as having 30y yields that are tradingabove the neutral equilibrium rate of 2.4%.
Neutral real
interest rate
Neutral nominal interest
rate30y yield
r*Using CB
target
Using 30y
breakeven
US 0.4 2.4 2.3 2.7%
Canada 1.3 3.3 2.9 2.4%
Eurozone* -0.3 1.7 1.2 1.1%
UK 1.5 3.5 4.9 1.7%
*30y German yield
Source: Holston, Laubach and Williams (2016)
Source: Holston, Laubach and Williams (2016), Bloomberg, BNP Paribas
%
Natural equilibrium rate of interest indicates 30y yields are too low in Germany,
Canada and the UK, but too high in the US
12
Chart 2: German 30y bonds are below the eurozone neutral
rate, likely caused to a large degree by ECB QE
Chart 3: Canadian 30y yields appear too low, especially
given that the BoC is in a hiking cycle
Chart 1: Fed long-term dot estimates have converged
towards the estimated neutral rate in recent years
Chart 4: UK 30y yields appear substantially below their neutral
rate, due in part to high estimates of potential growth
All sources: Bloomberg, BNP Paribas
Nominal neutral rate estimates
vary between 2-2.7%
Nominal neutral rate estimates
vary between 1.8-2.2%
Nominal neutral rate estimates
vary between 3-4%
Nominal neutral rate estimates
vary tend to be close to 1.6%
%
%
%
%
r* estimates are impacted by
potential GDP growth. Fiscal policies that promote higher
potential (ie tax reform, higher
investment, infrastructure) would cause r* to rise
US curve likely to steepen at 2s10s segment, but flatten at 10s30s. We favour US 2y
fwd 2s5s to position for rising term premium
13
Chart 2: Fed bank balance sheet reduction to raise term
premium by 100bp over the next few years
Chart 1: 2s10s curves expected to steepen generally, while
10s30s curves may flatten as sell-off of 30y is contained
All sources: Bloomberg, BNP Paribas
In summary, the outlook for curves:
� US: 2s10s curve appears too flat, especially given the strong economic data
flow. 10y yields are set to rise, especially with Fed balance sheet reduction
ahead. The performance of at the long end will be impacted by long-term
growth dynamics, but a slight flattening of 10s30s still appears likely.
� Germany: A concentration of ECB purchases at the short end is likely to
encourage a steeper 2s10s curve. 30y yields are below their neutral rate but
ECB purchases may also cause 10s30s flattening.
� Canada: 2s10s curve appears too flat, driven by the recent rise in 2y yields in
response to the hawkish BoC, which did not catalyse a sell-off in the 10y. The
30y also appears to have room to sell-off, given the level of the neutral rate.
� UK: UK 2s10s appears to have risen too far on a 1m view, but over the
medium term we expect the curve to steepen. 30y appears cheap versus the
neutral rate, but strong demand at the long end should keep it supported. This
suggests paying flies is attractive.
%
The beginning of the Fed’s balance sheet unwind should raise termpremium, steepening the US yield curve and increasing volatility.
Term premium is correlated with the percentage of the market available to
private investors. Fed balance sheet reduction suggests that 10y termpremium will rise by 100bp over the next few years. This should encourage a
steeper curve.
Trade of the week #1: Positioning for a steepening of US rates
14
Chart 1: US curve to steepen as Term premium and vols increase
Chart 3: We favour 2y forward 2s5s swap steepener
Source: BNP Paribas, Macrobond
The beginning of the Fed’s balance sheet unwind should raise term
premium, steepening the US yield curve and increasing volatility.
Trade: Enter 2y forward 2s5s swap curve steepener. Current: 22bp.
Target: 40bp. Stop: 11bp. Carry: +0.5bp/month.
� We estimate that the Fed’s Balance Sheet reduction programme will
boost the term premium by 100bp over the next few years.
� The supply of US Treasuries available to private investors is likely to
increase sharply in 2018 due to the Fed’s balance sheet reduction and
growing budget deficits.
� Short duration positions are expensive to carry. But a 2s5s steepener
carries positively and, as yields rise, the 5y area typically
underperforms the curve. A forward-starting 2s5s steepener carries
positively.
Chart 2: US demand for bonds will drop by more than USD
200bn during 2018, increasing the pressure for higher rates
Expected 2018
supply to be
USD 211bn greater
than 2017
%
%
%
Trade of the week #2: 5y EUR to underperform on the curve
Chart 1: US experience - 5y underperformed during Fed’s
tapering
Source: Macrobond, BNP Paribas
15
The beginning of ECB QE tapering should cheapen the belly of
the EUR curve, similarly to the dynamics around US QE tapering.
� We observe that, during the US ‘taper tantrum’ and subsequent
tapering, US 2s5s10s cheapened – and by more than was implied
by the steepening of the 0-2y curve (top chart).
� This makes sense: the end of QE partly unwinds forward guidance
and implies higher volatility, increasing the value of convexity.
� We expect the same thing to happen in Europe.
� Spot EUR 2s5s10s is already much less negative than where the
US 2s5s10s spot was before the taper tantrum, but the 2y forward
EUR 2s5s10s is below where its US equivalent was. So we see a
better entry level in Europe in 2y forward than in spot.
Trade: Pay 2y fwd EUR 2s5s10s swap fly. Current: -13bp. Target:
+5bp. Stop: -19bp. Roll: -0.5bp/month.
Chart 2: The belly of the curve has room to sell-off in response
to the start of ECB tapering
Trade of the week #3: Pay belly of GBP 5s10s30s fly
16
Chart 1: 5s10s30s fly has traded in a range in recent years
Chart 3: 5s10s30s swap fly looks rich vs 10y rates and cash fly
Source: BNP Paribas
We favour paying 10y rates in the 5s10s30s swap fly as a bearish
expression on rates because:
� The level of the swap fly is close to its post-crisis lows (excluding the
EU sovereign debt crisis, Chart 1).
� 5s10s30s swap looks rich versus the level of rates and equivalent Gilt
fly (Chart 2).
� The 5s10s30s swap fly offers half the negative carry and roll
(-0.6bp/month) of an outright paid 10y swap position (-1.2bp/month).
� Trade: Pay 5s10s30s GBP swap fly at 4bp. Target: 20bp. Stop: -
1bp Carry: -0.6bp/month. Current: 4bp.
Chart 2: 10y gilts look rich in our QE premium model
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Contacts & legal notice
This document has been written by our strategy teams; it does not purport to be an exhaustiveanalysis, and may be subject to conflicts of interest resulting from their interaction with sales andtrading which could affect the objectivity of this report. This document is non-independent researchfor the purpose of the UK Financial Conduct Authority rules. For the purposes of MiFID, non-independent research constitutes a marketing communication. This document is not investmentresearch for the purposes of MiFID. It has not been prepared in accordance with legal requirementsdesigned to provide the independence of investment research, and is not subject to any prohibitionon dealing ahead of the dissemination of investment research.
STEER™ is a trade mark of BNP Paribas.
This document constitutes a marketing communication and has been prepared by BNP Paribas for, and isdirected at, (a) Professional Clients and Eligible Counterparties as defined by the European Union Markets inFinancial Instruments Directive (2004/39/EC) ('MiFID'), and (b) where relevant, persons who haveprofessional experience in matters relating to investments falling within Article 19(5) of the Financial Servicesand Markets Act 2000 (Financial Promotion) Order 2005, and at other persons to whom it may lawfully becommunicated (together 'Relevant Persons') under the regulations of any relevant jurisdiction. Anyinvestment or investment activity to which this document relates is available only to and will be engaged inonly with Relevant Persons. Any person who is not a Relevant Person should not act or rely on this documentor its content.
Securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors.
The information and opinions contained in this document have been obtained from, or are based on, publicsources believed to be reliable, but there is no guarantee of the accuracy, completeness or fitness for anyparticular purpose of such information and such information may not have been independently verified byBNP Paribas or by any person. None of BNP Paribas, any of its subsidiary undertakings or affiliates or itsmembers, directors, officers, agents or employees accepts any responsibility or liability whatsoever or makesany representation or warranty, express or implied, as to the accuracy and completeness of the informationor any opinions based thereon and contained in this document and it should not be relied upon as such.
This document does not constitute or form any part of any offer to sell or issue and is not a solicitation of anyoffer to purchase any financial instrument, nor shall it or any part of it nor the fact of its distribution form thebasis of, or be relied on, in connection with any contract or investment decision. To the extent that anytransaction is subsequently entered into between the recipient and BNP Paribas, such transaction will beentered into upon such terms as may be agreed by the parties in the relevant documentation.
Information and opinions contained in this document are published for the information of recipients, but arenot to be relied upon as authoritative or taken in substitution for the exercise of judgement by any recipient,are subject to change without notice and not intended to provide the sole basis of any evaluation of theinstruments discussed herein. In providing this document, BNP Paribas does not offer investment, financial,legal, tax or any other type of advice to, nor has any fiduciary duties towards, recipients. Any reference topast performance should not be taken as an indication of future performance. To the fullest extent permitted
by law, no BNP Paribas group company accepts any liability whatsoever (including in negligence) for anydirect or consequential loss arising from any use of or reliance on material contained in this document evenwhere advised of the possibility of such losses. All estimates and opinions included in this document aremade as of the date of this document. Unless otherwise indicated in this document there is no intention toupdate this document.
BNP Paribas and its affiliates (collectively 'BNP Paribas') may make a market in, or may, as principal oragent, buy or sell securities of any issuer or person mentioned in this document or derivatives thereon.Prices, yields and other similar information included in this document are included for information purposeshowever numerous factors will affect market pricing at any particular time, such information may be subjectto rapid change and there is no certainty that transactions could be executed at any specified price.
BNP Paribas may have a financial interest in any issuer or person mentioned in this document, including along or short position in their securities and/or options, futures or other derivative instruments based thereon,or vice versa. BNP Paribas, including its officers and employees may serve or have served as an officer,director or in an advisory capacity for any person mentioned in this document. BNP Paribas may, from timeto time, solicit, perform or have performed investment banking, underwriting or other services (includingacting as adviser, manager, underwriter or lender) within the last 12 months for any person referred to in thisdocument. BNP Paribas may be a party to an agreement with any person relating to the production of thisdocument. BNP Paribas, may to the extent permitted by law, have acted upon or used the informationcontained herein, or the research or analysis on which it was based, before the document was published.BNP Paribas may receive or intend to seek compensation for investment banking services in the next threemonths from or in relation to any person mentioned in this document. Any person mentioned in thisdocument may have been provided with relevant sections of this document prior to its publication in order toverify its factual accuracy.
This document is for information purposes only and there is no assurance that a transaction(s) will beentered into on such indicative terms. Any indicative price(s) contained herein have been prepared in goodfaith in accordance with BNP Paribas' own internal models and calculation methods and/or are based on oruse available price sources where considered relevant. Indicative price(s) based on different models orassumptions may yield different results. Numerous factors may affect the price(s), which may or may not betaken into account. Therefore, these indicative price(s) may vary significantly from indicative price(s)obtained from other sources or market participants. BNP Paribas expressly disclaims any responsibility forthe accuracy or completeness of its own internal models or calculation methods, the accuracy or reliability ofany price sources used, any errors or omissions in computing or disseminating these indicative price(s), andfor any use you make of the price(s) provided. The indicative price(s) do not represent (i) the actual terms onwhich a new transaction could be entered into, (ii) the actual terms on which any existing transactions couldbe unwound, (iii) the calculation or estimate of an amount that would be payable following an earlytermination of the transactions or (iv) the price(s) given to the transactions by BNP Paribas in its own booksof account for financial reporting, credit or risk management purposes. As an investment bank with a widerange of activities,
Cross-Asset Strategy – BNP Paribas London Branch
Robert McAdie Global Head of Strategy Research 44 20 7595 8885 [email protected]
Pierre Mathieu Cross-Asset Strategist 44 20 7595 8730 [email protected]
Michael Sneyd Macro Quantitative Strategist 44 20 7595 1307 [email protected]
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Legal notice
BNPP may face conflicts of interest, which are resolved under applicable legal provisions and internalguidelines. You should be aware, however, that BNP Paribas may engage in transactions in a mannerinconsistent with the views expressed in this document, either for its own account or for the account ofits clients.
This document may contain certain performance data based on back-testing, i.e. simulations ofperformance of a strategy, index or assets as if it had actually existed during a defined period of time. Tothe extent any such performance data is included, the scenarios, simulations, development expectationsand forecasts contained in this document are for illustrative purposes only. All estimates and opinionsincluded in this document constitute the judgment of BNP Paribas and its affiliates as of the date of thedocument and may be subject to change without notice. This type of information has inherent limitationswhich recipients must consider carefully. While the information has been prepared in good faith inaccordance with BNP Paribas’s own internal models and other relevant sources, an analysis based ondifferent models or assumptions may yield different results. Unlike actual performance records,simulated performance returns or scenarios may not necessarily reflect certain market factors such asliquidity constraints, fees and transactions costs. Actual historical or back tested past performance doesnot constitute an indication of future results or performance.
This document is only intended to generate discussion regarding particular products and investmentsand is subject to change or may be discontinued. We are willing to discuss it with you on theunderstanding that you have sufficient knowledge, experience and professional advice to understandand make your own independent evaluation of the merits and risk of the information and any proposedstructures. The information contained herein is not and under no circumstances is to be construed as, aprospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitationof an offer to buy securities described herein, in Canada, the U.S. or any other province or territory norshall it be deemed to provide investment, tax, accounting or other advice. Transactions involving theproduct(s) described in this document may involve a high degree of risk and the value of suchtransactions may be highly volatile. Such risks include, without limitation, risk of adverse or unanticipatedmarket developments, risk of counterparty or issuer default, risk of adverse events involving anyunderlying reference obligation or entity and risk of illiquidity. In certain transactions, counterparties maylose their entire investment or incur an unlimited loss. The information relating to performance containedin this document is illustrative and no assurance is given that any indicated returns, performance orresults will be achieved. Moreover, past performance is not indicative of future results. Informationherein is believed reliable but BNP Paribas and its affiliates do not warrant or guarantee itscompleteness or accuracy. All information, terms and pricing set forth herein reflect our judgment at thedate and time hereof and are subject to change without notice. In the event that we were to enter into atransaction with you, we will do so as principal (and not as agent or in any other capacity, including,without limitation, as your fiduciary, advisor or otherwise). Only in the event of a potential transaction willan offering document be prepared, in which case, you should refer to the prospectus or offeringdocument relating to the above potential transaction which includes important information, including riskfactors that relate to an investment in the product(s) described herein.
Prior to transacting, you should ensure that you fully understand (either on your own or through the useof independent expert advisors) the terms of the transaction and any legal, tax and accountingconsiderations applicable to them. You should also consult with independent advisors and consultants(including, without limitation, legal counsel) to determine whether entering into of any securitiestransactions contemplated herein would be contrary to local laws. The information contained herein isprovided to you on a strictly confidential basis and you agree that it may not be copied, reproduced orotherwise distributed by you, whether in whole or in part (other than to your professional advisers),without our prior written consent.. Neither we, nor any of our affiliates, nor any of their respective
directors, partners, officers, employees or representatives accepts any liability whatsoever for anydirect or consequential loss arising from any use of this document or their content; and any of theforegoing may from time to time act as manager, co-manager or underwriter of a public offering orotherwise, in the capacity of principal or agent, deal in, hold or act as market makers or advisors,brokers or commercial and/or investment bankers in relation to the securities or related derivativesthat are discussed herein. BNP Paribas and its affiliates may (or may in the future) hold a position oract as a market maker in the financial instruments discussed, or act as an advisor, manager,underwriter or lender to such issuer. In no circumstances shall BNP Paribas or its affiliates be obligedto disclose any information that it has received on a confidential basis or to disclose the existencethereof.
The information presented herein does not comprise a prospectus of securities for the purposes of EUDirective 2003/71/EC (as amended from time to time).
This document was produced by a BNP Paribas group company. This document is for the use ofintended recipients and may not be reproduced (in whole or in part) or delivered or transmitted to anyother person without the prior written consent of BNP Paribas. By accepting this document you agreeto this.
United States Disclosures
Important Option Disclosures: Options are complex instruments that are not suitable for everyinvestor, may involve a high degree of risk, and may be appropriate investments only for sophisticatedinvestors who are capable of understanding and assuming the risks involved. Supportingdocumentation for any claims, comparisons, recommendations, statistics or other technical data willbe supplied upon request. Any trade information is preliminary and not intended as an officialtransaction confirmation. If the information contained herein regards options related research, suchinformation is available only to persons who have received the proper option risk disclosuredocuments. For a copy of the Option Clearing Corporation's Characteristics and Risks of StandardizedOptions, please contact your BNP Paribas sales representative or visit the OCC's website athttp://www.theocc.com/about/publications/character-risks.jsp
Important ETF Disclosures: For any ETFs discussed in this document, you should consider theinvestment objectives, risks, and charges and expenses of the investment company carefully beforeinvesting. The prospectus, and if available, the summary prospectus, contains this and otherimportant information about the ETF. You may obtain a prospectus and, if available, a summaryprospectus by calling +1 212 841-3099. The prospectus and, if available, summary prospectusshould be read carefully before investing. As with any investment, ETFs have risks. These include thegeneral risks associated with investing in the underlying assets, potential tracking error, and thepossibility that particular indices may lag other market segments or active managers. In addition, ETFsinvesting in international markets may include currency and geopolitical risks, while fixed income ETFrisks also include credit and interest rate risk. BNP Paribas and its affiliates may hold a position or actas a market maker in the financial instruments discussed, or act as an advisor, manager, underwriter,or lender to such issuer. As a result, BNP Paribas may have potential conflicts of interest relating to
the ETFs that are discussed in this material. In particular, BNP Paribas may act as an AuthorizedParticipant in the purchase or sale of shares from an ETF and participate in the creation andredemption of the securities covered in this material. In connection with these activities, BNP Paribas
may receive a fee, may be deemed to be an underwriter of the ETF shares, and may receiveinformation about pending creations or redemptions of large blocks of ETF shares. Under nocircumstances shall BNP Paribas or its affiliates be obliged to disclose any information that it has
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Legal notice
received on a confidential basis or to disclose the existence of such information. BNP Paribas also
may act as a market maker or block positioner in the ETF shares discussed in this material, orfinancial instruments that are held by the ETF and/or are part of the index whose performance theETF seeks to track. As a result, BNP Paribas may be buying or selling ETF shares (or theinstruments underlying the ETF shares) for other customers or for its own account while you areselling or buying ETF shares. BNP Paribas may have multiple advisory, transactional, financial andother interests in the companies whose securities or other instruments may be purchased or sold byan ETF discussed in this material. BNP Paribas may from time to time engage in business with thesecompanies, including extending loans to, making equity investments in or providing advisory servicesto the companies, including merger and acquisition advisory services. In the course of thoseactivities, certain BNP Paribas personnel may acquire nonpublic information about the companies.Such information could potentially affect the prices at which the ETF shares trade. BNP Paribas willmaintain the confidentiality of such information and not disclose it to the ETF, ETF holders, or otherunauthorized personnel.
Important Disclosures for Convertibles Securities or other Securities not registered under USSecurities Laws: Certain securities discussed herein may not be registered under the Securities Actof 1933 and therefore are considered 'restricted securities' pursuant to Rule 144(a)(3). Only QualifiedInstitutional Buyers ('QIB') as defined under rule 144A Only Qualified Institutional Buyers ('QIB') asdefined under rule 144A or non-US persons (as defined in Regulation S under the Securities Act) maybe eligible to purchase such instruments.
UK: In the UK, this document is being communicated by BNP Paribas London Branch. 10 HarewoodAvenue, London NW1 6AA; tel: +44 20 7595 2000; fax: +44 20 7595 2555- www.bnpparibas.com.Incorporated in France with Limited Liability. Registered Office: 16 boulevard des Italiens, 75009Paris, France. 662 042 449 RCS Paris. BNP Paribas London Branch is lead supervised by theEuropean Central Bank (ECB) and the Autorité de Contrôle Prudentiel et de Résolution (ACPR). BNPParibas London Branch is authorised by the ECB, the ACPR and the Prudential Regulation Authorityand subject to limited regulation by the Financial Conduct Authority and Prudential RegulationAuthority. Details about the extent of our authorisation and regulation by the Prudential RegulationAuthority, and regulation by the Financial Conduct Authority are available from us on request. BNPParibas London Branch is registered in England and Wales under no. FC13447.
France: This report is produced and/or is distributed in France by BNP Paribas SA and/or BNPParibas Arbitrage. BNP Paribas SA is incorporated in France with Limited Liability (Registered Office:16 boulevard des Italiens, 75009 Paris, France, 662 042 449 RCS Paris, www.bnpparibas.com) isauthorized and supervised by European Central Bank (ECB) and by Autorité de Contrôle Prudentiel etde Résolution (ACPR) in respect of supervisions for which the competence remains at national level,in terms of Council Regulation n°1024/2013 of 15 October 2013 conferring specific tasks on the ECBconcerning policies relating to the prudential supervision of credit institutions. BNP Paribas Arbitrage isan unlimited liability company, whose registered office is 160/162 boulevard Mac Donald 75019 Paris,registered with the Paris Trade and Companies Registry under number 394 895 833. It is authorisedand supervised by the Autorité de Contrôle Prudentiel et de Résolution and the Autorité des MarchésFinanciers in France.
Germany: This report is being distributed in Germany by BNP Paribas S.A. NiederlassungDeutschland, a branch of BNP Paribas S.A. whose head office is in Paris, France. 662 042 449 RCSParis, www.bnpparibas.com). BNP Paribas Niederlassung Deutschland is authorized and leadsupervised by the European Central Bank (ECB) and by Autorité de Contrôle Prudentiel et deRésolution (ACPR) and is subject to limited supervision and regulation by Bundesanstalt für
Finanzdienstleistungsaufsicht (BaFin) in respect of supervisions for which the competence remains atnational level, in terms of Council Regulation n° 2013/1024 of 15 October 2013 conferring specifictasks on the ECB concerning policies relating to the prudential supervision of credit institutions as wellas Council Directive n° 2013/36/EU of 26 June, 2013 and Section 53b German Banking Act(Kreditwesengesetz - KWG) providing for the principles of shared supervision between the nationalcompetent authorities in case of branches and applicable national rules and regulations. BNP ParibasNiederlassung Deutschland is registered with locations at Europa Allee 12, 60327 Frankfurt(commercial register HRB Frankfurt am Main 40950) and Bahnhofstrasse 55, 90429 Nuremberg(commercial register Nuremberg HRB Nürnberg 31129).
Belgium: BNP Paribas Fortis SA/NV is authorized and supervised by European Central Bank (ECB)and by the National Bank of Belgium, boulevard de Berlaimont 14, 1000 Brussels, and is also underthe supervision on investor and consumer protection of the Financial Services and Markets Authority(FSMA), rue du congrès 12-14, 1000 Brussels and is authorized as insurance agent under FSMAnumber 25789 A
Ireland: This report is being distributed in Ireland by BNP Paribas S.A., Dublin Branch. BNP Paribas isincorporated in France as a Société Anonyme and regulated in France by the European Central Bankand by the Autorité de Contrôle Prudentiel et de Résolution.
Italy: This report is being distributed by BNP Paribas Italian Branch (Succursale Italia) which isauthorised and lead supervised by the European Central Bank (ECB) and the Autorité de ContrôlePrudentiel et de Résolution and regulated by the Autorité des Marchés Financiers, and thisauthorisation has been notified to the Bank of Italy. BNP Paribas Succursale Italia is the Italian branchof a company incorporated under the laws of France having its registered office at 16, Boulevard desItaliens, 75009, Paris, whose offices are located in Piazza Lina Bo Bardi 3, Milan, tax code andregistration number at the Companies Registry of Milan No. 04449690157, is enrolled in the register ofthe banks held by Bank of Italy under No. 5482, duly authorised to provide in Italy banking andinvestment services according the principle of the mutual recognition. The branch is subject to limitedregulation by the Bank of Italy and the CONSOB respectively.
Netherlands: This report is being distributed in the Netherlands by BNP Paribas Fortis SA/NV,Netherlands Branch, a branch of BNP Paribas SA/NV whose head office is in Brussels, Belgium. BNPParibas Fortis SA/NV, Netherlands Branch, Herengracht 595, 1017 CE Amsterdam, is authorised andsupervised by the European Central Bank (ECB) and the National Bank of Belgium and is alsosupervised by the Belgian Financial Services and Markets Authority (FSMA) and it is subject to limitedregulation by the Netherlands Authority for the Financial Markets (AFM) and the Dutch Central Bank(De Nederlandsche Bank).'Portugal: BNP Paribas – Sucursal em Portugal Avenida 5 de Outubro, 206, 1050-065 Lisboa,Portugal. www.bnpparibas.com. Incorporated in France with Limited Liability. Registered Office: 16boulevard des Italiens, 75009 Paris, France. 662 042 449 RCS Paris. BNP Paribas – Sucursal emPortugal is lead supervised by the European Central Bank (ECB) and the Autorité de ContrôlePrudentiel et de Résolution (ACPR). BNP Paribas - Sucursal em Portugal is authorized by the ECB,the ACPR and Resolution and it is authorized and subject to limited regulation by Banco de Portugaland Comissão do Mercado de Valores Mobiliários. BNP Paribas - Sucursal em Portugal is registeredin C.R.C. of Lisbon under no. NIPC 980000416. VAT Number PT 980 000 416.'
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Legal notice
Spain: This report is being distributed in Spain by BNP Paribas S.A., S.E., a branch of BNP ParibasS.A. whose head office is in Paris, France (Registered Office: 16 boulevard des Italiens, 75009 Paris,France). BNP Paribas S.A., S.E., C/Ribera de Loira 28, Madrid 28042 is authorised and supervised bythe European Central Bank (ECB) and the Autorité de Contrôle Prudentiel et de Résolution (ACPR)and subject to limited regulation by the Bank of Spain.
Switzerland: This report is intended solely for customers who are 'Qualified Investors' as defined inarticle 10 paragraphs 3 and 4 of the Federal Act on Collective Investment Schemes of 23 June 2006(CISA) and the relevant provisions of the Federal Ordinance on Collective Investment Schemes of 22November 2006 (CISO). 'Qualified Investors' includes, among others, regulated financialintermediaries such as banks, securities traders, fund management companies and asset managersof collective investment schemes, regulated insurance institutions as well as pension funds andcompanies with professional treasury operations. This document may not be suitable for customerswho are not Qualified Investors and should only be used and passed on to Qualified Investors. Forspecification purposes, a 'Swiss Corporate Customer' is a Client which is a corporate entity,incorporated and existing under the laws of Switzerland and which qualifies as 'Qualified Investor' asdefined above.' BNP Paribas (Suisse) SA is authorised as bank and as securities dealer by the SwissFinancial Market Supervisory Authority FINMA. BNP Paribas (Suisse) SA is registered at the Genevacommercial register under No. CHE-102.922.193. BNP Paribas (Suisse) SA is incorporated inSwitzerland with limited liability. Registered Office: 2, place de Hollande, 1204 Geneva, Switzerland.
Canada: The information contained herein is not, and under no circumstances is to be construed as, aprospectus, an advertisement, a public offering, an offer to sell securities described herein, orsolicitation of an offer to buy securities described herein, in Canada or any province or territorythereof. Any offer or sale of the securities described herein in Canada will be made only under anexemption from the requirements to file a prospectus with the relevant Canadian securities regulatorsand only by a dealer properly registered under applicable securities laws or, alternatively, pursuant toan exemption from the dealer registration requirement in the relevant province or territory of Canada inwhich such offer or sale is made. The information contained herein is under no circumstances to beconstrued as investment advice in any province or territory of Canada and is not tailored to the needsof the recipient. To the extent that the information contained herein references securities of an issuerincorporated, formed or created under the laws of Canada or a province or territory of Canada, anytrades in such securities must be conducted through a dealer registered in Canada. No securitiescommission or similar regulatory authority in Canada has reviewed or in any way passed judgmentupon these materials, the information contained herein or the merits of the securities described herein,and any representation to the contrary is an offence.
United States: This report may be distributed (i) by BNP Paribas Securities Corp. to U.S. personswho qualify as an institutional investor under FINRA Rule 2210(a) (4), or (ii) by a subsidiary or affiliateof BNP Paribas that is not registered as a US broker-dealer only to U.S. persons who are considered'major U.S. institutional investors' (as such term is defined in Rule 15a-6 under the SecuritiesExchange Act of 1934, as amended). U.S. persons who wish to effect transactions in securitiesdiscussed herein must contact a BNP Paribas Securities Corp. representative unless otherwiseauthorized by law to contact a non-US affiliate of BNP Paribas. BNP Paribas Securities Corp. is abroker dealer registered with the Securities and Exchange Commission ('SEC') and the CommodityFutures Trading Commission ('CFTC') and member of FINRA, SIPC, NFA, NYSE and other principalexchanges. THIS DOCUMENT IS FOR THE GENERAL INFORMATION OF BNP PARIBAS’SCLIENTS AND IS A GENERAL SOLICITATION OF DERIVATIVES BUSINESS FOR THE PURPOSESOF, AND TO THE EXTENT IT IS SUBJECT TO, §§ 1.71 AND 23.605 OF THE U.S. COMMODITYEXCHANGE ACT.
Brazil: This report was prepared by Banco BNP Paribas Brasil S.A. or by its subsidiaries, affiliatesand controlled companies, together referred to as 'BNP Paribas', for information purposes only and donot represent an offer or request for investment or divestment of assets. Banco BNP Paribas BrasilS.A. is a financial institution duly incorporated in Brazil and duly authorized by the Central Bank ofBrazil and by the Brazilian Securities Commission to manage investment funds. Notwithstanding thecaution to obtain and manage the information herein presented, BNP Paribas shall not be responsiblefor the accidental publication of incorrect information, nor for investment decisions taken based on theinformation contained herein, which can be modified without prior notice. Banco BNP Paribas BrasilS.A. shall not be responsible to update or revise any information contained herein. Banco BNPParibas Brasil S.A. shall not be responsible for any loss caused by the use of any informationcontained herein.
Turkey: This report is being distributed in Turkey by TEB Investment (TEB YATIRIM MENKULDEGERLER A.S., Teb Kampus D Blok Saray Mah. Kucuksu Cad. Sokullu Sok., No:7 34768Umraniye, Istanbul, Turkey, Trade register number: 358354, www.tebyatirim.com.tr). Notice Publishedin accordance with ‘‘Communiqué Regarding the Principles on Investment Consultancy Activities andthe Investment Consultancy Institutions’’ Series: V, No: 55 issued by the Capital Markets Board. Theinvestment related information, commentary and recommendations contained herein do not constituteinvestment consultancy services. Investment consultancy services are provided in accordance withinvestment consultancy agreements executed between investors and brokerage companies orportfolio management companies or non-deposit accepting banks. The commentary andrecommendations contained herein are based on the personal views of the persons who have madesuch commentary and recommendations. These views may not conform to your financial standing orto your risk and return preferences. Therefore, investment decisions based solely on the informationprovided herein may fail to produce results in accordance with your expectations.
Israel: BNP Paribas does not hold a licence under the Investment Advice and Marketing Law of Israel,to offer investment advice of any type, including, but not limited to, investment advice relating to anyfinancial products.
Bahrain: This document is being distributed in Bahrain by BNP Paribas Wholesale Bank Bahrain, abranch of BNP Paribas S.A. whose head office is in Paris, France (Registered Office: 16 boulevarddes Italiens, 75009 Paris, France). BNP Paribas Wholesale Bank Bahrain is licensed and regulated asa Registered Institution by the Central Bank of Bahrain – CBB. This document does not, nor is itintended to, constitute an offer to issue, sell or acquire, or solicit an offer to sell or acquire anysecurities or to enter into any transaction.
South Africa: BNP Paribas Securities South Africa (Pty) Ltd (Registration number 1996/009716/07) isa licensed member of the Johannesburg Stock Exchange and an authorised Financial ServicesProvider (FSP 29451) in terms of the Financial Advisory and Intermediary Services Act, 37 of 2002.Any view or opinion expressed in this report does not constitute advice and the recipient should obtaintheir own advice prior to making any decision or taking any action whatsoever based hereon.
China: This document is being distributed in the People’s Republic of China ('PRC'), excluding theHong Kong or Macau Special Administrative Regions or Taiwan) by BNP Paribas (China) Limited('BNPP China'), a subsidiary of BNP Paribas. BNPP China is a commercial bank licensed by the ChinaBanking Regulatory Commission to carry on banking business in the PRC.
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Legal notice
India: In India, this document is being distributed by BNP Paribas Securities India Pvt. Ltd.('BNPPSIPL'), having its registered office at 5th floor, BNP Paribas House, 1 North Avenue, MakerMaxity, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 (Tel. no. +91 22 3370 4000 / 61964000 / Fax no. +91 22 3370 4363). BNPPSIPL is registered with the Securities and Exchange Boardof India ('SEBI') as a stockbroker in the Equities and the Futures & Options segments of NationalStock Exchange of India Ltd. and Bombay Stock Exchange Ltd. (SEBI Regn. Nos.:INB/INF231474835, INB/INF011474831; CIN: U74920MH2008FTC182807; Website:www.bnpparibas.co.in).
Indonesia: This report is being distributed by PT BNP Paribas Securities Indonesia and is deliveredby licensed employee(s) to its clients. PT BNP Paribas Securities Indonesia, having its registeredoffice at Menara BCA, 35th Floor, Grand Indonesia, Jl. M.H.Thamrin No.1, Jakarta, 10310, Indonesia,is a fully subsidiaries company of BNP Paribas SA and is licensed under Capital Market Law No. 8 of1995 and the holder of broker-dealer and underwriter licenses issued by the Capital Market andFinancial Institutions Supervisory Agency (BAPEPAM-LK). PT BNP Paribas Securities Indonesia isalso a member of Indonesia Stock Exchange. Neither this research publication nor any copy hereofmay be distributed in Indonesia or to any Indonesian citizens except in compliance with applicableIndonesian capital market laws and regulations. This research publication is not an offer of securitiesin Indonesia. Some of the securities referred to in this research publication have not been registeredwith the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK) pursuant torelevant capital market laws and regulations, and may not be offered or sold within the territory of theRepublic of Indonesia or to Indonesian citizens through a public offering or in circumstance whichconstitute an offer within the meaning of Indonesian capital market laws and regulations.
Japan: This report is being distributed to Japanese based firms by BNP Paribas Securities (Japan)Limited or by a subsidiary or affiliate of BNP Paribas not registered as a financial instruments firm inJapan, to certain financial institutions defined by article 17-3, item 1 of the Financial Instruments andExchange Law Enforcement Order. BNP Paribas Securities (Japan) Limited is a financial instrumentsfirm registered according to the Financial Instruments and Exchange Law of Japan and a member ofthe Japan Securities Dealers Association, the Financial Futures Association of Japan and the Type IIFinancial Instruments Firms Association. BNP Paribas Securities (Japan) Limited acceptsresponsibility for the content of a report prepared by another non-Japan affiliate only when distributedto Japanese based firms by BNP Paribas Securities (Japan) Limited. Some of the foreign securitiesstated on this report are not disclosed according to the Financial Instruments and Exchange Law ofJapan.
Malaysia: This report is issued and distributed by BNP Paribas Capital (Malaysia) Sdn Bhd. The viewsand opinions in this research report are our own as of the date hereof and are subject to change. BNPParibas Capital (Malaysia) Sdn Bhd has no obligation to update its opinion or the information in thisresearch report. This publication is strictly confidential and is for private circulation only to clients ofBNP Paribas Capital (Malaysia) Sdn Bhd. This publication is being provided to you strictly on the basisthat it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated,stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly,to any other person in whole or in part, for any purpose without the prior written consent of BNPParibas Capital (Malaysia) Sdn Bhd.
Philippines: This report is being distributed in the Philippines by BNP Paribas Manila Branch, anOffshore Banking Unit (OBU) of BNP Paribas whose head office is in Paris, France. BNP ParibasManila OBU is registered as an offshore banking unit under Presidential Decree No. 1034 (PD 1034),
and regulated by the Bangko Sentral ng Pilipinas. This report is being distributed in the Philippines toqualified clients of OBUs as allowed under PD 1034, and is qualified in its entirety to the products andservices allowed under PD 1034.
Hong Kong: This report is being distributed in Hong Kong by BNP Paribas Hong Kong Branch, abranch of BNP Paribas whose head office is in Paris, France. BNP Paribas Hong Kong Branch isregistered as a Licensed Bank under the Banking Ordinance and regulated by the Hong KongMonetary Authority. BNP Paribas Hong Kong Branch is also a Registered Institution regulated by theSecurities and Futures Commission for the conduct of Regulated Activity Types 1, 4 and 6 under theSecurities and Futures Ordinance.
Singapore: BNP Paribas Singapore Branch is regulated in Singapore by the Monetary Authority ofSingapore under the Banking Act, the Securities and Futures Act and the Financial Advisers Act. Thisreport may not be circulated or distributed, whether directly or indirectly, to any person in Singaporeother than (i) to an institutional investor pursuant to Section 274 of the Securities and Futures Act,Chapter 289 of Singapore ('SFA'), (ii) to an accredited investor or other relevant person, or any personunder Section 275(1A) of the SFA, pursuant to and in accordance with the conditions specified inSection 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, anyother applicable provisions of the SFA.
South Korea: Branch: BNP Paribas Seoul Branch is regulated by the Financial Services Commissionand Financial Supervisory Service for the conduct of its financial investment business in the Republicof Korea. This report does not constitute an offer to sell to or the solicitation of an offer to buy fromany person any financial products where it is unlawful to make the offer or solicitation in South Korea.Securities: BNP Paribas Securities Korea is registered as a Licensed Financial Investment BusinessEntity under the FINANCIAL INVESTMENT SERVICES AND CAPITAL MARKETS ACT and regulatedby the Financial Supervisory Service and Financial Services Commission. This report does notconstitute an offer to sell to or the solicitation of an offer to buy from any person any financial productswhere it is unlawful to make the offer or solicitation in South Korea.
Taiwan: BNP Paribas Taipei Branch is registered as a licensed bank under the Banking Act andregulated by the Financial Supervisory Commission, R.O.C. This report is directed only at Taiwanesecounterparties who are licensed or who have the capacities to purchase or transact in such products.This report does not constitute an offer to sell to or the solicitation of an offer to buy from any personany financial products where it is unlawful to make the offer or solicitation in Taiwan.
Thailand: Research relating to Thailand and Thailand based issuers is produced pursuant to anarrangement between BNP PARIBAS ('BNPP') and Finansia Syrus Securities Public Company Limited('FSS'). FSS International Investment Advisory Securities Co Ltd ('FSSIA') prepares and distributesresearch under the brand name 'BNP PARIBAS/FSS'. BNPP is not an affiliate of FSSIA or FSS. FSSalso publishes a different research product under the brand name 'FINANSIA SYRUS,' which isprepared by research analysts who are not part of FSSIA and who may cover the same securities,issuers, or industries that are the subject of this report. The ratings, recommendations, and viewsexpressed in this report may differ from the ratings, recommendations, and views expressed by otherresearch analysts or research teams employed by FSS. This report is being distributed outsideThailand by members of BNP Paribas.
Australia: This material, and any information in related marketing presentations (the Material), isbeing distributed in Australia by BNP Paribas ABN 23 000 000 117, a branch of BNP Paribas 662 042
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449 R.C.S., a licensed bank whose head office is in Paris, France. BNP Paribas is licensed inAustralia as a Foreign Approved Deposit-taking Institution by the Australian Prudential RegulationAuthority (APRA) and delivers financial services to Wholesale clients under its Australian FinancialServices Licence (AFSL) No. 238043 which is regulated by the Australian Securities & InvestmentsCommission (ASIC).The Material is directed to Wholesale clients only and is not intended for Retailclients (as both terms are defined by the Corporations Act 2001, sections 761G and 761GA). TheMaterial is subject to change without notice and BNP Paribas is under no obligation to update theinformation or correct any inaccuracy that may appear at a later date.
Some or all of the information contained in this document may already have been published onhttps://globalmarkets.bnpparibas.com
© BNP Paribas (2017). All rights reserved.
IMPORTANT DISCLOSURES by producers and disseminators of investment recommendationsfor the purposes of the Market Abuse Regulation:
Although the disclosures provided herein have been prepared on the basis of information we believeto be accurate, we do not guarantee the accuracy, completeness or reasonableness of any suchdisclosures. The disclosures provided herein have been prepared in good faith and are based oninternal calculations, which may include, without limitation, rounding and approximations.
BNP Paribas and/or its affiliates may be a market maker or liquidity provider in financial instruments ofthe issuer mentioned in the recommendation.
BNP Paribas and/or its affiliates may provide such services as described in Sections A and B of AnnexI of MiFID II (Directive 2014/65/EU), to the Issuer to which this investment recommendation relates.However, BNP Paribas is unable to disclose specific relationships/agreements due to clientconfidentiality obligations.
Section A and B services include A. Investment services and activities: (1) Reception andtransmission of orders in relation to one or more financial instruments; (2) Execution of orders onbehalf of clients; (3) Dealing on own account; (4) Portfolio management; (5) Investment advice; (6)Underwriting of financial instruments and/or placing of financial instruments on a firm commitmentbasis; (7) Placing of financial instruments without a firm commitment basis; (8) Operation of an MTF;and (9) Operation of an OTF. B. Ancillary services: (1) Safekeeping and administration of financialinstruments for the account of clients, including custodianship and related services such ascash/collateral management and excluding maintaining securities accounts at the top tier level; (2)Granting credits or loans to an investor to allow him to carry out a transaction in one or more financialinstruments, where the firm granting the credit or loan is involved in the transaction; (3) Advice toundertakings on capital structure, industrial strategy and related matters and advice and servicesrelating to mergers and the purchase of undertakings; (4) Foreign exchange services where these areconnected to the provision of investment services; (5) Investment research and financial analysis orother forms of general recommendation relating to transactions in financial instruments; (6) Servicesrelated to underwriting; and (7) Investment services and activities as well as ancillary services of thetype included under Section A or B of Annex 1 related to the underlying of the derivatives includedunder points (5), (6), (7) and (10) of Section C (detailing the MiFID II Financial Instruments) wherethese are connected to the provision of investment or ancillary services.
BNP Paribas and/or its affiliates do not, as a matter of policy, permit pre-arrangements with issuers toproduce recommendations. BNP Paribas and/or its affiliates as a matter of policy do not permit issuersto review or see unpublished recommendations.
BNP Paribas and/or its affiliates acknowledge the importance of conflicts of interest prevention andhave established robust policies and procedures and maintain effective organisational structure toprevent and avoid conflicts of interest that could impair the objectivity of this recommendationincluding, but not limited to, information barriers, personal account dealing restrictions andmanagement of inside information.
BNP Paribas and/or its affiliates understand the importance of protecting confidential information andmaintain a 'need to know' approach when dealing with any confidential information. Informationbarriers are a key arrangement we have in place in this regard. Such arrangements, along withembedded policies and procedures, provide that information held in the course of carrying on one partof its business to be withheld from and not to be used in the course of carrying on another part of itsbusiness. It is a way of managing conflicts of interest whereby the business of the bank is separatedby physical and non-physical information barriers. The Control Room manages this information flowbetween different areas of the bank where confidential information including inside information andproprietary information is safeguarded. There is also a conflict clearance process before gettinginvolved in a deal or transaction.
In addition, there is a mitigation measure to manage conflicts of interest for each transaction withcontrols put in place to restrict the information flow, involvement of personnel and handling of clientrelations between each transaction in such a way that the different interests are appropriatelyprotected. Gifts and Entertainment policy is to monitor physical gifts, benefits and invitation to eventsthat is in line with the firm policy and Anti-Bribery regulations. BNP Paribas maintains several policieswith respect to conflicts of interest including our Personal Account Dealing and Outside BusinessInterests policies which sit alongside our general Conflicts of Interest Policy, along with severalpolicies that the firm has in place to prevent and avoid conflicts of interest.
The remuneration of the individual producer of the investment recommendation may be linked totrading or any other fees in relation to their global business line received by BNP Paribas and/oraffiliates.
IMPORTANT DISCLOSURES by disseminators of investment recommendations for thepurposes of the Market Abuse Regulation:
The BNP Paribas disseminator of the investment recommendation is identified above includinginformation regarding the relevant competent authorities which regulate the disseminator. The nameof the individual producer within BNP Paribas or an affiliate and the legal entity the individual produceris associated with are identified above in this document.
The date and time of the first dissemination of this investment recommendation by BNP Paribas or anaffiliate is addressed above.
Where this investment recommendation is communicated by Bloomberg chat or by email by anindividual within BNP Paribas or an affiliate, the date and time of the dissemination by the relevantindividual is contained in the communication by that individual disseminator.
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Legal notice
The disseminator and producer of the investment recommendations are part of the same group, i.e.the BNP Paribas group. The relevant Market Abuse Regulation disclosures required to be made byproducers and disseminators of investment recommendations are provided by the producer for and onbehalf of the BNP Paribas Group legal entities disseminating those recommendations and the samedisclosures also apply to the disseminator.
If an investment recommendation is disseminated by an individual within BNP Paribas or an affiliatevia Bloomberg chat or email, the disseminator’s job title is available in their Bloomberg profile or bio. Ifan investment recommendation is disseminated by an individual within BNP Paribas or an affiliate viaemail, the individual disseminator’s job title is available in their email signature.
For further details on the basis of recommendation specific disclosures available at this link (e.g.valuations or methodologies, and the underlying assumptions, used to evaluate financial instrumentsor issuers, interests or conflicts that could impair objectivity recommendations or to 12 month historyof recommendations history) are available athttps://globalmarkets.bnpparibas.com/gmportal/private/globalTradeIdea. If you are unable to accessthe website please contact your BNP Paribas representative for a copy of this document.
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