G10 Post-Plenum
In our Cross Asset Macro Strategy 2014 Outlook (Nov 11th), we highlighted 10 ‘alternative scenarios’ which could seriously surprise markets. A Treasury Market crash ranks highly, and Janet Yellen’s confirmation hearings should shed some light on how she intends to avoid this scenario as tapering commences next year. Another tail risk on our list is a China credit burst, and the recent Party Plenum was also supposed to detail the reforms designed to contain such risks. Yet, postplenum investors are none the wiser on the details (please see First Read on the 3rd Plenary Session, Nov 12th) and looking for trades. For G10 FX, we believe the message is simple: if reform happens and growth slows, trades with high betas to the conventional Chinese growth model will reverse.
Read the full report: UBS