Broad bias: Haven't posted in a while, with a broad EM sell-off as we enter summer trading with flat FX vol curves and a dovish ECB taper. The BTP selloff mania provided many "third-derivative" trades in things like fading a full hike discount in Fed Funds OIS by year end for example. The large scale EM rally we saw from 2016-2018 to see the 50 peak in the EEM MSCI, makes me think that the current pullback may be deeper than a short-term one, with excess liquidity contracting at a faster pace, likely to cement the trough in global vol, and spread widening. Nordea covers this well over the past few months. As such, I think it would be best to be selectively long names in EM that have stronger idiosyncratic drivers, than be caught in attempting to catch a "fade of a short-term selloff to capture another broad EM leg higher": I see this as Chile being a story to be long on, and in contrast, to be med-high conviction to be short ZAR in near term. 

Trade: Buy 6m 2x3 USDZAR Call Spread (ATMF @ 13.74 vs 14.50, spot ref: 13.43 ) for 0.48%: I think that it would be more of a grind higher rather than a swift move higher in spot, and given the flatness of the vol curve, (ATM vols falling in the expiries but OTM call vols flat as we move further out the tenors), think a ratio call spread works. For comparison, the same ratio spread for 3m would cost 1.335%, so the trade static rolls decently.

I can't believe exams and other 'real world responsibilities' have made me so unplugged to have missed the gravity of the HUF move. What a skewering. This day was coming, but didn't know it'd be this quick! Have heard PM's having to see 8bp wide b/o for 10K 01 which is nuts. I recall so clearly when pushing flatteners made so much sense in 2017 (worked well too!) and only briefly in 2018, and now we finally see an outright selloff come alive again, to which kinked the fwd rates curve and flipped the roll to deeply negative, making steepeners a positive roll trade. Communication from the NBH to deanchor the long end has sent HUF 5y5y back into the 2015-2017 range in the box vs EUR.

There isn't the most significant beta in HUF TWI to inflation, but current YoY move in EURHUF at 4.4%+ is likely to increase inflationary expectations, especially with recent MNB comments of not explicitly  targetting an exchange rate level and for CPI to be on track to be at 3.0% for remainder of 2018 - this is implicitly hawkish; or at least much less dovish than they were throughout 2017. Sell side have been pushing for steepeners (structures like 6x9 vs 5y) but these have moved so much already even if you think it works, it's a bit scary putting it on at these levels.  I do think this is a pass.. it's like the TRY / ARS selloff.. where it may be difficult to chase.

CZK has been a pay on the pullback for e.g. on the 1y1y on 1.40% to topside of the range at 1.75-1.80%, which turns my eyes to the only laggard so far in the rates move is PLN. Glapinski's comments to keep rates "most definitely" on hold for rest of 2018 and "with a high probability on hold" for 2019 is I think signal enough to see EURPLN FX squeeze higher above 4.300. I think on the hierarchy of CEE CB's most able to lean hawkish, it remains to be that CNB is at the top, followed by NBP and the MNB last.. with hands tied to the ECB, think we can see a further grind higher in EURPLN. However, there should be a floor somewhere though in the PLN front-end where the fact of a normalization cycle alone should keep rates from being too received... think this is somehwere around 1.90-2.00% area where paying there with a roll of -3bp per month seems reasonable to target top of range at 2.30% for a tactical play. I mean 21 x 24's pricing 49 bps is low indeed.. but it makes more sense to wait for pullbacks to pay. I'd be very surprised if we don't test 2.0% again in PLN 1y1y into H2.

Trade: Buy EURPLN Spot @ 4.28, Target: 4.35, stop 4.245
Trade: Pay PLN 1y1y @ 1.90%-2.00% Target: 2.30%

Macro: Think that CLP is a diamond in the rough that is LatAm at the moment. Leading indicators point to further growth upside for Chile, business confidence is sharply higher year-to-date, and inflation that is troughing at 2%, and not accelerating too rapidly suggests a positive outlook going ahead. BCCH has been telegraphing this by upgrading the growth and inflation forecast on Thursday, with Marcel commenting that "the probability of a more expansive monetary policy is reduced".  A comparison of spot USDCLP vs copper also shows a dislocation with short-term fair value probably closer to 600.

Trade: Short 3m USDCLP NDF at 631, Stop at 645, Target 600.
Think will settle for spot as we have seen implieds trade far further to realized historically, so no need to be pressured to sell vol at current (adding on the note of the broader view that we may be moving in a broadly higher vol environment). Markets only price 33bps of hikes for this year, and BCCH estimate that the policy rate should converge to its neutral level of between 4.0-4.5%. The 2y CLP is only barely at 3.25% which suggests that the 1m fwd fwds into the 2y ahead time period is around 4.0%. Have been speaking to a PM and one recommended to rec the belly of the CAMARA curve vs long FX. maybe.. but if we look at the 2y2y for e.g. rolldown for 1y is ~30 bps, falling from 50 bps of annual rolldown so there is that, which just a mechanical function of the hiking priced earlier, which maybe is still a fair idea to consider. 

​Trade: NOK 3y2y/5y5y Steepener
Last: 31bp
Rolls to: 44bp (+13bp)

Understandable to see NOK curve flattening in light of revision of inflation target to 2.0%, and hawkish signal from Norges to initiate hiking cycle with a hike by September; pricing however suggests room for more surprise is limited, as NIBOR rates are already above Norges' Forecast as of February.

Trade and what it rolls to: