cs1

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES AND

ANALYST CERTIFICATIONS.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION

Client-Driven Solutions, Insights, and Access

FX Compass: Looking for signs of pushback FX Strategy

Long-dated US yields continue to respond more robustly to weak data than to

strong data: in FX as in other parts of fixed income, the net result is a

preference for carry-intensive currencies.

Against that backdrop, the innovation we highlight lies in the increased

policymaker resistance to currency appreciation, with selectiveness in picking

the right assets increasingly important in what are already mature trends. In this

context, we continue to prefer risk/reward in TRY.

Focus: Revising GBP forecasts higher

GBP remains one of the currencies with strongest exposure to a cyclical

recovery in the G10. In particular, it has positive exposure to the improvement in

euro area growth without the policy resistance to currency appreciation evident

from the ECB.

Although we do not expect the BoE Inflation Report to mark a change in policy

guidance, we do think the market is likely to continue to build in expectations of

a possible November start to a tightening cycle.

Given this, we are revising our EURGBP forecast lower to 0.7900. We are also

revising our 12m forecast to 0.75. As a result of these changes, our 3m

GBPUSD forecast is now 1.71 and our 12m forecast 1.76.

Trade Recommendations

We review our post-ECB trade recommendations for the subsequent break of

what our technical analysts view as important support in EURGBP. Implied vol

remains low but downside skew towards recent wides, hence we no longer

recommend risk/reversals. Instead, we would focus on limited downside or

leveraged downside exposures. For instance, we would consider:

3m EURGBP 0.80/0.78 put spreads, offering a maximum payout ratio of just

under 6.5x premium, and savings of approximately 30% versus the vanilla put.

3m EURGBP 0.79 digital put RKO 0.7650 for 9.5% of the EUR notional, which

offers cost savings of over one-third versus the vanilla digital put.

Elsewhere, we review the outlook for EURSEK and conclude that the April

inflation data are likely to extend the life of the range. We advocate waiting for

better levels to establish shorts versus NOK or GBP.

By contrast, we note that our economists' argument that a rate cut in Chile is a

clear possibility at this week's central bank meeting opens up the scope for an

immediately negative reaction in CLP in the wake the recent jump in inflation.

Research Analysts

Anezka Christovova

+44 20 7888 6635

[email protected]

Matthew Derr

+1 212 538 2163

[email protected]

Ray Farris

+65 6212 3412

[email protected]

Trang Thuy Le

+65 6212 4260

[email protected]

Alvise Marino

+1 212 325 5911

[email protected]

Bill Papadakis

+44 20 7883 4351

[email protected]

Bhaveer Shah

+44 20 7883 1449

[email protected]

Sean Shepley

+44 20 7888 1333

[email protected]

14 May 2014

Fixed Income Research

http://www.credit-suisse.com/researchandanalytics

14 May 2014

FX Compass: Looking for signs of pushback 2

In this issue:

Macro view: The path of least resistance 3

Weekly price action and positioning recap ................................ 6

GBP: Revising forecasts higher 8

SEK: Looking for better levels 11

Japan Portfolio Flow Update 14

Repatriation slows on better risk sentiment ............................. 14

GPIF Update: Changes likely in June ..................................... 14

Cash Portfolio Update 17

Derivative Portfolio Update 18

FX Forecast Summary 19

14 May 2014


Macro view: The path of least resistance The lack of market response to recent surprises in US data suggests that investors bias

towards carry-based strategies in EM space likely remains intact for the time being. The

emergence of several instances of official resistance to FX strength, however, highlights

the need to be increasingly selective in pursuing carry strategies.

We think the path of least resistance for the long carry bias is to maintain exposure to

currencies with higher willingness and ability to tolerate FX strength. In this regards, we

think the Turkish lira offers the most attractive risk reward.

A remarkably unchanged backdrop

The lacklustre response of yields to US data continues to be a major driver of FX price

action. US 10-year yields are now trading more than 1 standard deviation rich to our rate

strategys team model, marking the largest absolute deviation from the model since

August 2011 (Exhibit 1). As a result, while the USD has recently rebounded off of the six-

months low established on a TWI basis last week, it is essentially trading unchanged on a

YTD basis (Exhibit 2).

The divergence from fair value is not only symptomatic of the current trading environment

but also a signal that risks in the carry trade are building. Increased selectiveness in

carry strategies is our recommendation.

Exhibit 1: US 10s are trading rich to our model Exhibit 2: The USD is de facto unchanged YTD

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

3.50

Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

US 10s (%)

CS Modeled 10s

plus/minus 1 st dev

74.5

75.0

75.5

76.0

76.5

77.0

77.5

78.0

Sep-13 Nov-13 Jan-14 Mar-14 May-14

USD TWI

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service

Resistance to USD weakness is rising

The prospect of a weak USD in a low global growth environment is starting to produce

more concerted policy responses from central bankers. The events of the past week

provide several notable examples.

FX strength was a key topic of the most recent ECB press conference. ECB President

Draghi's surprising commitment to some form of policy response in June against the

threat of sustained low inflation was clearly related to recent euro strength (see here).

The Central Bank of Brazil opted not to roll over a portion of its outstanding USD swaps,

becoming a de facto net USD buyer for the first time since February 2013.

In Colombia the central bank announced it is switching from a regulated amount of daily

USD purchases to intervening as necessary, likely in response to the surge in inflows

after the inclusion in the GBI EM bond index.

Alvise Marino

+1 212 325 5911

[email protected]

Sean Shepley

+44 20 7888 1333

[email protected]

Anezka Christovova

+44 20 7888 6635

[email protected]

Matthew Derr

+1 212 325 2000

[email protected]

Trang Thuy Le

+65 6212 24260

[email protected]

Bhaveer Shah

+44 20 7883 1449

[email protected]

14 May 2014


More broadly, we note that Asian central banks FX reserves accumulation has gathered

pace again (Exhibit 3), with a notably more aggressive intervention dynamic in India in

recent months. We estimate that India's central bank has accumulated $14bn of FX

reserves alone in March and April and, probably another $4bn-$5bn more in May,

preventing USDINR from significantly undershooting 60.0.

Gauging tolerance to FX strength

Looking forward, in the absence of a near-term catalyst for USD upside we think episodes

such as the above will be more common. We also believe policymakers willingness to

tolerate FX strength will vary greatly. The issue is particularly relevant in the case of

emerging market currencies, where attractive carry metrics have generated broad

outperformance against the USD since the beginning of the year (Exhibit 4).

Exhibit 3: NJA FX reserve accumulation has spiked Exhibit 4: Carry has been the key performance

driver in EM space

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Dec-09 Feb-11 Apr-12 Jun-13

NJA ex Hong Kong FX reserves momgrowth (valuation adjusted), %

TRYZAR

CZK

HUF

PLN

MXN

BRL

CLP

COP

IDR

INRKRW

PHPSGD

THB

TWD

94

96

98

100

102

104

106

108

110

-0.50 -0.25 0.00 0.25 0.50 0.75 1.00

YT

D t

ota

l re

turn

in

de

x

(01

/01

/14

=1

00

)

12m risk-adjusted carry Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service Source: Credit Suisse

Assuming said carry dynamics are unlikely to change drastically in the near term, we try to

distinguish the currencies where additional USD weakness is likely to trigger policy

resistance from those which we think can continue to trade in line with the broader USD

dynamics. Our analysis focuses on recent developments in two key metrics, namely export

growth and monetary policy (Exhibit 5).

While the implications of recent export performance with regards to tolerance of FX

strength are relatively straightforward, drawing clear conclusions based on recent changes

in monetary policy is a more finicky affair.

Exhibit 5: Low export % and high carry likely imply low tolerance to FX strength

BRL

MXNCLPCOP

CZK

HUFPLN

ILS

RUB

ZAR

TRY

CNY

INRIDR

KRWMYR

PHPSGDTWD

THB

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

-15% -10% -5% 0% 5% 10% 15% 20%

3m

no

mia

l ra

te

Exports 3mma y/y % Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service

14 May 2014


We view the two as a distinction between willingness and ability to resist FX strength. The

recent export performance could be viewed as an metric for a countrys willingness to

resist FX strength. The backdrop of a still poor global growth outlook implies that countries

experiencing negative export growth might be more sensitive to currency appreciation

compared to one where exports are on a sharp rise.

The policy metric on the other hand is, in our view, a better metric of the countrys ability to

resist FX strength. Ceteris paribus, a country where the central bank has been in

tightening mode likely has more scope to ease, and therefore to resist FX strength,

compared to a country where monetary policy has been accommodative.

The fine print

The main caveat to this kind of analysis is that recent policy moves often underscore

idiosyncratic developments that are very specific to each country. A few highlights would

include the following.

Idiosyncratic non-economic factors have been major drivers behind recent policy

tightening efforts in Turkey and Russia. Domestic political stress in Turkey heading into

the March 2014 elections, as well as Russian President Putins threat to annex Crimea

weighed heavily on the lira and ruble in early March, forcing their central banks to act.

Both countries implemented significant tightening and put in place measures to limit

currency volatility at extraordinary meetings earlier this year. With political uncertainty

moderating for the time being, we think that both countries ability to push back on

unwanted currency strength has increased on the margin.

In Russia, while the ruble has found some stability in recent weeks, it is likely not yet at a

level that the central bank would consider worth containing and for further strength the

original intervention mechanism would regain relevance. A quick reversal of the surprise

50bp rate hike in late-April seems also unlikely. However, reduced exchange rate risks

may offer scope to relax domestic liquidity.

In Brazil, the central bank has welcomed a stronger BRL for the past two months, as

previously implemented monetary tightening had failed to undermine the primarily

supply-driven surge in inflation. With price pressures now surprising softer, activity data

underperforming, and still significant tightening priced in by local markets, we think

tolerance for FX strength has diminished sharply.

In India, although the RBI has been aggressive in capping INR appreciation to date, we

doubt they will intervene meaningfully against election-related flows. Exit polls on

Monday projected a strong victory for the BJP-led coalition National Democratic Alliance

(249-340 seats). The market has treated exit polls somewhat cautiously, but

expectations have probably shifted up from 240, pre polls. We see scope for INR to

extend gains towards 58-59 if final results this Friday match the lower end of the exit poll

projection and would not rule out a test of 57 in the event NDA obtains an absolute

majority. We previously mapped out a mild disappointment scenario which could lead to

a knee-jerk INR selloff if NDA wins only 200-220 seats (see India: Election scenarios

and market impacts). This range looks more likely to be 210-230 now.

Chile will be very much in play this week, with a rate decision on Thursday. Our

economists are calling for a 25bp cut, at odds with market consensus set for no change.

An outcome in line with our call would be consistent with a much weaker CLP and with

our generally bearish outlook for the peso. The recent sharp upside surprise to inflation

suggests that the central banks ability to tolerate FX strength might have diminished in

the near term, in the light of the previously implemented easing.

14 May 2014


Drawing conclusions

With little on the near-term horizon suggesting an imminent reversal in USD strength, we

think investors bias towards carry-based strategies in EM space will remain intact for the

time being. To the extent that this is triggering concerted policy responses, we think the

path of least resistance for the long carry bias is to add exposure to currencies with higher

willingness and ability to tolerate FX strength.

In this regards, we think the Turkish lira offers the most attractive risk reward. We

also expect to see more aggressive pushback against FX appreciation in Brazil.

Finally, as noted in our recent review of ECB policy, we note that the prospect of ECB

easing, or at least the likely increase in market pricing of a more accommodative policy

profile encourages an extension of capital into EM currencies that were already

recovering. Amongst these, we note the Turkish lira still offers very attractive carry levels.

Exhibit 6: Long TRY remains our favorite pro-carry strategy

12m risk adjusted forward implied carry

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

CZ

K

TW

D

ILS

TH

B

CLP

HU

F

PH

P

PL

N

MX

N

SG

D

INR

IDR

CO

P

ZA

R

KR

W

MY

R

RU

B

TR

Y

BR

L

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service

Weekly price action and positioning recap

USD TWI was broadly stronger against G10, but softer against EM on the week. CLP

continued its recent string of outperformance, while EUR and CHF lost ground. On a YTD

basis, AUD and NZD continue to lead among G10, while BRL has outperformed among

EM pairs.

Aggregate speculative positioning in the USD continued to hold relatively steady, with the

small net short extending 2pp to 6% of open interest. The largest movements on the week

came in specs JPY short, which contracted 11pp to be worth 62% as a share of OI, while

specs cut their net long in CHF by 10pp to 26% of OI. Specs net long in the GBP

continues to come off of recent extremes, while the NZD net long continues to extend and

is towards the upper end of the historical range.

14 May 2014


Exhibit 7: Current positioning versus the prior week Exhibit 8: Current positioning versus range since January 2010

Net Speculative Positions as a % of Open Interest Net Speculative Positions as a % of Open Interest

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

JPY CAD RUB USD AUD EUR CHF GBP MXN NZD

4/29/14

5/6/14

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

JPY CAD RUB USD AUD EUR CHF GBP MXN NZD

Range Since Jan 2010

5/6/14

Source: Credit Suisse, CFTC Source: Credit Suisse, CFTC

Exhibit 9: G10 five-day spot returns Exhibit 10: G10 2014 spot returns

Percentage change versus USD Percentage change versus USD

CHF

EUR

NZD

GBP

SEK

JPY

CAD

NOK

AUD

USD TWI

-2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0%

CAD

SEK

EUR

USD TWI

CHF

GBP

NOK

JPY

AUD

NZD

-4% -2% 0% 2% 4% 6%

Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse

Exhibit 11: EM five-day spot returns Exhibit 12: EM 2014 spot returns

Percentage change versus USD Percentage change versus USD

CZKPLN

THBHUF

SGDTWD

ILSCNYCOP

KRWMYR

BRLMXN

INRTRY

PHPZARRUB

CLP

-2.0% 0.0% 2.0% 4.0%

RUBCLP

CNYHUF

TWDPLNCZK

COPTHBILS

SGDMXNPHPMYRZAR

KRWTRYINR

BRL

-10% -5% 0% 5% 10%

Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse

14 May 2014


GBP: Revising forecasts higher GBP remains one of the currencies with strongest exposure to a cyclical recovery in

the G10.

In particular, it has positive exposure to the improvement in euro area growth without the

policy resistance to currency appreciation evident from the ECB.

Our preferred rates market indicators point to the strongest potential for policy

divergence between the UK and the euro area seen since the start of EMU.

Despite our expectation that the BOE's guidance will remain for a slow path of

tightening towards a lower terminal rate than in previous cycles, we think the market

will continue to build in expectations of a possible November start to a tightening cycle

by the Bank of England.

Given this, with EURGBP having fallen in line with our 3m forecast of 0.8150, we are

revising our forecast lower to 0.7900. We are also revising our 12m forecast to 0.75.

As a result of these changes, our 3m GBPUSD forecast is now 1.71 and our 12m

forecast 1.76.

Our downward revision to our EURGBP forecast is consistent with our technical

analysts' view of a decline towards 0.7800 following the recent break below 0.8150.

Risks to the view:

o Positioning has built to reflect the strength of the UK recovery, both in rates and FX.

o The Financial Policy Committee meeting in June may seek to implement macro-

prudential controls on mortgage lending through a higher hurdle on mortgage

payment affordability.

o The UK's current account deficit is historically elevated and requires financing

through short-term capital flows.

o The market prices for very limited risk associated with the Scottish referendum vote

and may be increasingly sensitive to headline-induced de-positioning as the vote

approaches.

Exhibits 13 - 14 provide two indicators of the extent to which the interest rate options

market prices for divergence between UK and euro area rates.

Exhibit 13 shows the ratio of implied volatility for 6m options on different rate tenors. The

divergence in expected volatility on 2yr and 5yr rates is at its most extreme since the start

of EMU.

Exhibit 14 complements this picture by highlighting a measure we use to show how quickly

the market prices for policy to exert a normal impact on the yield curve compared with the

highly abnormal influence it has had in the period of strong policy guidance. On this

measure, which has correlated more closely with EURGBP than interest rate spreads

themselves in the last two years, the difference between UK and euro area rates is at its

most extreme.

Sean Shepley

+44 20 7888 1333

[email protected]

14 May 2014


Exhibit 13: GBP / EUR rate vol differentials are extreme

Exhibit 14: Reflecting a market expectation of rapid GBP rate normalisation

31-Dec-99 30-Dec-04 30-Dec-09

1.0

1.5

2.0

GBP / EUR vol ratios

2s 5s 10s 30s

31-Dec-11 30-Dec-12 30-Dec-13

-0.50

-0.25

0.00

0.25

0.800

0.825

0.850

0.875

0.900

2s10s vol ratio term structure versus EURGBP

GBP - EUR 2s10s vol term structure EURGBP FX, RHS

Source: Credit Suisse Locus Source: Credit Suisse

The more balanced contributions to UK growth shown in Exhibit 15 provide increasing

comfort that the rapid tightening in the labour market is likely to be sustained. As such, we

do not believe that any macro-prudential measures targeting the housing market will

disrupt the recovery or indeed act as a substitute for higher interest rates. By contrast, we

are mindful of the increase in long GBP exposure and view this as a factor that will tend to

slow the pace of GBP appreciation.

Exhibit 15: Balanced contributions to growth suggests macro-prudential measures will not substitute for higher rates

Exhibit 16: Positioning via GBP longs is now elevated

Net GBP positioning as a percentage of total open interest

-100%

-60%

-20%

20%

60%

100%

2010 2011 2012 2013 2014

Source: Credit Suisse Locus Source: Credit Suisse

Review of recent GBP trade recommendations

In our analysis of the implications from last weeks ECB meeting, we advocated getting

into EURGBP-lower structures, as positions that are likely to benefit from the combination

of the pro-growth characteristics of ECB stimulus and the associated euro weakness that

the possibility of negative rates could bring about, while at the same time standing to make

further gains if the tightening UK labour market gets recognized by the BoE in its

upcoming Inflation Report this week.

14 May 2014


With EURGBP spot having dropped from by about 0.7% to 0.8140 since publication, and

3m implieds having picked up somewhat to 5.675%, the mark-to-market value of the

trades recommended last week has by now increased. Re-pricing indicatively the three

EURGBP options structures recommended last week off current spot and vol levels we

observe the following moves:

The 3m short 0.8450 call vs. long 0.79 put risk/reversal that was offered at

approximately zero cost now costs approximately 0.17%.

The 3m 0.79 digital put now costs approximately 14.3% of EUR notional (up from 10%).

The 3m 0.80 / 0.78 put spread now costs about 0.40% (up from 0.30%).

With the key levels highlighted by our technical analysts having been taken out in the price

action of the past couple of days, we now see a clearer path for the exchange rate to

make a significant break lower and we continue to favour EURGBP downside exposure.

However, we would be less inclined to sell calls in order to finance the purchase of puts at

these levels, given the increased downside skew (while the level of vol remains low) and

the possibility of any bounce-back after the recent sharp move lower that could result in

MTM losses.

We would also consider ways of cheapening the purchase of digi put, given the increase in

the cost of the recommended structures.

As a way to cheapen the digital put, we would consider purchasing a 3m EURGBP

0.79 digi put RKO 0.7650 for 9.5% of the EUR notional, which offers cost savings of

over one-third vs. the vanilla digi, and a maximum payout ratio of just over 10x premium.

We find the risk/reward in buying 3m EURGBP 0.80/0.78 put spreads still

attractive, offering a maximum payout ratio of just under 6.5x premium, and savings of

approximately 30% versus the vanilla 0.80 put premium.

The risk to both trades is limited to premium paid.

14 May 2014


SEK: Looking for better levels With a clear deflationary pressure and a need to ease, but not aggressive enough central

bank and favorable flow, the outlook for Swedish krona has proven rather difficult.

For the immediate horizon we prefer to keep a tactical range-trade outlook. From these

levels, that implies EURSEK could retrace further towards 8.85-8.90 levels and we

would be inclined to trade specific data risk.

But we keep a longer-term bearish view and SEK retrace may offer a clearer structural

trading opportunity. This would be most relevant against GBP or NOK, rather than EUR,

given the risk of ECB easing.

In terms of forecasts, we see EURSEK at 9.00 in three months and 9.20 in 12 months.

Exhibit 17: A range in the near term

8.7

8.8

8.9

9.0

9.1

9.2

Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14

EURSEK

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service

The latest data suggest some further retrace potential

The April inflation print was unfortunately not decisive enough to leave the market happy

with SEK shorts. CPI is now in line with Riksbanks April projections and CPIF is only

0.1%pp below, reducing to a large extent the negative surprise in the previous release. So,

the deflationary trade is on hold for a few weeks.

Until the next inflation release (on June 12), it may be growth data and potentially flow

support which could dominate. Given the low levels of the data surprise and the strong

current account surplus combined with potential Volkswagen/Scania deal related flow,

SEK could gain. In particular, we would think releases such as industrial production,

manufacturing confidence and exports offer some rebound scope, but there is no

economist consensus for these yet.

Anezka Christovova

+44 20 7888 6635

[email protected]

14 May 2014


Exhibit 18: Some scope for data (particularly growth) to start surprising positively Exhibit 19: Fundamental flow support is strong

-120

-90

-60

-30

0

30

60

90

120

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Economic Surprise Index - SEK

+ / - 1.65 st dev

0

10

20

30

40

50

60

70

80

Jan-05 Jul-07 Jan-10 Jul-12

CA, quarterly, sa,SEKbn

Trade, quarterly,sa, SEKbn

Scania inflow poteniallythe size of the quarterly CA

surplus

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL service, Citigroup surprise index

Source: Credit Suisse, Thomson Reuters Datastream

But the structural story is all about the deflationary pressure

The inflation behavior is to some degree a puzzle even for the Riksbank, as discussions

on the board indicate. Perhaps hardest to fathom is the low service inflation given higher

unit labour costs and relatively stronger household consumption (see the detailed review

in the last Monetary Policy Report, here). Meanwhile, the low goods inflation makes more

sense given imported pressures, too low external demand environment and

underperforming exports. But either way, the inflation is too low and the Riksbank is

increasingly acknowledging it needs to do something about it.

Exhibit 20: Inflation clearly underperforming peers (not to mention the target)

Exhibit 21: Market pricing in a much lower path than Riksbank, but only 12bps of easing by end-Sep

-1

0

1

2

3

4

5

6

Jan-05 Aug-06 Mar-08 Oct-09 May-11 Dec-12

SEK CPIF

NOK CPI

Germany HICP

EUR HICP

0.25

0.75

1.25

1.75

2.25

Jan-14 Nov-14 Sep-15

Riksbank rateprojection

Market pricing


Rate spreads should continue to move against SEK

Over the next few months, Riksbank would probably provide the key innovation to rate

spreads. A 25bps cut in July appears quite likely now given some progress with macro-

prudential measures and the clear recognition on the Board of an urgency to act on

inflation. Only about 12bps of that is priced in which compares to most of the expected

ECB cut already being reflected in eonia forwards.

14 May 2014


However, further out Riksbank may be stuck with lower rates for longer, while other

banks may provide more of the innovation by shifting hawkish a lot faster. Such a

divergence seems most appropriate for GBP and potentially also NOK, which would be

our favored expressions.

Exhibit 22: GBPSEK rate spreads are likely to move higher

Exhibit 23: NOKSEK already lagging rate differentials

9.00

10.00

11.00

12.00

13.00

14.00

15.00

-200

-150

-100

-50

0

50

100

150

200

250

300

Dec-04 Dec-07 Dec-10 Dec-13

GBPSEK 2y swap spread, bps

GBPSEK (RHS)

1.00

1.05

1.10

1.15

1.20

1.25

1.30

-100

-50

0

50

100

150

200

250

Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

NOKSEK 2y swap spread, bps

NOKSEK (RHS)


14 May 2014


Japan Portfolio Flow Update For the full report, which includes currency position and breakdown of the flows by

investor type, see here.

Repatriation slows on better risk sentiment

Japanese residents flows were about flat in April following strong repatriation in the

previous four months. We suspect the rebound in risk appetite and the better EM carry

environment helped, together with potentially some residual rebalancing motives.

Institutional composition: All categories except banks bought foreign assets in April.

In particular, investment trusts outflows amounted to 336bn compared to 93bn

repatriation in March, with this segment most suggestive of the risk appetite impact.

Pension funds also returned to foreign buying and lifers saw the highest monthly foreign

investment in 12 months.

Currency composition: The data on the currency composition are only available for

March, and hence do not capture the better carry environment. In G10, EUR saw sizeable

outflows and decrease in allocation, while the USD and AUD benefited from inflows. In

EM, EMEA and notably RUB suffered on increased geopolitical tension, while Asia

benefited from inflows.

Exhibit 24: Currency composition data showed EUR outflows, whereas AUD continues to be bought

Exhibit 25: All categories except banks showed outflows in April

100bn, positive number is portfolio outflow from Japan to abroad 100bn, positive number is portfolio outflow from Japan to abroad

0

20

40

60

80

100

120

140

160

180

200

0

100

200

300

400

500

600

Jan-05 Jul-06 Jan-08 Jul-09 Jan-11 Jul-12 Jan-14

Th

ou

sa

nd

sUSD cumulative flow

EUR cumulative flow (rhs)

AUD cumulative flow (rhs)

-40

-30

-20

-10

0

10

20

30

40

50

Jul-

11

Oct-

11

Jan

-12

Ap

r-12

Jul-

12

Oct-

12

Jan

-13

Ap

r-13

Jul-

13

Oct-

13

Jan

-14

Ap

r-14

Investment trusts Life ins.

Trust accounts Banks

Other Total

Source: Credit Suisse, Japan Ministry of Finance Source: Credit Suisse, Japan Ministry of Finance

GPIF Update: Changes likely in June

Further GPIF developments are likely to be announced around mid-June, in our view, near

the expected time of the Abe administrations new growth strategy.

The review should further align GPIF strategy with the recommendation from the final

report of the Panel of Sophisticating the Management of Public Funds, published in

November. The original time frame proposed to decide on a new policy asset mix was

within about one year (see Exhibit 14).

Recent changes already seem to have followed the recommendations that had been

planned to be addressed in the near term (see Exhibit 26). For instance, the Chairman

and Deputy Chairman of the GPIF Investment Committee were appointed in April both

of whom were expert members of the Advisory Panel and appear supportive of

Anezka Christovova

+44 20 7888 6635

[email protected]

Bhaveer Shah

+44 20 7883 1449

[email protected]

14 May 2014


decreasing the funds allocation to domestic bonds. Additionally, two changes

announced in April increase the focus on higher yielding instruments. First, more

aggressive benchmark indices would be used to yardstick passive investments (such as

the ROE-focused JPX Nikkei 400). Second, a new smart beta category was created

within active investments.

Exhibit 26: Roadmap for reforms as outlined in the Nov 2013 GPIF report

Based upon Annex 2 from: http://www.cas.go.jp/jp/seisaku/koutekisikin_unyourisk/pdf/e_final_report.pdf

Issues to be addressed

immediately

Issues to be addressed in about

one year

Goal to be

achieved

Revise investments within the

current policy asset mixDecide on new policy asset mix

Consider investment return targetsInvest in new types of assets

(mainly liquid assets)

Consider new benchmarks in

passive investmentsEstablish baby funds

Introduce incentive fees base on

mid-long term performance of

outside portfolio managers

Make investment committee

membership a full-time position

following a relaxation on

limitations for wages, employees,

costs

Consider securing leading experts Hire leading experts

Governance

structure

reform

Investment

reform

Invest in new types

of assets including

illiquid assets

Establish a

governing body

and fund

management

system with a high

level of expertise

Source: Credit Suisse

The FX impact of the GPIF review would most crucially depend on shifts in asset

allocations. Allocation limits will likely lean away from domestic bonds to higher return

assets, in our view, but there is uncertainty as to the degree of the shift and how much of

assets would be directed abroad or stay domestic.

The latest figures (slightly outdated, as of December 2013) showed domestic bond

allocations at 55%. We expect this to fall given the high international comparison and

low return of JGBs, though only a 3% further reduction is permitted under the current

60% +/-8% limit.

Domestic equity allocations on the other hand are already at 17%, close to the upper

range of the current 12% +/-6% target, and we expect the target to rise given the

Abenomics administrations suggestions for using GPIF as a vehicle to support domestic

stocks. Similarly, the 15% allocation within foreign stocks is at the high end of the 12%

+/-5% target.

However foreign bonds are at 11%, only at the middle of the current 11% +/-5% target.

Exhibit 27 shows the actual allocations of GPIF with the fund's current target allowances.

The international comparisons show GPIF's current domestic bond allocation is

considerably high.

14 May 2014


Exhibit 27: GPIF allocations, targets, and international comparison

Replicated from: http://www.cas.go.jp/jp/seisaku/koutekisikin_unyourisk/pdf/e_final_report.pdf

Actual allocations sourced from: http://www.gpif.go.jp/en/fund/

Q2 13 Q3 13 Q4 13Japan

(GPIF)

USA

(Cal Pers)

Canada

(CPPIB)

Norway

(GPFG)

Netherlands

(ABP)

Sweden

(AP 1-40)

Domestic bonds 59.9% 58.0% 55.2% 60% (+/- 8%) 30%

Foreign bonds 10.0% 10.1% 10.6% 11% (+/- 5%) 5%

Domestic

equities15.7% 16.3% 17.2% 12% (+/- 6%) 10%

Foreign equities 12.9% 13.5% 15.2% 12% (+/- 5%) 55%

Other 5% 0-5% 30% 11-17%

31%

36-39%

46-53%

International comparison of target allocations

17%

64%

35-40%

60%

39%

Actual realised

Source: Credit Suisse, GPIF, the BLOOMBERG PROFESSIONAL service

14 May 2014


Cash Portfolio Update

Exhibit 28: Positions in cash recommendations portfolio

No changes this week

Date Opened Trade Details Notional Units Spot Reference Forward Take Profit Spot Loss %Gain P&L in USD

11-Mar-14 Short EURPLN 1 4.22 4.24 4.10 4.26 1.24% 123,746

Closed Positions

Date opened Closed positions Notional units Reason closed Date closed Fwd at open Fwd at Close % Gain P&L in USD

12-Nov-13 Long USDTRY 1 Hit target 07/01/14 2.0918 2.1803 4.06% 405,880

07-Jan-14 Short CLPCOP 1 Stop loss 30/01/14 3.6190 3.6697 -1.34% (133,764)

09-Oct-13 Long GBPNOK 1 Closed 11/02/14 9.6502 10.0917 4.52% 451,614

05-Nov-13 Long GBPSEK 1 Closed 11/02/14 10.4916 10.6034 1.08% 108,180

21-Jan-14 Short AUDUSD 1 Closed 11/02/14 0.8747 0.9001 -2.82% (281,800)

25-Sep-13 Long USDPHP 3m NDF 1 Closed 11/02/14 43.0000 44.9370 4.31% 431,048

07-Jan-14 Long USDTHB 1 Stop loss 14/02/14 33.4911 32.4546 -3.19% (319,369)

04-Dec-13 Long INRIDR 1 Stop loss 17/02/14 192.6400 186.8127 -3.13% (312,931)

11-Mar-14 Long COPBRL 1 Stop loss 08/04/14 0.1146 0.1136 -0.93% (93,125)

16-Apr-14 Long SGD basket

(*spot refs based on

USDSGD)

1 Closed

16/04/14

1.2691 1.2531 0.67% 67,161

11-Mar-14 Long PLNHUF 1 Stop loss 01/05/14 74.1274 72.8969 -1.70% (170,016)

Unrealised P&L: 123,746

Realized P&L: 152,876

Total P&L 2014: 276,622

Hit Rate: 50%

Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at the original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments may be subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. The P&L results shown do not include relevant costs, such as commissions, interest charges, or other applicable expenses. (*) Spot ref based on USDSGD. Source: Credit Suisse

14 May 2014


Derivative Portfolio Update

Exhibit 29: Positions in derivative recommendations portfolio

The long 2m USDRUB RKO call expired, losing the 0.42% premium paid.

Date Opened Trade Details Entry Cost Current Value P&L

(as % of Notional) Notional (in USD)

P&L (in USD)

6-May-14 Buy 1m EURUSD call 0.33% 0.03% -0.30% 100,000,000 -295,149

23-Apr-14 Buy 2m 1x1 USDMYR RKI call spread 0.28% 0.07% -0.21% 100,000,000 -210,000

23-Apr-14 Buy 2m 1x1.5 USDBRL call spread 0.77% 0.29% -0.49% 100,000,000 -485,000

23-Apr-14 Buy 2m 1x1.5 USDCLP call spread 0.65% 0.21% -0.44% 100,000,000 -440,000

23-Apr-14 Buy 3m 1x2x1 AUDUSD RKI put butterfly 0.35% 0.22% -0.13% 100,000,000 -131,035

23-Apr-14 Buy 6w USDJPY RKO call 0.30% 0.23% -0.07% 100,000,000 -70,000

8-Apr-14 Buy 3m USDCNH put 0.30% 0.05% -0.26% 100,000,000 -255,000

8-Apr-14 Buy 2m USDCAD 1x1.5 put spread 0.49% 0.44% -0.05% 100,000,000 -50,000

25-Mar-14 Buy 3m AUDCAD RKO digital put 10.00% 8.20% -1.80% 1,000,000 -18,386

14-Jan-14 Buy 6m AUDNZD digital put 12.50% 1.32% -11.19% 1,000,000 -116,782

26-Nov-13 Buy 1y USDBRL seagull 0.30% -1.43% -1.73% 100,000,000 -1,730,000

26-Nov-13 Buy 1y1y USDRUB FVA 12.00% 14.43% 2.43% 10,000 24,250

9-Apr-13 Buy 2y USDJPY call 1.83% 0.11% -1.73% 100,000,000 -1,725,000

9-Apr-13 Buy 2y zero cost USDJPY RKI risk reversal 0.00% -0.01% -0.01% 100,000,000 -12,500

6-May-14 Buy 1m EURUSD call 0.33% 0.03% -0.30% 100,000,000 -295,149

Closed Positions

Date Closed Trade Details Entry Cost Date Opened P&L

(as % of Notional) Notional (in USD)

P&L (in USD)

9-May-14 Buy 2m USDRUB RKO call 0.42% 10-Mar-14 -0.42% 100,000,000 -420,000

4-May-14 Buy 3m USDJPY RKI risk reversal 0.11% 4-Feb-14 -0.27% 100,000,000 -110,000

18-Apr-14 Buy 2m USDRUB 1x1.5 call spread 0.44% 18-Feb-14 -0.44% 100,000,000 -440,000

14-Apr-14 Buy 3m EURGBP 1x1.5 RKI put spread 0.38% 14-Jan-14 -0.38% 100,000,000 -383,409

8-Apr-14 Buy 3m AUDUSD RKO digital put 11.00% 11-Mar-14 -8.25% 1,000,000 -85,913

8-Apr-14 Buy 6m AUDUSD digital put 15.00% 23-Oct-13 -13.40% 1,000,000 -130,202

8-Apr-14 Buy 6m USDCAD seagull 0.41% 14-Jan-14 -0.41% 100,000,000 -405,000

8-Apr-14 Buy 3m USDCAD RKO call 0.24% 11-Feb-14 -0.05% 100,000,000 -52,000

8-Apr-14 Sell 2m USDCAD call, buy 1y Canadian OIS 0.53% 11-Mar-14 -0.03% 100,000,000 -34,567

8-Apr-14 Buy 3m USDZAR KI call 1.40% 10-Mar-14 -0.47% 100,000,000 -470,000

8-Apr-14 Buy 6m USDZAR 1x1.5 call spread 0.20% 21-Jan-14 0.17% 100,000,000 170,000

4-Apr-14 Buy 2m EURUSD 1x1 put spread 0.36% 4-Feb-14 -0.36% 100,000,000 -364,884

18-Mar-14 Buy 1m EURGBP RKO put 0.20% 18-Feb-14 -0.20% 100,000,000 -202,085

18-Mar-14 Buy 3m CADMXN RKO put 0.35% 19-Dec-13 -0.29% 100,000,000 -281,953

30-Jan-14 Buy 3m CADMXN 1x2 put spread 0.64% 30-Oct-13 2.01% 100,000,000 1,887,003

3-Feb-14 Buy 2m USDRUB 1x1.5 call spread 0.26% 3-Dec-13 0.10% 100,000,000 97,617

27-Jan-14 Buy 3m USDTRY RKO call 0.41% 7-Jan-14 -0.41% 100,000,000 -410,000

26-Jan-14 Buy 2m USDJPY call 0.45% 26-Nov-13 -0.45% 100,000,000 -450,000

21-Jan-14 Buy 2m USDZAR RKO call 0.60% 17-Dec-13 0.55% 100,000,000 548,750

16-Jan-14 Buy 2m USDTRY RKO call 0.45% 17-Dec-13 -0.45% 100,000,000 -450,000

20-Jan-14 Buy 1m USDSGD call 0.23% 17-Dec-13 0.26% 100,000,000 260,000

Please see the Structured Securities, Derivatives, and Options Disclaimer. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at the original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments may be subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. The P&L results shown do not include relevant costs, such as commissions, interest charges, or other applicable expenses. Source: Credit Suisse

14 May 2014


FX Forecast Summary

Major Currencies1 vs. Spot

Forecasts 3m 12m

US Dollar TWI 86.00 87.51 93.60 Bullish. As the Fed continues to taper, we expect many EM currencies to

remain under pressure, as excesses of the unprecedented period of record

low US interest rates begin to reveal themselves.

by market convention EUR 1.389 1.360 1.320

JPY 101.7 106.0 120.0

GBP 1.695 1.722 1.760

CHF 0.877 0.904 0.924

AUD 0.939 0.910 0.820

CAD 1.087 1.080 1.160

SEK 6.508 6.618 7.045

Euro TWI 97.1 95.8 95.38 Moderately bearish. The ECBs dovish rhetoric on potential QE will likely

make the euro sensitive to data and ECB comments, but implementation

faces barriers. EURUSD prospects will be determined by the evolution of

short-term real interest rate differentials and flow-based factors, where we

see scope for the euro support to diminish a little.

foreign currency units per

euro

USD 1.389 1.360 1.320

JPY 141.2 144.2 158.4

GBP 0.819 0.790 0.750

CHF 1.218 1.230 1.220

AUD 1.480 1.495 1.610

CAD 1.510 1.469 1.531

SEK 9.039 9.000 9.300

Japanese Yen TWI 136.5 131.8 118.1 Bearish. In the next month or so, lower US yields in response to the slowing

in the US are likely to keep USDJPY languishing around 102. However, we

expect the US economy and yields to bounce up in the late spring. The

ongoing deterioration in Japan's current account deficit, combined with our

outlook for US yields to rise later this year, should keep USDJPY trending

slightly higher.

yen per unit foreign

currency

USD 101.7 106.0 120.0

EUR 141.2 144.2 158.4

GBP 172.4 182.5 211.2

CHF 115.95 117.20 129.84

AUD 95.44 96.46 98.40

CAD 93.5 98.1 103.45

SEK 15.63 16.02 17.03

UK Sterling TWI 86.32 89.31 94.53 Bullish. Data remain strong and market expectations for the BoE to hike

continue to be bought forward. Expectations for divergence between

Eurozone and UK rates are at historic highs. However high positioning is a

risk to this view, particularly as the Scottish referendum approaches.

Whilst housing concerns remain we do not expect any macroprudential

measures from the FPC to have a significant negative impact on GBP.

foreign currency units per

pound

USD 1.695 1.722 1.760

EUR 1.221 1.266 1.333

JPY 172.4 182.5 211.2

CHF 1.487 1.557 1.627

AUD 1.806 1.892 2.146

CAD 1.843 1.859 2.042

SEK 11.03 11.39 12.40

Swiss Franc TWI 146.9 144.9 146.2 Neutral to bearish. EURCHF looks set to remain near-term range-bound as

Switzerlands superior growth prospects are counterbalanced by the SNBs

continued dovish focus on the 1.20 floor given low inflation, while other

bilaterals look set to rise. Risks relate to the potential unwinding of crisis-

related flows and CHF becoming a funding currency.

francs per unit foreign

currency (per 100 units

for JPY and SEK)

USD 0.877 0.904 0.924

EUR 1.218 1.230 1.220

JPY 0.862 0.853 0.770

GBP 1.487 1.557 1.627

AUD 0.823 0.823 0.758

CAD 0.807 0.837 0.797

SEK 13.48 13.67 13.12

1 Major currencies, defined and ranked by order of their reported foreign exchange market turnover from the BIS 2004 Triennial

Central Bank Survey.

14 May 2014


Regional Currencies vs. Spot

Forecasts

Comments 3m 12m

Americas

Brazilian Real USD 2.210 2.400 2.580 Bearish. The deterioration in fiscal accounts exposes credit to a downgrade

risk. Furthermore, BRL remains vulnerable to Fed tapering, and political risk

should rise ahead of the October election. Limited easing from the Chinese

authorities and an unimpressive recovery from Europe should also hurt exports.

Canadian Dollar TWI 104.1 105.2 99.0 Bearish. We think the Bank of Canada will turn more dovish in H1. In the

absence of offsetting flows from reserve manager demand, we think this will

help push the CAD towards a less expensive valuation level. USD 1.087 1.080 1.160

Mexican Peso USD 12.95 13.50 13.00 Long-Term Bullish. The recent stream of negative growth surprises in Mexico

reinforces our bias for a weak peso in the near term, with limited impact on

MXN's long-term prospects. In the aftermath of the ambitious reform agenda of

late 2013, the focus has shifted to the softer tone emerging from recent data.

Colombian Peso USD 1905 1875 1955 Bullish. The peso will prove relatively resilient in a rising US yield environment.

Alongside stronger domestic fundamentals, portfolio inflows should continue giving

support. Monetary policy tightening expectations have also shifted earlier.

Chilean Peso USD 555.9 570.0 575.0 Bearish. We remain of the view that monetary accommodation and an

extended slowdown in mining FDI will weigh on CLP in coming months.

Pacific

Australian Dollar USD* 0.939 0.910 0.820 Long-term bearish. The RBA seems likely to turn more dovish after the Q2

inflation print, with declining yield spreads and falling commodity prices

pulling AUD down further out. JPY* 95.44 96.46 98.40

NZD* 1.085 1.060 1.020

NZ Dollar USD* 0.865 0.858 0.804 Mixed. We expect NZD to outperform AUD but to lose ground against USD in a

broad USD strength environment. We look for monetary and economic

divergence between Australia and New Zealand to continue driving AUDNZD

lower in 2014.

JPY* 87.94 91.00 96.47

Scandinavia

Swedish Krona EUR 9.039 9.000 9.300 Bearish. The latest inflation data have been slightly better than expected and

should keep SEK trading range bound for the near term. In the longer term,

weak underlying price pressures and rate spreads should work against SEK. USD 6.508 6.618 7.045

Norwegian Krone EUR 8.162 8.050 8.450 Long term bearish. Data have improved, with house prices surging, lending

rates falling, stronger business surveys and looser fiscal policy. Yet despite

the upbeat short term outlook, deeper long term structural issues still remain. USD 5.876 5.919 6.402

SEK* 1.107 1.118 1.101

Emerging Europe, Middle East and Africa Czech Koruna EUR 27.40 27.30 27.30 Neutral. Low inflationary pressure should support the credibility of the floor

while negative carry suggests the koruna can play the role of a funding

currency for the region. In the medium term, we believe the inflation dynamic

will prove crucial in determining the exit strategy from the current policy.

Hungarian Forint EUR 303.6 315.0 320.0 Bearish. The dovish central bank remains our key concern. Yet, our base

case is for only moderate depreciation pressure. With a still-high basic

balance surplus, acceptable growth and a reasonable fiscal position, we do

not envisage any serious difficulty in meeting the external financing needs.

Polish Zloty EUR 4.18 4.10 4.05 Bullish. Poland's economy is rebounding, its credit profile is solid and real

yields are positive. We suspect that most of the negative impact on bond

flows from the pension reform has already passed. Poor EM risk appetite and

Ukraine tensions are risks, but PLN should remain relatively resilient.

Israeli Shekel USD 3.45 3.53 3.55 Moderately bearish. Strong opposition to ILS strength from Bank of Israel

essentially eliminates room for the shekel to appreciate much beyond 3.45, in

our view. FX interventions remain high, yields continue to move against the

currency, and trade exports recently showed a very heavy mom decline.

14 May 2014


Regional Currencies vs.

Spot Forecasts

Comments 3m 12m

Russian Rouble Bask 41.2 43.5 43.0 Moderately bearish. The economy and current account remain weak, and

Ukraine tensions could have important negative implications for asset prices

and growth. However, the CBR has delivered an aggressive response and,

unlike previously, the authorities now appear to see further RUB weakness as

undesirable.

Rouble versus basket: USD 35.1 37.4 37.6

.55*USD+.45*EUR EUR 48.7 50.9 49.6

South African Rand USD 10.36 11.20 11.50 Bearish. We expect further deterioration in domestic fundamentals to combine

with higher US Treasury yields to weaken the rand. However, short-term factors

may keep the rand temporarily supported over the next few weeks. EUR 14.38 15.23 15.18

Turkish Lira Bask 2.48 2.67 2.75 Bearish. Recent tightening appears sufficient for now to placate markets and

constrain domestic demand. However, the current account deficit should remain

too large to protect against pressures on EMs from rising US yields. Political

risks are elevated and central bank credibility remains to be tested.

Lira versus basket: USD 2.07 2.26 2.37

.50*USD+.50*EUR EUR 2.88 3.08 3.13

Asia

Chinese Renminbi USD 6.23 6.10 6.07 Bullish. The recent rise in the USDCNY fix and resulting rally in the onshore

spot and USDCNH are likely to be temporary. Chinas BoP surplus has risen

sharply and its trade surplus with the US has hit a record level. We continue to

expect the authority to resume trend CNY appreciation in the coming months.

Indian Rupee USD 59.9 61.0 62.5 Bullish vs. forwards. We see scope for INR to appreciate to 58-59 if Friday's

election results confirmed a strong victory for the BJP-led coalition. An absolute

majority could drive a test to 57. We dont think the RBI will intervene

meaningfully against election-related inflows.

Indonesian Rupiah USD 11560 11800 11800 Bearish. Although our forecasts are in line with the NDFs we see risk of bouts

of overshoot around policy and election risk. Market concern about rising fuel

subsidy costs for the government are increasing, creating a risk of a fuel price

shock in the next few months.

Korean Won USD 1023 1045 1055 Bullish vs. JPY. The current account will enter a period of positive seasonality

through to September and Korea's recent improved export performance should

reduce concerns about a negative yen impact.

Malaysian Ringgit USD 3.25 3.33 3.38 Bearish. We expect US yields to rebound into the summer and bond outflows

to resume. Malaysia's current account surplus will likely narrow as robust

investment boosts imports.

Philippines Peso USD 43.9 45.5 45.8 Bearish. Carry remains low , leaving PHP vulnerable to periods of US rate sell-

off. However, the BSP has turned more hawkish recently, providing more

support for PHP than we initially thought.

Singapore Dollar USD 1.247 1.270 1.280 Neutral. We expect Singapores central bank (MAS) to maintain the current

appreciation path for the SGD nominal effective exchange rate. We estimate the

appreciation slope to be 2%pa with +/-2% bandwidth.

Taiwan Dollar USD 30.08 29.80 29.90 Neutral. Taiwans central bank should continue to manage volatility on both

sides. In the very near term, the Chinese government's change in direction for

the USDCNY fix might spur some outflows from the now sizable USDCNT

deposit base in Taiwan, back into TWD.

Thai Baht USD 32.49 33.50 33.50 Bearish. Political stress has risen and could escalate further in the coming

weeks as the Senate looks likely to proceed to appoint a new government.

Exchange rates are home currency per foreign currency unit, unless indicated by * (= inverse quotation). Source: Credit Suisse

GLOBAL FIXED INCOME AND ECONOMICS RESEARCH

Ric Deverell

Global Head of Fixed Income and Economics Research

+1 212 538 8964

[email protected]

GLOBAL MACRO PRODUCT STRATEGY

Sean Shepley

Global Head of CS Macro Product Strategy

+44 20 7888 1333

[email protected]

GLOBAL RATES STRATEGY

GLOBAL COMMODITIES RESEARCH

Helen Haworth, CFA Carl Lantz

Tom Kendall

Co-Head of Global Rates Co-Head of Global Rates

Group Head Jan Stuart

+44 20 7888 0757 +1 212 538 5081

+44 20 7883 2432 +1 212 325 1013

[email protected] [email protected] [email protected] [email protected]

EU RATES US RATES Marcus Garvey Johannes Van Der Tuin

Panos Giannopoulos Ira Jersey +44 20 7883 4787 +1 212 325 4556

+44 20 7883 6947 +1 212 325 4674 [email protected] [email protected]

[email protected] [email protected]

Bhaveer Shah Andrew Shaw

Thushka Maharaj Michael Chang +44 20 7883 1449 +65 6212 4244

+44 20 7883 0211 +1 212 325 1962 [email protected] [email protected]


GLOBAL FX STRATEGY

Marion Pelata Carlos Pro Sean Shepley

+44 20 7883 1333 +1 212 538 1863 Group Head Mark Astley

[email protected] [email protected] +44 20 7888 1333 +44 20 7883 9931


Florian Weber William Marshall

+44 20 7888 3779 +1 212 325 5584 Anezka Christovova Alvise Marino

[email protected] [email protected] +44 20 7888 6635 +1 212 325 5911


JAPAN RATES

Tomohiro Miyasaka Matthew Derr

+81 3 4550 7171 +1 212 538 2163


TECHNICAL ANALYSIS MARKET STRATEGIES

David Sneddon Sean Shepley

Group Head Christopher Hine Group Head David Homan

+44 20 7888 7173 +1 212 538 5727 +44 20 7888 1333 +1 212 325 5134

[email protected] [email protected] [email protected] [email protected]

James Lim Bill Papadakis Glenn Russo

+65 6212 3612 +44 20 7883 4351 +1 212 538 6881

[email protected] [email protected] [email protected]

Disclosure Appendix

Analyst Certification The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

Important Disclosures Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail, please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html . Credit Suisse's policy is to publish research reports as it deems appropriate, based on developments with the subject issuer, the sector or the market that may have a material impact on the research views or opinions stated herein. The analyst(s) involved in the preparation of this research report received compensation that is based upon various factors, including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's Investment Banking and Fixed Income Divisions. Credit Suisse may trade as principal in the securities or derivatives of the issuers that are the subject of this report. At any point in time, Credit Suisse is likely to have significant holdings in the securities mentioned in this report. As at the date of this report, Credit Suisse acts as a market maker or liquidity provider in the debt securities of the subject issuer(s) mentioned in this report. For important disclosure information on securities recommended in this report, please visit the website at https://firesearchdisclosure.credit-suisse.com or call +1-212-538-7625. For the history of any relative value trade ideas suggested by the Fixed Income research department as well as fundamental recommendations provided by the Emerging Markets Sovereign Strategy Group over the previous 12 months, please view the document at http://research-and-analytics.csfb.com/docpopup.asp?ctbdocid=330703_1_en . Credit Suisse clients with access to the Locus website may refer to http://www.credit-suisse.com/locus For the history of recommendations provided by Technical Analysis, please visit the website at www.credit-suisse.com/techanalysis . Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Emerging Markets Bond Recommendation Definitions Buy: Indicates a recommended buy on our expectation that the issue will deliver a return higher than the risk-free rate. Sell: Indicates a recommended sell on our expectation that the issue will deliver a return lower than the risk-free rate.

Corporate Bond Fundamental Recommendation Definitions Buy: Indicates a recommended buy on our expectation that the issue will be a top performer in its sector. Outperform: Indicates an above-average total return performer within its sector. Bonds in this category have stable or improving credit profiles and are undervalued, or they may be weaker credits that, we believe, are cheap relative to the sector and are expected to outperform on a total-return basis. These bonds may possess price risk in a volatile environment. Market Perform: Indicates a bond that is expected to return average performance in its sector. Underperform: Indicates a below-average total-return performer within its sector. Bonds in this category have weak or worsening credit trends, or they may be stable credits that, we believe, are overvalued or rich relative to the sector. Sell: Indicates a recommended sell on the expectation that the issue will be among the poor performers in its sector. Restricted: In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated: Credit Suisse Global Credit Research or Global Leveraged Finance Research covers the issuer but currently does not offer an investment view on the subject issue. Not Covered: Neither Credit Suisse Global Credit Research nor Global Leveraged Finance Research covers the issuer or offers an investment view on the issuer or any securities related to it. Any communication from Research on securities or companies that Credit Suisse does not cover is a reasonable, non-material deduction based on an analysis of publicly available information.

Corporate Bond Risk Category Definitions In addition to the recommendation, each issue may have a risk category indicating that it is an appropriate holding for an "average" high yield investor, designated as Market, or that it has a higher or lower risk profile, designated as Speculative, and Conservative, respectively.

Credit Suisse Credit Rating Definitions Credit Suisse may assign rating opinions to investment-grade and crossover issuers. Ratings are based on our assessment of a company's creditworthiness and are not recommendations to buy or sell a security. The ratings scale (AAA, AA, A, BBB, BB, B) is dependent on our assessment of an issuer's ability to meet its financial commitments in a timely manner. Within each category, creditworthiness is further detailed with a scale of High, Mid, or Low with High being the strongest sub-category rating: High AAA, Mid AAA, Low AAA - obligor's capacity to meet its financial commitments is extremely strong; High AA, Mid AA, Low AA obligor's capacity to meet its financial commitments is very strong; High A, Mid A, Low A obligor's capacity to meet its financial commitments is strong; High BBB, Mid BBB, Low BBB obligor's capacity to meet its financial commitments is adequate, but adverse economic/operating/financial circumstances are more likely to lead to a weakened capacity to meet its obligations; High BB, Mid BB, Low BB obligations have speculative characteristics and are subject to substantial credit risk; High B, Mid B, Low B obligor's capacity to meet its financial commitments is very weak and highly vulnerable to adverse economic, operating, and financial circumstances; High CCC, Mid CCC, Low CCC obligor's capacity to meet its financial commitments is extremely weak and is dependent on favorable economic, operating, and financial circumstances. Credit Suisse's rating opinions do not necessarily correlate with those of the rating agencies.

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