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Financial Recommendations For Euro-Based Companies

ByDanske Markets
Published 10/28/2013, 06:39 AM
Updated 05/14/2017, 06:45 AM

Market overview

Domestic political squabbling over the US budget has dominated the news in October, though the financial markets took the crisis more or less in their stride. Nevertheless, a final decision on US government finances has so far merely been postponed for a few months, meaning the prevailing uncertainty will probably not disappear completely.

Interest rate hedging

The Fed surprised the market by not beginning to taper its asset purchases in September. The decision is part of the reason why both US and European yields have moved lower.

We recommend a relatively high hedge ratio and maintaining overall duration above the benchmark in the USD, EUR and DKK.

Following a plunge in volatility we now see value in setting up a collar structure as an alternative to spot-starting swaps.

FX hedging

We have deferred the timing of the dollar strengthening that we still expect to see in 2014. Since a tapering of the extensive asset purchases will now probably not be announced until after the turn of the year, the outlook for higher yields in the US and by extension the outlook for USD appreciation, has been delayed.

Following a period with a steady flow of good news on the UK economy, the recent strengthening of the GBP now seems to be drawing to a close. We still believe that the market is too aggressive with regard to the timing of a BoE rate hike and we expect GBP to weaken next year. For income streams in GBP, we recommend hedging through the forward market.

It might be attractive to consider options on the income side both in NOK and SEK on account of the (relatively) high volatility.

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