BCA Long China, Short Treasuries and Long Europe

BCA Research just finished its  webcast on China, the US Fed and Europe .

China
The market is for China too negative. Although the Chinese government is determined, to let fail some smaller institutions, it would never risk its growth target of 7.5% p.a. by having a Lehman-like situation.
Please keep in mind China's currency reserves of USD 3.8 trillion and the high central bank rates which are at the government's disposition should a hard landing scenario become more likely.

The Chinese central bank has a lot of room lower rates

Fed / US Treasuries
The market is too complacent concerning the 10-year treasuries and the Fed rates. BCA also assumes that the first rate hikes will take place in June 2015, but they think that money market rates will increase swiftly thereafter; much more than the markets expects.

The market expects a nominal rate  of 2.25% as of 2016. This implies a real rate of 0.0%, while it averaged 1.8% in the past

Thus, USD bonds exhibit a high potential for negative surprises, and duration should therefore kept short.

Europe
The strength of the Euro is based on big current account surplus and a shrinking ECB balance sheet:

The big current account surplus confirms that there is a big demand for Euros. The shrinking ECB  balance sheet proofs that the ECB policy is restrictive, while the US Fed is still pursuing a expansive policy.