Goldman’s Top Trades For 2017

Whether you think of the Vampire Squid as a prophetic cephalopod or a solid contrarian indicator hell-bent on muppetizing clients, there’s still something to be gained from checking the bank’s top picks. Here’s the first list for 2017:

  • Top Trade #1: Transatlantic economic divergences and political risks: Long US$ vs GBP and EUR
  • Top Trade #2: RMB weakening: Long $/CNY
  • TopTrade #3: Earning the ‘good carry’ in EM, hedging the China (and CNY) risk: Long BRL, RUB, INR and ZAR, short KRW and SGD
  • Top Trade #4: Long EM equities with insulated exposures to growth: Long Brazil, India and Poland, FX un-hedged
  • TopTrade #5:The ‘reflation’ theme broadens: Long 10-year US$ and EUR inflation
  • TopTrade #6: Long equity-like ‘carry’ with little duration risk through dividends: Long EURO STOXX 50 2018 dividends

And here’s what Goldman had to say in this context prior to the OPEC meeting, the Italian referendum, the ECB taper, and the upcoming FOMC meeting:

In the US, the unexpected outcome of the Presidential elections has kicked off a debate as to whether the economic policies under Mr Trump’s tenure will support aggregate demand (via lower taxation and higher public spending on infrastructure) or ultimately stifle potential output (through protectionism). Also more uncertain is what the response of the Federal Reserve might be given that the economy is already operating close to full capacity. The FOMC will have the first opportunity to eventually adapt its policy guidance to the new scenario when it next meets on 14 December. A clearer picture of the new Administration’s economic plans will only be available early next year.

In Europe, investors are waiting to hear from the ECB on 8 December, specifically on how much longer, at what pace and under which modalities the central bank intends to continue conducting asset purchases. The ECB’s bond buying programme, alongside the BoJ’s, has been a significant force behind the decline in the term premium across developed markets, and has kept EMU spreads largely in check. Changes to the stock and flow of the central bank buying could have repercussions on how the Euro area asset complex, including the single currency, perform entering the new year, and beyond. The result of the Italian referendum on constitutional reform, scheduled for 4 December, is also under the spotlight. Investors’ anxieties over this poll and its potential political repercussions have increased since the Brexit vote in June.

The OPEC meeting on 30 November will be important for the near-term inflation outlook and for Emerging Markets. There are several moving parts affecting the oil supply outlook: producing countries’ incentives not to comply with the agreed production cuts, the Trump Administration’s energy policy and its stance towards Iran, and the cost efficiency gains of US shale producers.

Let’s revisit these at the end of January and see how many have already blown the hell up.

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