Halister News

(Bloomberg) -- Goldman’s top trade recommendations for 2017 include bets on a stronger dollar, faster U.S. inflation in the U.S., a weaker yuan and carry trade opportunities in certain emerging markets, according to Nov. 17 note.

• First trade recommendation:
• Go long USD vs equally weighted EUR and GBP, with a basket indexed to 100; target 110 and a stop at 95
  • Cites USD positive factors, including rising likelihood of fiscal stimulus, more protectionism and immigration controls
  • Ongoing uncertainty over Brexit process will weigh on GBP, while slew of elections, including Italian political fallout after constitutional referendum, and elections in France, Germany and Netherlands, will weigh on EUR
  • Cuts GBP/USD 6-month forecast to 1.18 from 1.21; 12- months to 1.14 from 1.25

• Second recommendation:
• Long USD/CNY via 12-month non-deliverable forwards for initial target of 7.30 with stop at 6.75
  • Dilemma of China’s currency regime is keeping CFETS basket stable in environment of a rising dollar requires USD/CNY to rise meaningfully; this risks re-escalting capital outflows
  • Goldman cuts yuan forecasts; click here for details

• Third recommendation:
• Long equally-weighted basket of BRL, RUB, INR, ZAR vs short an equally-weighted basket of KRW and SGD; entry level of 100, total return target of 114 and stops at 93
  • Brazil, Russia, India and South Africa’s external balances have strengthened materially, inflation is on a declining trajectory; real carry is generous, prospects of stronger growth
  • Korea exposed to weakening CNY trend; low inflation in Singapore means that SGD expected to trade on weak side of SGD NEER band

• Fourth recommendation:
• Long U.S. 10-year TIPS break-even inflation at an entry level of 1.90%, with initial target of 2.30% and stop at 1.60%; long euro 10-year inflation via swaps at entry level of 1.25%, with target of 1.60% and stop at 1.00%
  • Expansionary U.S. fiscal policies in an economy close to full capacity, will likely push up domestic price and wage inflation
  • Along with a dovish ECB, potential for EUR to depreciate should push up inflation risk premium in EUR inflation swaps