In a note out this morning, Goldman’s Themistoklis Fiotakis gives an overview of the firm’s trading ideas right now.The primary idea is pretty simple:
Our Trading Stance: An Effort To Avoid Direct Exposure to the Euro-zone
The lack of predictability in Euro-zone policy developments and the high degree of volatility it has created for markets have made it particularly challenging to recommend trades around that theme. Over time, our attempts to actively trade Euro-zone-related developments have had varying degrees of success. Our long EUR/$ trade recommendation was the latest to fall victim to this broader market uncertainty. We initiated the trade under the assumption that reduced political tensions in the Euro-zone 10 days ago would also help the EUR move higher, given the significant degree of negative sentiment for the currency. Despite positive developments in Italy, Greece and Spain, however, market tensions have broadened. We therefore closed the trade yesterday at close to 1.34, as we thought that further deterioration in price action was likely.
The difficulty of recommending trades directly linked to Euro-zone sovereign risk has compelled us to seek trade ideas with as little exposure to Euro-zone volatility as possible and focused around parallel macro themes and developments. In FX space, we recommended long exposure in the MYR and SGD against both the USD and EUR, a trade that in the past had limited exposure to risk sentiment and that was predicated on the MYR and SGD having undershot their fundamentals due to extreme market tensions in October. We also recommended long RUB vs HUF because we expected energy prices to remain resilient and the HUF to be challenged by significant external vulnerability, as discussed in yesterday’s Daily.
In rates, we attempted to position ourselves for more easing in EM economies by receiving 2yr rates in Mexico, where our forecasts were the furthest below the forwards. Finally, in equities space we were recommending a long Wavefront US GDP growth basket until yesterday, in an attempt to benefit from improving US data. We have also recommended long HSCEI vs SPX positions in order to capitalise on the potential for more easing in China.
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