GOLDMAN SACHS: Here Are Our Top 8 Trades For Next Year

Francesco GarzarelliBloomberg TVFrancesco Garzarelli

Goldman Sachs’ global macro team has just released its top trade recommendations for 2015.

These trades are not for everyone. They involve currencies, commodities and bonds. They also employ derivatives like options.

The underlying themes to these trades, however, telling.

“The trades crystallise the idea that the US economy, which is ending 2014 on a strong note, will continue to expand at an above-trend rate,” explain Goldman analysts led by Francesco Garzarelli. “This should progressively drive up real rates, and lead to an appreciation of the Dollar. On long-run historical comparisons, the greenback is still a ‘cheap’ currency on a trade-weighted basis.”

On Europe: “They are also geared to the notion that Euro area economic activity will start to see the benefits of an increasingly expansionary monetary policy, guided by the ECB’s proactive pursuit of a larger balance sheet. A mild relaxation of the fiscal stance (in the bigger economies individually and at the supranational level) and structural reforms should also support domestic demand.”

On “the New Oil Order”: “A third ‘theme’ that runs through the trades is what we have dubbed ‘the New Oil Order’ in our Commodity Research. An expansion and redistribution of supply should keep headline CPI inflation lower (providing central banks more leeway to keep or expand monetary accommodation), further support disposable income growth in the advanced economies and lead to a greater differentiation across the emerging economies, most evidently along the oil dependency spectrum.”

Without further ado:

  • Top Trade #1: EUR/$US downside via a one-year EUR/$US put spread.
  • Top Trade #2: 10-year US Treasuries above 3% but not below 2% in mid-2015, through cap and floor spreads at zero cost.
  • Top Trade #3: Long a Dec-2015 Eurostoxx 50 ‘bull’ call spread.
  • Top Trade #4: Long US High Yield credit risk via 5-year CDX HY junior mezzanine tranches.
  • Top Trade #5: Long an equity basket of EM crude oil importers (Taiwan, Turkey and India).
  • Top Trade #6: Short CHF/SEK.
  • Top Trade #7: Bearish Copper relative to Nickel, on supply divergence.
  • Top Trade #8: Long US Dollar against a basket of ZAR and HUF.

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