It's All About The US Recovery

Editor’s note: Below is an interview with Gennadiy Goldberg, a U.S. strategist at TD Securities. This Q&A went out to subscribers of our “10 Things You Need To Know Before The Opening Bell” newsletter on Tuesday morning. Sign up below to get the newsletter and more of these interviews in your inbox every day.

BUSINESS INSIDER: What is the most exciting trade out there right now, in your opinion?

GENNADIY GOLDBERG: The most interesting theme right now is the U.S. recovery story — increasingly firmer U.S. data following a period of weather-influenced weakness should give way to stronger Q2 growth, prompting markets to further reassess their stance on the U.S. economy and the Fed. Underperformance in the Treasury curve belly is the most interesting play to take advantage of shifting expectations, with markets repricing for an earlier liftoff. This makes selling 5s on the 2s5s30s curve a particularly opportune trade, taking advantage of belly repricing while maintaining positive carry dynamics.

BI: Which developments in global financial markets, if any, would you flag as most concerning for risk appetite?

GG: Both the situation in Crimea and the Chinese growth story remain most concerning at the moment. Both should have relatively benign consequences on longer-term market trends, however, contributing to only short-term spurts of volatility. There has been great reluctance by the global community to implement meaningful sanctions on Russia in the wake of the Crimean annexation, and the Chinese growth story has increasingly contributed to less market volatility as the focus remains on the U.S. recovery.

BI: Eurodollar shorts got a nice payoff on their record-large positions from last week’s FOMC meeting. How do you think positioning will evolve between now and the next meeting?

GG: I think eurodollar shorts will remain in vogue after the market’s significant repricing late last week. I would expect some profit taking following the move, but short positions are likely to continue building as the U.S. recovery story gains further traction and data momentum begins to swing in a firmer direction.

BI: With the March FOMC meeting out of the way, what pieces of new information (e.g. economic data releases, price action in a given market over the next few days/weeks, etc.) do you think have the biggest potential to alter your outlook?

GG: With the Fed largely discounting recent economic slowing on the basis of weather, the data recovery story will come into full focus. We expect market direction to be driven largely by the evolution of 2014 growth projections, with a recovering outlook likely driving both stocks and Treasury yields higher.

BI: What do you perceive to be the most misunderstood trend or event in or characteristic of today’s markets?

GG: In my opinion, the most underemphasized trend in global recovery story of late has been the importance of the U.S. recovery. While concerns about EM and Chinese growth have dominated investor focus earlier this year, markets should remain more cognisant of the U.S. growth story. Most global outlooks hinge on U.S. growth leading the way higher this year, giving the U.S. recovery added importance in the global growth puzzle.

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