Goldman says: Bet on expansionary policy from the ECB and lower oil prices helping developed world consumers in 2015
Goldman Sachs’s global marco market research team, led by Francesco
Garzarelli, outlined its top macro eight trades for 2015 on Thursday,
offering a range of ideas from a short of the Euro to a bearish trade on
the price of copper relative to nickel.
The report’s top recommendations have ”a mildly pro-cyclical flavour”
and revolve around expectations that the U.S. economy is strengthening,
Eurozone economies could accelerate with expansionary monetary policy
from the European Central Bank’s, and falling oil prices will positively
impact disposable income in developed markets.
“In short, monetary policies
are set to diverge between the Euro area and US, a reflection of
diverging growth and inflation outlooks,” Goldman writes of its top
trade idea. It recommends a one-year EUR/Dollar put spread with a break
even around 1.19.
The number two trade for Goldman also relies upon the firm’s
expectations of U.S. monetary policy. Goldman recommends a zero cost
spread trade on the 10-year U.S. Treasury Note, which will benefit if
the oft-used benchmark trades above 3% by June, ahead of investors’
expectations. Goldman recommends buying a constant maturity 10-year U.S.
Treasury cap spread at between 3% and 3.5% and selling a corresponding
floor spread at between 2.24% and 1.75%, with both trades expiring on
June 30.
“We expect 10-year US Treasuries, currently yielding around 2.3%, to
trade at or above 3.0% next June – one quarter ahead of the
market-implied lift-off date for the Federal Funds rate,” notes Goldman.
Risks to Goldman’s top trading ideas for 2015 include the prospect that
the U.S. economy doesn’t live up to expectation, political polarization
in Europe leads to continued slack growth and the decline in oil prices
proves short-lived.
