Wednesday, 27 November 2013

Top trades of 2014

So, over the last few days, we've seen various sell-side institutions come out with top trades of 2014 so lets have a look

Goldman Sachs

#1 Long S&P, funded by short AUD executing in the December 2014 futures contract at 1986.8, targeting 2250 (+13%) and stop below 1855 (-6%)

Rationale for this is as followed "Long the S&P 500: “Earn the DM risk premium, Offset by a short AUD position: “…Hedge the risk “"




#2 Long 5-year EONIA swap vs. short US 5's at -61bp, looking for a move to -130bps 

This is because "Growth Differential Widens and Service Price Inflation Diverges, also Forward Guidance is in the Price"

Broadly speaking, they are placing a trade on the expectations that the Fed are moving towards tightening while the ECB are doing the opposite.




#3 Long USDCAD at market (at the time was 1.0550) looking for 1.14 in 12 months


·         Canada’s current account position has been in deficit for some time
·         Slowing reserve diversification into the CAD has recently pushed the BBoP into deficit
·         The BoC is also concerned about weakness in the export sector and low inflation
·         Domestic demand may no longer receive a boost from the housing market
·         The BoC is one of the few central banks with scope to cut rates
·         US growth and tapering may move interest rate differentials further against the CAD
·         In particular, a sell-off in the US front end could significantly accelerate a $/CAD rally

·         We forecast $/CAD at 1.14 in 12 months' time




As of writing, these are all the released trades from GS, but more are expected throughout the week

Now onto,

Bank Of America


#1 Short US 10y at 2.78% looking for 3.5%



#2 Buy GBPCHF via call fly



#3 Buy MXNJPY


#4 Short EURGBP via 6M digital puts


The entire research note can be found here

https://www.dropbox.com/s/4i68iaapamjkhmz/BoA%2520Top%2520Rates%2520and%2520FX%2520Trades%2520for%25202014%5B1%5D.pdf

Thanks

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