–Recommends Shorting High-Yield European debt, 10-year German bunds
–Researchers also Suggest Long euro/Swiss franc trade
–Also backs buying Canadian vs. Japanese equity indexes
–Sees Long July 2012 ICE Brent oil futures at $120/bbl
By Suzanne Cosgrove
CHICAGO (MNI) – In a research note, Goldman Sachs Global Economics
Wednesday unveiled a handful of recommended trades for the year ahead,
including shorting high-yield European debt and 10-year German bunds.
“We think Euro-area economic and financial risks are likely to
remain center stage for now. So our strongest market views are based
around the notion that this pressure will dominate early on,” Goldman
stated in its Global Economics Weekly. “We envisage further near-term
downside to European assets, increased banking pressure and a likely
further increase in Euro-area bond yields, including in the core
economies.”
Detailing its top recommendation, the researchers suggested going
short European high-yield credit (buying protection on the iTraxx
Crossover index), for a target of 950 basis points (with an open at
770bp) and a potential return of 4.5%, putting in a stop at 680bp.
For a No. 2 trade, they suggested short 10-yr German bunds for a
target of 2.8% (with an open of 2.3%) and a potential return of +4.5%
with a stop at 2.0%.
Its No.3 recommendation was to go long euro vs. Swiss franc, with a
target of 1.35.
Goldman said it takes a bearish view of equities, particularly in
Europe, over the next three months. “Our near-term views in all of the
major regions have a defensive flavor, emphasizing areas with strong
balance sheets, low exposure to Europe and relatively low cyclicality,”
Goldman said, adding this view applies even to Asia, where their
economic forecasts remain “benign.” Looking slightly ahead, they said
they are “penciling in” improved performance in equities and higher bond
yields beyond three months.
In addition, Goldman recommends going long Canadian equities (S&P
TSX) vs. Japanese equities (the Nikkei). Researchers also favor long
positions in a global rebalancing basket of currencies: Chinese Yuan
(CNY), Malaysian ringgit (MYR) vs. British pound (GBP), U.S. dollar
(USD).
For its final recommendation, Goldman turned to commodities,
suggesting long July 2012 ICE Brent crude oil futures for a target of
$120 bbl, with a stop at $100 bbl.
–email: scosgrove@marketnews.com
** Market News International Chicago Bureau: (708) 784-1849 **
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