Goldman Sachs abandons five of six “Top Trade” calls for 2016
Goldman Sachs to clients: whoops. Just six weeks into 2016, the New York-based bank has abandoned five of six recommended top trades for the year.
The dollar versus a basket of euro and yen; yields on Italian bonds versus their German counterparts; U.S. inflation expectations: Goldman Sachs Group Inc. was wrong on all that and more.
The fumbles underscore the volatility that has beset global markets, accelerating price swings across currencies, stocks and bonds. Signs the world economy is suffering amid a slowdown in China have fueled unease about the creditworthiness of banks and other corporations, spurring a bid for haven assets such as the yen and the euro.
“Markets have started out this week by aggressively de-risking, apparently owing to fears that the recent slowdown in global growth could descend into recession,” Charles Himmelberg, chief credit strategist, wrote in a note to clients Tuesday. “Financial credit spreads are spiking, especially in Europe, possibly signaling a reactivation of systemic risk concerns.”
Neither Himmelberg nor Francesco Garzarelli, Goldman Sachs’s London-based co-head of fixed-income strategy, could immediately be reached for further comment, when contacted by phone and e-mail.
The New York-based bank closed its call for dollar strength versus an equally weighted basket of the euro and yen on Tuesday, recording a potential loss of about 5 percent, Himmelberg wrote in his note. Goldman Sachs also ended a bet on five-year five-year forward Italian sovereign yields versus their German counterparts for a loss of about 0.5 percent, he wrote.
Japan’s currency strengthened past 115 per dollar for the first time since 2014 on Tuesday while the euro rose to a more than three-month high. JPMorgan Chase & Co.’s gauge of global currency swings rose to 11.9 percent on Tuesday, its highest in more than two years. Measures of stock-market and bond volatility also climbed.
While that’s derailed Goldman’s trades, it hasn’t curbed its enthusiasm for their rationale. Increasingly divergent monetary policy in the U.S. versus the euro area and Japan “still favors dollar strength,” Himmelberg wrote. Further easing in Europe is also “conducive to a more positive backdrop for peripheral sovereign bonds.”
Goldman Sachs was forced out of three of its top picks for the year last month: a bet on large U.S. banks against the Standard & Poor’s 500 Index, a wager on 10-year break-evens, and a call on the Mexican peso and Russian ruble strengthening versus the South African rand and Chilean peso. The latter closed on Jan. 21 for a potential loss of 6.6 percent.
The bank’s one remaining trade is a wager on a basket of 48 non-commodity exporting companies versus a basket of 50 emerging-market bank stocks. That’s trading 4.5 percent above its opening level in November.
Goldman Sachs has no faith in gold’s rally, predicting losses over the coming year as the Fed raises U.S. interest rates no fewer than three times.
Goldman believes the U.S. economy is strong enough to justify three interest rate hikes this year, which would lift the dollar and make gold less appealing relative to bonds; a world in which the Fed can raise rates three times means a world of stable markets and economic growth, so safe-haven demand for gold would dissipate.
Gold has surged past $1,200/oz. in the opening weeks of 2016, but Goldman sees bullion at $1,100 in three months, $1,050 in six months and $1,000 in 12 months.
nice work GS..
you see there are two types of information GS put out..one for the sheeple/hedge fund consumption which is easy to find and for the general population..and one for the insiders..and we dont get the insiders info..we get the sheeps info..
i have added a link i got yesterday in regards to GS and their call on gold for this year..would you believe them on this?: Goldman Sachs has no faith in gold’s rally
the losing bets:
“The dollar versus a basket of euro and yen; yields on Italian bonds versus their German counterparts; U.S. inflation expectations: Goldman Sachs Group Inc. was wrong on all that and more.”
these guys now how to play the “shorts” really well dont forget..and they can back both sides of a CDS..