Goldman Sachs sees 10-year Treasury yields rising to 2% on “Phase One” trade deal

Says that there is little scope for the FOMC meeting this week to be a catalyst for movement in the rates market

USGG10YR

The firm’s chief interest rate strategist, Praveen Korapathy, argued that 10-year Treasury yields will probably climb towards 2% if the US and China reach a “Phase One” trade deal but further upside beyond that will probably be limited.

Adding that while risks ahead are substantial, their base case remains for a trade agreement that includes a reduction in existing tariffs and avoids those due to take effect on 15 Dec.

With regards to other events this week, the firm notes that the FOMC meeting should not produce any surprises so it is unlikely to cause a stir in markets.

Just to note, Goldman Sachs’ view for Treasuries next year is that they will end 2020 at around 2.25% “on account of the improved economic outlook and the removal of some tail risks i.e. trade war, Brexit”.

As for the “Phase One” deal, I reckon there could be an initial hint of optimism but as soon as markets get a grip of the fact that the deal isn’t a major game changer in US-China trade relations, the ‘sell the fact’ trade may be more profound in my view.

But we’ll see. First, we need the deal to materialise. Right now, it’s still a matter of “if”.
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Goldman Sachs Says British Pound Is Among Favorite 2020 Picks

(Bloomberg) — Goldman Sachs Group Inc (NYSE:). is the latest Wall Street bank to bet on a rally in 2020 as it sees next month’s U.K. elections as a pathway to resolving Brexit.

Sterling will likely appreciate against the euro while U.K. government bonds slide as progress on Brexit after the Dec. 12 vote could remove investment uncertainty and also unleash more public spending, strategists at Goldman said in its ‘Best Trade Ideas Across Assets’ note. That view echoes peers such as Bank of America Merrill Lynch (NYSE:) and Morgan Stanley (NYSE:).

“Our economists think a victory for the Conservative Party in next month’s election would likely result in a fairly swift resolution of the Brexit process, as well as more expansionary fiscal policy,” strategists, including Zach Pandl and George Cole, wrote in a note dated Nov. 21. Clarity on Brexit makes sterling “our preferred G-10 FX long” for the first quarter of 2020, they said.

Goldman predicts the pound will rally more than 4% from current levels and targets 82 pence per euro, seeing all of this move happening in the first three months of 2020. Since there will still be doubt on the next stages of Brexit, given the risk of protracted talks on the future trade relationship between the U.K. and European Union, it recommends making the bet in the options market.

The pound traded around 85.90 pence to the euro on Friday, having gained more than 3% against the common currency this quarter to be the best-performing major currency. Against the dollar, it has climbed nearly 5% since the end of September to trade around $ 1.29.

The New York-based bank is also expecting U.K. sovereign bonds, which have acted as a haven from Brexit risk, to weaken. That will take 10-year gilt yields “sharply higher” with its target at 1%, a level not seen since May 2019 and about 30 basis points above current levels.

“We think the U.K. offers the most attractive shorts in G-10,” the Goldman strategists wrote.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Ex Goldman CEO Blankfein: I don’t see any bubbles in the market

Speaking on an interview on CNBC

Ex Goldman CEO Lloyd Blankfein

The ex Goldman CEO Lloyd Blankfein has been on a CNBC interview discussing various topics including of course, being vilafied by Elizabeth Warren as one of the rich elite.  

He warned that being on the extremes where what was done gets unwound by executive order, then going the other way when another party assumes control, is not a good thing. Instead arguing for doing things that made sense but were not done to unwind good just because….

Although he is a registered Democrat, he did give Pres. Trump kudos for his economic decisions and for taking on China, despite the pain from the tariffs and despite the damage he may be doing to the fabric of the nation.    

On the tariffs, he had an interesting analogy saying the recent GM strike had pain on the worker and the company. The goal was to find the compromise through the pain.  The US/China issue is the same thing. The goal is to bring China back in line.  That is obvious but bringing it to something more familiar like a recent strike, was comforting.  

On the economy he said he does not seen any bubbles in the market, but humbly said that it is often in hindsight that the bubbles are unveiled.  

Overall, he was relaxed and comfortable and pragmatic and open minded – at least that was my impression.   

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Goldman Sachs and Citi were on opposite sides of a USD/CAD trade. Who won?

A look back at two trade ideas

A look back at two trade ideas

On August 28, both Goldman Sachs and Citigroup issued trade ideas on the Canadian dollar. Let’s have a look at they did.

Goldman Sachs recommended buying USD/CAD with a target of 1.3600 and a stop at 1.3050.

“Unlike most of its G-10 peers, the BOC has not signaled a readiness to ease policy — but we think that shift will be coming soon,” strategists Zach Pandl and Karen Fishman wrote.

The BOC hasn’t made that shift. The September statement was surprisingly neutral and the market is now pricing in just a 14% chance of a cut in October and a 26% chance of a move before year end.

The trade made a bit of headway in the first three days, rising to 1.3380 briefly on Sept 2. But that was the peak and as the trade winds shifted towards a deal, the pair fell to 1.3134 — 84 pips from the stops.

Despite the moves, no limits have been hit and the trade is still open but with a 50 pip loss.

How about Citi?

They said to sell the pair at 1.3249 with a target of 1.3015 and a stop at 1.3375. Here’s what they said:

We continue to believe that CAD will outperform the rest of the G10 commodity bloc. Strong domestic fundamentals, ties to a healthy US consumer, and less trade exposure than its peers suggests that the market is overestimating BoC cut risks this year.

They were generally right. Canadian data continues to outperform and the Bank of Canada wasn’t as dovish as feared.

However they were stopped out on Day 4 of the trade in a brief rally to 1.3383 — 8 pips above the stop. The pair then fell 260 pips in six days.

What’s the lesson?

You can be right and still be wrong. And you can be wrong and get away with it.

Citi had a better read on the underlying fundamentals but they stop was too tight and they got taken out. Goldman’s trade was in the money for a few days and that was an opportunity to take profits. But even when it went against them, the stop was wide enough to fight another day.

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Goldman Sachs has lowered its forecast for oil demand growth this year

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Goldman Joins Wall Street Chorus Warning About Possible U.S. FX Intervention

© Reuters.  Goldman Joins Wall Street Chorus Warning About Possible U.S. FX Intervention © Reuters. Goldman Joins Wall Street Chorus Warning About Possible U.S. FX Intervention

(Bloomberg) — The buzz around possible U.S. currency intervention is growing louder as Goldman Sachs Group Inc (NYSE:). has now weighed in on an idea that’s been making the rounds on Wall Street.

President Donald Trump’s repeated complaints out other countries’ foreign-exchange practices have “brought U.S. currency policy back into the forefront for investors,” strategist Michael Cahill wrote in a note Thursday. Against a fraught trade backdrop that’s created the perception that “anything is possible,” the risk of the U.S. acting to cheapen the dollar is climbing, he said.

The U.S. last intervened in FX markets in 2011 when it stepped in along with international peers after the yen soared in the wake of that year’s devastating earthquake in Japan. That effort buoyed the dollar. However, more analysts in recent weeks have been contemplating the wild-card notion that the U.S. could forcibly weaken the dollar. The U.S. hasn’t taken that step since 2000.

“Direct FX intervention by the U.S. is a low but rising risk,” Cahill wrote. “While this would cut against the norms of recent decades, developed-market central banks have recently used their balance sheets more actively, and FX intervention is akin to unconventional monetary policy.”

Growing Ranks

Goldman joins analysts from banks such as ING and Citigroup Inc (NYSE:). in writing on the prospect. Intervention has become a hot topic since Trump tweeted last week that Europe and China are playing a “big currency manipulation game.” He called on the U.S. to “MATCH, or continue being the dummies.”

Buoyed in part by a round of Federal Reserve rate increases, the dollar has strengthened against many of its peers. A Fed trade-weighted measure of the greenback isn’t far below the strongest since 2002, underscoring the competitive headwinds American exports face overseas. Trump has grown concerned that the currency’s strength will undermine his economic agenda, which has also fed into his criticism of the U.S. central bank.

There may be some wrinkles to consider with intervention, Cahill wrote. While the Treasury and Fed have typically contributed equal amounts in past episodes, if the Fed chooses not to participate it would “substantially limit” the potential scale, he said. Treasury’s Exchange Stabilization Fund holds roughly $ 22 billion in greenbacks and around $ 50 billion in special drawing rights that it could convert.

To be sure, even if the Treasury acted on its own, “we would expect that the symbolic importance of this step would still have a significant market-moving effect,” he wrote.

Trade Backdrop

That’s not to say it’ll be easy to leave a lasting impact on a market that trades about $ 5 trillion daily. In past interventions, various nations’ central banks typically acted together, strengthening the signal to investors. But this time, the U.S. may find itself flying solo, especially if its efforts would work to the detriment of American allies as trade tensions simmer.

“The international community would be unlikely at this stage to coordinate with the U.S. to weaken the dollar,” Cahill said.

The market has yet to display much concern about the prospect of U.S. intervention: Global currency volatility is at a five-year low. However, the risk of Trump moving beyond words to achieve a weaker greenback would increase if the European Central Bank pursues further monetary stimulus, according to ING.

“Could frustration with the Fed prompt the President to take matters in his own hands and weaken the dollar?” ING’s Chris Turner and Francesco Pesole wrote in a note Monday. Though the U.S. last month reaffirmed a Group-of-20 commitment to refrain from competitive devaluation, “the lure of a weaker dollar to support the U.S. economy into 2020 may be too great.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Goldman Sachs says to short Chinese yuan ahead of the G20 meeting next week

GS note CNH, and other Asian currencies, strength approaching the G20 meeting next week (June 28 and 29), and are looking to short CNH.

Citing that even if there is some sort of easing in trade tensions at the G20 they will not disappear entirely:

  • likely to “ebb and flow”
  • still see additional tariffs as “more likely than not”

GS also say yen looks attractive still (Fed rate cuts, signs of slower US economic growth to chip away at USD strength). 

Yuan had a good one last week, following the PBOC holding it fairly steady since mid-May  despite market expectations it would fall:

GS note CNH, andother Asian currencies, strength approaching the G20 meeting next week (June 28and 29), and are looking to short CNH.

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Goldman Sachs cuts 2Q GDP tracker to 1.5% from 1.6%

Lowers GDP estimate for 2Q growth

Goldman Sachs has cut its second-quarter GDP tracker to 1.5% from 1.6%.  That is still above the Atlanta Fed GDPNow estimate at 1.2%. The Atlanta Fed will update their GDP tracker tomorrow.  

The NY Fed will also update their GDP estimate tomorrow. Last week, there estimate came in at 1.8% down from 2.2% in the previous week.

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Goldman Sachs: UK is likely to leave EU with modified version of current withdrawal agreement

The firm maintains their view on the way Brexit will play out

Brexit
  • The politics of Brexit have become more protracted
  • As a result, the side-effects on Brexit on the UK economy have intensified
  • Capex by businesses have been particularly subdued

All you have to know here is that sentiment remains that a no-deal Brexit is still seen as unlikely for the time being. As for a deal, we’ve been at this crossroads for many a time now over the past few months. Until something gets done, it’s more likely there will be another extension than there will be a Brexit deal that the UK parliament can get behind.

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Goldman Pushes Back Fed Hike Forecast to 4Q 2020 From 1Q 2020

(Bloomberg) — Economists at Goldman Sachs Group Inc (NYSE:). have pushed back their forecast for the Federal Reserve to raise interest rates amid low inflation and political scrutiny of the central bank’s decisions.

The U.S. bank now expects the Fed to hike in the fourth quarter of 2020 from the first quarter.

The shift comes even as the bank lifted its U.S. gross domestic product forecast to 2.5 percent in the second half of 2019 and 2.25 percent in the first half of 2020.

“But the inflation numbers have surprised to the downside even as the goalposts for the next rate hike have shifted higher with the FOMC’s emphasis on muted inflation pressures and review of its policy framework,” Goldman economists including Jan Hatzius and David Mericle wrote in the note. “Coupled with an increase in political scrutiny of monetary policy decisions, this has lowered the odds of a hike before next year’s presidential election.”

Still, the better growth outlook means the U.S. bank added a second rate hike in 2021 to its forecast.

“We expect the FOMC to adopt average inflation targeting next year, at least implicitly raising the inflation target to a level we expect to reach but not surpass,” the Goldman economists wrote. “But amidst normal U.S. business cycle expansion conditions of above-trend growth, continued labor market tightening, and ongoing easing in financial conditions, we think that the FOMC is likely to resume at least a very gradual pace of tightening.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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