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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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 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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Apple, Goldman Sachs send Wall Street tumbling

© Reuters. Traders work on the floor at the New York Stock Exchange (NYSE) in New York City © Reuters. Traders work on the floor at the New York Stock Exchange (NYSE) in New York City

By April Joyner

NEW YORK (Reuters) – Wall Street’s major indexes tumbled on Monday as shares of Apple Inc (O:) and Goldman Sachs Group Inc (N:) dragged down the technology and financial sectors.

With Monday’s losses, all three indexes erased the gains from their brief rally after the U.S. congressional elections on Nov. 6.

Apple shares fell 5.0 percent after several suppliers to the company, including Lumentum Holdings Inc (O:), whose components power the iPhone’s Face ID technology, cut their forecasts. Apple’s decline impeded the tech-heavy Nasdaq, which fell more than 2 percent.

Lumentum shares plunged 33.0 percent. Shares of several chipmakers that sell to Apple, such as Cirrus Logic Inc (O:), Qorvo Inc (O:) and Skyworks Solutions Inc (O:), dropped as well. The Philadelphia SE Semiconductor index () dropped 4.4 percent.

"The concerns are all about global economic growth, specifically demands for the products of companies like Apple," said Kate Warne, investment strategist at Edward Jones in St. Louis. "Investors are becoming more concerned about faster-growing companies and whether they will continue to grow at that pace."

Goldman Sachs shares dropped 7.5 percent after Bloomberg reported that Malaysian Finance Minister Lim Guan Eng said the country was seeking a full refund of all the fees it paid to the Wall Street bank for arranging billions of dollars of deals for troubled state fund 1MDB. Goldman Sachs was the biggest drag on the Dow, which fell more than 2 percent.

Among the S&P 500’s 11 major sectors, technology and financial stocks weighed most heavily. The S&P 500 technology sector index () fell 3.5 percent, and the financial sector index () fell 2.0 percent.

Energy stocks () also accelerated their decline toward the end of the session as oil prices fell.

"At the moment it seems the path of least resistance is down," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

The Dow Jones Industrial Average () fell 602.12 points, or 2.32 percent, to 25,387.18, the S&P 500 () lost 54.79 points, or 1.97 percent, to 2,726.22 and the Nasdaq Composite () dropped 206.03 points, or 2.78 percent, to 7,200.87.

A holiday in the U.S. bond markets for Veterans Day kept trading volume muted. Volume on U.S. exchanges was 7.30 billion shares, compared with the 8.41 billion average over the last 20 trading days.

General Electric Co (N:) shares fell 6.9 percent after Chief Executive Officer Larry Culp said the company was saddled with too much debt and would urgently sell assets to reduce leverage. The shares dropped below $ 8 for the first time since March 2009.

Declining issues outnumbered advancing ones on the NYSE by a 2.80-to-1 ratio; on Nasdaq, a 3.64-to-1 ratio favored decliners.

The S&P 500 posted 29 new 52-week highs and 10 new lows; the Nasdaq Composite recorded 25 new highs and 161 new lows.

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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