Top Macro Trades for 2018 – 5 Themes & 19 Trades
We recommend investors position along 5 core macro themes:
Theme #1: Room to grow
Despite the length of the recovery, global growth can continue to expand amid very
few signs of excess in the real economy.
FX: Long BRL and CLP versus short USD and JPY
Rates: Position in 1yr forward 5s10s curve steepener in Japan
Equities: Long US industrials (XLI) versus utilities (XLU)
Theme #2: Gradual policy normalization
Easy financial conditions allow central banks to continue normalizing at a gradual pace,
while low inflation allows optionality to reverse course if necessary.
FX: Short EUR/NOK and EUR/SEK volatility
Rates: Short US rates vol via 6m strangles on 30y rates; Long 10yr Russian OFZs
Equities: Long Brazilian (Bovespa) and Japanese (Nikkei) equites
Theme #3: European growth is broadening
Broadening cyclical growth in Europe is likely to alleviate several areas of investor
concern, including issues of debt sustainability and balance sheet pressures.
FX: Long CZK and PLN versus short CHF and USD
Rates: Position in 3yr forward 5s30s EUR IRS steepeners; Long Greek govt bonds (22s)
Equities: Long Italian banks (IT8300)
Theme #4: China rebalancing
Chinese growth has significantly rebalanced toward consumption. This should continue
to support China consumption-related assets and help keep macro and EM vol low.
FX: Long NZD versus short TWD
Rates: Long EMBI (EMB) versus short US high yield (HYG)
Equities: Long Korean equities (Kospi) and European autos (SXAP)
Theme #5: Having our cake and eating it too
Our recommendations are broadly pro-cyclical, yet we are more selective versus past
Top Trades. We seek some balance to our recommendations with positions that offer
asymmetric payoffs in a downturn, but which can trade flat or positive in our base case.
FX: Long USD/CAD
Rates: Position in UST 2s10s flatteners
Equities: Long a FTSE put contingent on lower GBP/USD