Citi analysts released their latest asset allocation strategy note on Friday, highlighting several key trades that reflect a cautious yet opportunistic stance amid ongoing economic uncertainty.
According to Citi, they have positioned themselves “long precious [metals], short oil, and long USD versus EUR,” as part of a broader strategy to navigate the current market landscape. In addition, the bank said it is overweight U.S. equities.
The rationale behind these trades stems from a mix of economic indicators and geopolitical events. Citi highlights that “hard landing fears have been awakened” following the latest non-farm payroll (NFP) report, which has shifted market sentiment away from a soft landing consensus.
This shift is said to have led to increased caution in the equity markets, with Citi maintaining a neutral stance overall but showing a preference for U.S. equities over European counterparts.
The analysts believe that a resurgence in the AI trade could potentially benefit U.S. markets, especially if economic conditions deteriorate.
In the commodities sector, Citi remains “long precious and short oil.” The decision to short oil is influenced by a bearish outlook on energy demand, exacerbated by a global manufacturing slowdown and event risks in the Middle East.
On the other hand, the long position in precious metals is expected to benefit from a more dovish Federal Reserve and increased gold purchases by the Chinese central bank.
In the currency markets, Citi has positioned itself “short EUR vs USD,” anticipating further U.S. dollar strength in the absence of immediate catalysts for the euro.
Meanwhile, in bonds, the bank remains overweight duration outside of the US. “We remain long duration in the European periphery and the UK,” they wrote. “In the direct aftermath of the recent NFP print, we took profits on our Japan underweight. All positions are FX-hedged.”
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