As the 2024 US election approaches, analysts have outlined strategic trades to position for a potential “red wave” if Republicans gain control.
Their insights reflect a shift from the 2016 election dynamics, recognizing that the current economic and global contexts have significantly changed.
Long US 5-Year Inflation: Analysts suggest a trade focused on US inflation breakevens. With real rates currently high but inflation expectations relatively low, they anticipate inflation will average above current market estimates in the coming quarters.
They predict that inflation breakevens will benefit from this trend, especially with potential tariff impacts adding 30-40 basis points to inflation in the first year of their implementation. To hedge against economic slowdowns, analysts recommend balancing this with a long position in rates, noting that inflation and rates should be held in a 1:4 ratio.
Long JPY vs. CNH: Another trade involves going long on the Japanese Yen (JPY) against the Chinese Yuan (CNH). The bank forecasts a possible 5-10% depreciation of CNH due to Trump’s tariff proposals, which could drive the pair to around 7.80.
This trade capitalizes on expected shocks not yet reflected in forward FX derivatives and offers reduced negative carry compared to a similar trade against the USD.
Long Gold: Analysts also advise investing in gold, citing its potential to benefit from falling US rates and rising risk premiums. Gold is expected to perform well amid fears of dollar debasement due to increasing US public debt. The firm’s target for gold is $2,600, with upside risks if sentiment remains favorable.
Long US vs. European Equities: Analysts favor US equities over European ones. They anticipate that a red wave could exacerbate global growth challenges, adversely affecting European stocks more than US counterparts.
Within the US, they recommend focusing on Financials, Energy, and Software sectors. Meanwhile, European investments should be more defensive, particularly in Industrials.
The recommendations reflect a nuanced view of the potential economic impacts of a red wave, emphasizing strategic positioning across inflation, currencies, commodities, and equities.
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