GS Research Top Trades- Position for growth in EM FX

Dec. 3, 2017 (by Ozerov/Suwanapruti at Goldman Sachs Research) - As we wind down 2017, analysts at GS Research see the potential for stronger global growth in 2018 that could boost emerging market currencies and could create USD, SGD and JPY short opportunities against the BRL, INR, and IDR.

“One of our core macro views for next year is for the strong and synchronous global expansion to continue, surprising consensus expectations to the upside. Healthy global growth and trade generally favours emerging market assets — and EM currencies often push beyond ‘fair value’. Two of our Top Trade recommendations capture the currency implications of stronger global and EM growth using baskets in two regions: Asia and Latin America. Top Trade #6 (long INR, IDR, KRW vs. short SGD and JPY) aims to benefit from the ‘equity-centricity’ of Asian currencies, and some country-specific catalysts in India, Indonesia and South Korea. Funding out of SGD and JPY should help mitigate rate risk given the elevated sensitivity of JPY to increases in global interest rates. Top Trade #7 (long BRL, CLP, PEN vs. short USD) is predicated on the expected upside in metals prices, undervalued currencies and still early innings in the Latin America growth recovery.”

 

European Economics Analyst: When regions fail

“At the international level, Europe’s productivity performance has disappointed. Consider the evolution of average output per worker since 1990. The United States started higher and grew faster. At the national level, there is evidence of catch-up convergence among countries within Europe. Less productive countries have tended to exhibit faster post-war productivity growth than their more productive peers. But the degree of dispersion in productivity across European countries has increased over the past decade, despite having fallen for fifty years in the run-up to EMU. At the sub-national level, there is some evidence of productivity divergence between regions within countries. In France and Sweden, for example, regions in which labour productivity was low in 2000 tended to exhibit slower productivity growth between 2000 and 2015 than regions in which labour productivity was high.”

 

US Economics Analyst: Losing My Deduction

“The Tax Cuts and Jobs Act (TCJA) now making its way through Congress is likely to restrict the federal deductibility of state and local taxes. We now expect a repeal of the federal deductibility of state and local (S&L) income taxes as well as a $10k cap on the property tax deduction. Under current law, the ability to deduct taxes paid from taxable income lowers the effective S&L tax rate. While eliminating this deduction would raise substantial federal revenues, the sharper regional differences in effective tax rates would also make it harder for S&L governments to raise income and property taxes.”


USA 
  • trade online

Join the discussion