Goldman Sachs Group has exited five of six top trading recommendations for the year after they were thwarted by financial-market turmoil linked to signs of a slowdown in global economic growth.
The New York-based bank closed its call for US dollar strength versus an equally weighted basket of the euro and yen, recording a potential loss of about 5 per cent, Charles Himmelberg, chief credit strategist, wrote in a note to clients on Tuesday. Goldman has also ended a bet on five-year five-year forward Italian sovereign yields versus their German counterparts for a loss of about 0.5 per cent, Himmelberg wrote.
"Markets have started out this week by aggressively de-risking, apparently owing to fears that the recent slowdown in global growth could descend into recession," Himmelberg wrote. "Financial credit spreads are spiking, especially in Europe, possibly signalling a reactivation of systemic risk concerns."
Neither Himmelberg nor Francesco Garzarelli, Goldman's London-based co-head of fixed-income strategy, could be reached for further comment.
Just 40 days into 2016, Goldman's core recommendations for the next 12 months have come unstuck, as price swings accelerate across currencies, stocks and bonds. Signs the world economy is suffering amid a slowdown in China have fuelled unease about the creditworthiness of banks and other corporations, spurring a bid for haven assets such as the yen and the euro.
Japan's currency strengthened past 115 per US dollar on Tuesday for the first time since 2014, while the euro rose to more than a three-month high.
While that has derailed Goldman's top trades, it hasn't curbed its enthusiasm for their rationale. Increasingly divergent monetary policy in the US versus the euro area and Japan "still favours dollar strength", Himmelberg wrote. Further easing in Europe was also "conducive to a more positive backdrop for peripheral sovereign bonds".
JPMorgan Chase's gauge of global currency swings rose to almost 11.8 per cent on Monday, its highest in more than two years. Measures of sharemarket and bond volatility also climbed.
Goldman was forced out of three of its top picks for the year in January: a bet on large US banks against the Standard & Poor's 500 Index, a wager on US inflation expectations via 10-year break-evens, and a call on the Mexican peso and Russian rouble strengthening versus the South African rand and Chilean peso. The latter closed on January 21 for a potential loss of 6.6 per cent.
The bank's one remaining trade is a wager on a basket of 48 non-commodity exporting companies versus a basket of 50 emerging-market bank stocks. That is trading 4.5 per cent above its opening level in November 2015.