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Goldman Sachs abandons five of six ‘top trade’ calls for 2016

A Goldman Sachs sign is seen above the floor of the New York Stock Exchange shortly after the opening bell in the Manhattan borough of New York January 24, 2014.

© Lucas Jackson / Reuters

Goldman Sachs Group Inc. 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 dollar strength versus an equally weighted basket of the euro and yen on, recording a potential loss of about 5 per cent, Charles Himmelberg, chief credit strategist, wrote in a note to clients 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 signaling a reactivation of systemic risk concerns."

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Neither Himmelberg nor Francesco Garzarelli, Goldman's London-based co-head of fixed-income strategy, could immediately be reached for further comment, when contacted by phone and e- mail.

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 fueled 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 dollar for the first time since 2014 on Tuesday while the euro rose to a more than three-month high.

While that's derailed Goldman's top trades, it hasn't curbed its enthusiasm for their rationale. Increasingly divergent monetary policy in the U.S. versus the euro area and Japan "still favors dollar strength," Himmelberg wrote. Further easing in Europe is also "conducive to a more positive backdrop for peripheral sovereign bonds."

JPMorgan Chase & Co.'s gauge of global currency swings rose to almost 11.8 per cent on Monday, its highest in more than two years. Measures of stock-market and bond volatility also climbed.

Goldman was forced out of three of its top picks for the year last month: a bet on large U.S. banks against the Standard & Poor's 500 Index, a wager on U.S. inflation expectations via 10-year break-evens, and a call on the Mexican peso and Russian ruble strengthening versus the South African rand and Chilean peso. The latter closed on Jan. 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's trading 4.5 per cent above its opening level in November.

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