2017 outlook: concerns, further twists, trading ideas - Socgen

Kit Juckes, economist at Societe Generale commented on the excitement about Donald Trump's presidency and a shift in the global monetary/fiscal policy balance...and noting the following:

Key Quotes:

"...Concern about China's ability to keep the economy on track and control the pace of capital outflows; fear or further gains by populist politicians in this year's elections, in France, Germany and Italy; A nagging sense that then bond market adjustment that is now underway has further twists and turns in store as borrowers and FX hedgers scramble for dollars.

There are loads of emotions that can dominate the market moods in the days ahead, and lots to ponder. I thought I might capture some of these themes in very simply trade ideas to start 2017."

"Buy USD/KRW - The dollar's on a run but it's some 7% weaker in real terms against the Korean won than it was at the start of 1999, and 20% weaker than it was in early 2009. Korea struggles with modest growth, an ageing population, an expensive currency and proximity to China. The won isn't as overvalued as the Yuan, but it no longer has the same growth potential either and USD/KRW is marginally less politically-sensitive. It may be that like Icarus, the dollar will fly too close to the sun, perhaps even before the end of President Trump's first one hundred days in office, but that gives me 125 days to make money out of this trade..."

"Sell EUR/SEK  - My three trades to start the year in 2016 were short GBP/HPY which was spectacularly successful, short NZD/CAD which worked very well for the first few months, and short CHF/SEK which was OK at best from January to the start of June and then truly dreadful. The Riksbank managed to hold the currency down for longer than I imagined. That made Stockholm even more seductive. Now, as inflation is dragged ever-so-slowly upwards, the Riksbank's policy dilemma gets even bigger and the currency really ought to benefit. Once bitten, twice stubborn,. The short leg this year is the Euro not the Swiss franc, purely due to the political outlook."

What's the best trade for the UK in 2017? - Socgen