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How to trade a trade war?


Financial markets have been announced by US President Donald Trump’s announcement about tariffs on key trade partners, and investors are advocating for further volatility.

Here’s how they trade Trump’s, extraordinary trade war.

Shares: ‘impossible to avoid risk’

Wall Street has been working since the presidential election in November that it should be positioned for tariffs. Investment banks have built a basket of shares with the highest sensitivity on Trump plans – mainly exporters such as car and car maker manufacturers – who allow their clients to bet on the influence of a trade war in a series of shares.

It happened on Monday, with companies such as General Motors and Ford in the USA -ui Volkswagen and BMW in Europe The fall on the tariff newsBefore they gathered when they delayed.

The UBS Trump Tariff Losers basket, which follows the effect of American shares negatively exposed to imported tariffs on trade partners and involving shares like Gaps and Harley-Davidson, fell 6.6 percent during Friday and Monday, deleting its profit for the year.

“The basket has become valid on Friday and has been hit again [on Monday]”Said Andrew Slimmon, Director General Morgan Stanley Investment Management.” The market underwent the will of the President to use the tariff as a negotiating mechanism. “

Some investors seem to be ready for the escalation of the weekend. According to Note Goldman Sachs, Hedge funds were “more brief”-or betting against their own baskets named Tariffs in Europe. This basket includes Mercedes-Benz and BMW, which are reduced by 3.8 percent or 2.9 percent, as Trump has discovered his tariff plans and drinks for drinks like Diageo, which is 7.6 percent.

The ratio of long short-carried-and-growing and falling prices in the car index and the Stoxx Europe and the parts has fallen to the “perennial lowest”, driven by the accelerated sale of HEDGE Fund since December, Banka states.

Among the Hedge funds that will deal with the Autos bets is in London based in London, which is a short Daimler Truck, while Marshall Wace are short companies, including BMW and Mercedes, according to Breakout Point data. Marshall Wace refused to comment. If Capital did not respond to the comment request.

However, funds managers are also careful that too many bears, given the rapid reversal of the market this week, are the fact that the moves were less extreme than some expected, and the fear of leakage in the long -lasting bull market.

In response to the “confusing” situation, Drew Pettit, an analyst from Citi, said it was better to hold a little “everything”: growth, cyclic and defense stocks. “It is impossible to avoid risk [assets] Now, so you just have to manage. “

The Vix Index, a measure of the expected volatility known as the “fear meter” on Wall Street, increased on Monday. But at the age of 16, it remains below its long -term average, in the sign that, for now, the nerves of investors have not given the place to panic.

However, the so-called “VVIX” -Who measures the expectations of a swing of swings in Vix-u-Tog above Its long -term average, suggesting that investors are still careful that volatility could increase.

The short -term activity on the option of the option, meanwhile, was angry because traders are trying to protect themselves from or profit from fast turn on the market or other guessing of Trump’s next move.

Trading of the so-called zero-on-day options-exputs that expire on the same day and used to bet on extremely short-term moves on the market-they have made the highest maximum of $ 1.4tn on last Friday, according to data collected by the data collected by Rocky Fishman in Asym 500.

Currency: ‘incredibly heavy’

The Canadian dollar has fallen to the lowest compared to the US dollar since 2003. On Monday, as investors are betting on a faster reduction in the Bank of Canada rate, with a record 386,000 agreement on the future related to the Canadian dollar, according to the CME Group.

But then he regained all the losses of the day on the news of the defense of the tariff. Mexican peso had a similar turnaround.

This has left the retailers on the currency market – often the first market that has responded to such news – similar to their heads on how they should be positioned.

“The big question is whether [Trump’s] He got a major plan that includes the leading of things to the edge or did he just invent it as he goes together, “said Paul McNamar, director of investment in GAM.

“Trying to read that man’s mind is just. It is simply incredibly difficult. [You’re] Trying to trade on something that could go in any case. “

For now, McNamara said his team was “a little too little weight” in the emergence of market currencies and a somewhat long dollar – “not sufficiently that we really save us, if we get maximum tariffs, but on the other hand it is some protection” Trump if Trump had to retire again at the last minute. “Our low belief is that things are getting worse,” he said.

The currency options were popular. The JPMORGAN strategists saw “significant demand” for dollar options on Monday compared to the Canadian dollar and Mexican peso, “because the risk of tariffs came into force to neglect the market.”

However, many investors are holding a bet of the US dollar, the central “Trump trade” that has transformed markets since the election prospects began to change in favor of a Republican candidate last year.

On Monday there was a higher demand for dollars – the options that Bullish will give to shopping traders to buy an American currency at an agreed price – than “puts”, the options that the dealers are entitled to sale for sale, JPMORGAN said.

Some say the currency markets respond to a more unstable and more uncertain way than during Trump’s first term.

“The risk of events, especially on weekends, has definitely grown,” said Gary Prince, director of financial markets in ING, exacerbated by uncertainty because of the potential proportion of tariffs. This was also fed to investors who get less attractive prices than they expected when they trade, Prince added because of the rapid moves on the market.

In the meantime, some investors are looking for currency pairs less exposed to tariff news. “I think we have learned that we have a majority of our risk in stores that are not hostage for titles,” said Mark Dowding, the CEO of Investments for Fixed Income at RBC BlueBay Asset Management, who bet on the euro.

Bonds: ‘in contrast to influences’

Fixed income managers are trying to determine whether the tariffs mean greater inflation and interest rates or weaker economic growth, which could lead to a greater reduction in the rates.

The immediate reaction on Monday was the price in multiple inflation and slower reduction of interest rates in the US, and two-year-old treasury yields increased above 4.28 percent, although they have fallen back since then.

At the same time, investors are betting on lower growth and a faster decrease in interest rates in countries like Canada and the UK.

“You have a direct impact,” said Mark Caban, head of the US Strategy at the Bank of America. “The way the rate of the rate was initially traded to expect Fed [to keep rates] At the forehead longer, due to inflation risks, but then assign the increased likelihood of negative growth influences ”in the future.

For Caban, it makes sense to buy value papers protected by the inflation of the treasury. “They implicitly give you inflation protection, and they also help you protect yourself from some risks of lack of growth.”

Meanwhile, in a new market debt, funds managers have used sales in the sovereign of some countries caused by tariff news as an opportunity to buy.

Such news is “really resulting in healthy moves in property prices, where we can take the opportunity to get involved in the names that are, in our estimation, strongly basically or misjudged,” said Alaa Bushehri, debt leader in the emerging markets at BNP Paribas Asset Management management, which recently bought a Mexican debt on the negative headlines of the tariff.

Another fund manager who asked not to name him, he said they used the recent short now tariff threats Against Colombia to buy your debt at a lower price.

Risk or risk?

Some investors turn to another property while looking for refuge. Gold reached fresh record maximum this week from $ 2,882 per ounce Troy. “In the world of goods, the only store you can really go to is gold right now,” said Panmure Liberum Tom Price analyst.

But Bitcoin, which some were charged as “digital gold” offered less protection and is Down this weekDespite the early expectations of investors that Trump will prove support to the sector.

In addition to short -term crafts, funds managers are nervous because of long -term bets on a large drop in risky property that may never happen, especially given how strong the markets have worked in recent years.

Investors “just don’t know enough about Trump’s next move and how the Fed will react,” said Andrew Pease, a major investment strategist at Russell Investments.

“The assets with the risk of overweight is a big call and you have to be very safe. It is difficult to return to neutral if the market is not correcting. “

Additional Costas Mourslas reporting



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