Citi analysts outlined several strategic trades dubbed "Trump trades," in a note Friday, focusing on the anticipated market movements influenced by a potential Trump presidency and the upcoming Fed actions.
While these trades hinge on different factors, Citi's take is clear: "Most Trump trades may have to wait for after the Fed."
Citi suggests that steepeners are an exception among the Trump trades, benefiting from both a dovish Federal Reserve and election-related shifts.
Analysts emphasize the attractiveness of steepeners due to the expected rate cut in September. Additionally, positioning for the outperformance of US equities over European equities can be done earlier.
However, Citi cautions against entering this trade at the current level, noting that "French equities did not participate in the rebound in other French assets post-election, making it a poor entry point."
Citi's analysts have a bearish outlook on oil, foreseeing a downside by late 2025.
They believe that "expectations of a Trump presidency should add to the fundamental case for oil downside," citing potential tariffs that may undermine demand and geopolitical shifts that could act as a headwind. This bearish stance is part of a broader strategy, where oil typically does not perform well heading into US elections.
On the currency front, Citi has adjusted its positions, closing its long USDSEK trade and adding a long AUDCAD trade. The latter is expected to benefit from "deteriorating US growth, with the rest of the world holding on," which is USD bearish.
The trade is further supported by favorable terms of trade and central bank actions, alongside a typically positive influence from the upcoming Chinese third plenum.
Overall, Citi's analysts are preparing for significant market movements influenced by both the Federal Reserve's actions and potential political developments, with specific strategies tailored to navigate these anticipated changes.