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Yahoo
2 days ago
- Business
- Yahoo
Euro bulls wince as US-EU trade deal slams the brakes on rally
By Alun John, Yoruk Bahceli and Nell Mackenzie LONDON (Reuters) -Euro bulls are facing the first big test of their conviction in the form of the European Union's U.S. trade deal, which has cast doubt on the durability of one of 2025's most popular trades. The euro, which hit a four-year high of $1.1830 earlier this month, was last at $1.1554 following its biggest two-day drop since April on Tuesday, after the EU agreed to a 15% tariff on its U.S. exports - half the rate President Donald Trump had previously threatened, but well above the roughly 1.5-2% rate prior to his return to the White House. While it inched higher on Wednesday, it was set for its first monthly drop this year, down nearly 2% in July. That's quite a reversal. The euro's 14% gain in the first half of the year was the biggest since its creation, as investors rushed to the common currency on the back of the announcement of a once-in-a-generation shift in German fiscal spending just as U.S. President Donald Trump's erratic trade policies drove flows out of U.S. assets. But both of those factors are challenged by the agreement: The European economy will still take a hit from the tariffs, while deals the U.S. has agreed with the EU and other partners have reduced fears about a major slowdown there. "The long euro trade is undoubtedly facing a reality check this week," said Bruno Schneller, managing director at Erlen Capital Management. "Monday's sharp drop in euro/dollar felt like more than just a reaction to headlines — it exposed how stretched positioning had become in one of the market's most consensus views." "What stood out wasn't just the magnitude of the move, but the lack of support on the way down." Going into the weekend, speculators were sitting on a bullish bet on euro futures worth $18.4 billion, the largest since December 2023, according to weekly data from the Commodity Futures Trading Commission. That position has been building since last December. At the start of the year speculators held one of their largest bearish positions in the euro in almost five years. RELATIVE ECONOMIC PERFORMANCE The euro also weakened sharply against other currencies on Monday, dropping 0.8% on the pound and 0.7% on the Japanese yen, again after recent gains. But the bulk of its moves, both up this year, and down this week, have been against the dollar. In trade-weighted terms, the euro is only up about 5% this year. And its gains on the U.S. currency were already slowing as initial pessimism towards the U.S. at the start of the year faded thanks to strong economic data and earnings, reinforced by the flurry of trade deals with Japan and the EU, and ongoing negotiations with China. "The (U.S.-EU) trade deal has removed a potential headwind (for the euro) but it has also removed an uncertainty for the dollar too, which leaves the euro looking a little overvalued," said Michael Metcalfe, head of macro strategy at State Street. But the end of the euro's rally on the dollar is not yet a done deal. "The vast majority of people - ourselves included - think that this is just a correction to an underlying bull trend in euro/dollar," said Chris Turner, global head of research at ING. He said the biggest test would be on the dollar side of the currency pair, as investors had now digested the impact of the trade deal on Europe. Therefore, the focus turns to this week's economic data, including U.S. jobs and inflation and European economic growth, and Wednesday's Federal Reserve meeting. The Fed is likely to keep U.S. interest rates steady, which may generate more angry rhetoric from Trump who has been pushing for big cuts. This matters for the dollar. The currency fell sharply earlier this month, including against the euro, when Trump appeared close to trying to fire Fed Chair Jerome Powell. And even setting aside the trade deal, there are reasons to be optimistic about Europe, particularly given Germany's spending plans. "We haven't changed our view of upside risks to growth in Europe," said Russel Matthews, portfolio manager at RBC BlueBay Asset Management, who has been neutral on currencies as he balanced "the long term structural bias for a weakening dollar" with "the more positive short-term technical picture." "The new narrative that the U.S. has got a better deal has tarnished, to some extent, the upside potential from developments in the last three to six months in Europe, but it hasn't necessarily changed that dynamic." Connectez-vous pour accéder à votre portefeuille
Mint
4 days ago
- Business
- Mint
Hedge funds ditch tech and buy essentials, Goldman Sachs says
LONDON, July 28 (Reuters) - Hedge funds fled technology stocks at the fastest pace in 12 months in the latest week, just as the S&P 500 reached all-time highs, a note to Goldman Sachs clients and seen by Reuters said. The S&P 500, which includes seven tech stocks in its top 10 largest constituents by market value, has surged roughly 28% since its 2025 low, while the Nasdaq Composite has jumped 38% in that time. As of Friday, the S&P 500's forward price to earnings ratio, which reflects the value of a company's stock relative to its projected future earnings, was 23.11, around five-month highs, according to LSEG/Datastream. "U.S. equities valuations (such as price earnings ratios) are now 30% higher than their recent decade average, while 10-year yields remain stubbornly high and volatile. The future path of equities may depend partly on a decline in long-term rates; however, we do not seem to be there yet," Lombard Odier Investment Managers head of macro Florian Ielpo said in a note on Friday. Globally, hedge funds sold tech stocks, some of the most richly valued equities, more than any other sector last week, the Goldman Sachs note said. Rather than shorting the sector, hedge funds tended to ditch long bets and exit trades, the bank said. A short bet is designed to profit from a drop in an asset price. This week's exodus was the largest the bank had seen since July 2024, Goldman Sachs said. Hedge funds fleeing tech stocks centered on trading in North America and Europe. Every kind of tech stock was sold, including semiconductor chip companies, as well as those in software and IT services, the bank said. Meanwhile, shares in consumer staples - companies that sell items that people purchase regardless of economic conditions - were among the most net bought U.S. stock sectors this week, Goldman said. Hedge funds piled into these stocks for the fourth straight week and their trades were almost entirely long positions - those that will profit if the stock prices rise. The kind of companies whose shares hedge funds bought included those that sell food and beverages and personal care products. (Reporting by Nell Mackenzie; Editing by Amanda Cooper and Alison Williams)
Yahoo
4 days ago
- Business
- Yahoo
Hedge funds ditch tech and buy essentials, Goldman Sachs says
By Nell Mackenzie LONDON (Reuters) -Hedge funds fled technology stocks at the fastest pace in 12 months in the latest week, just as the S&P 500 reached all-time highs, a note to Goldman Sachs clients and seen by Reuters said. The S&P 500, which includes seven tech stocks in its top 10 largest constituents by market value, has surged roughly 28% since its 2025 low, while the Nasdaq Composite has jumped 38% in that time. As of Friday, the S&P 500's forward price to earnings ratio, which reflects the value of a company's stock relative to its projected future earnings, was 23.11, around five-month highs, according to LSEG/Datastream. "U.S. equities valuations (such as price earnings ratios) are now 30% higher than their recent decade average, while 10-year yields remain stubbornly high and volatile. The future path of equities may depend partly on a decline in long-term rates; however, we do not seem to be there yet," Lombard Odier Investment Managers head of macro Florian Ielpo said in a note on Friday. Globally, hedge funds sold tech stocks, some of the most richly valued equities, more than any other sector last week, the Goldman Sachs note said. Rather than shorting the sector, hedge funds tended to ditch long bets and exit trades, the bank said. A short bet is designed to profit from a drop in an asset price. This week's exodus was the largest the bank had seen since July 2024, Goldman Sachs said. Hedge funds fleeing tech stocks centered on trading in North America and Europe. Every kind of tech stock was sold, including semiconductor chip companies, as well as those in software and IT services, the bank said. Meanwhile, shares in consumer staples - companies that sell items that people purchase regardless of economic conditions - were among the most net bought U.S. stock sectors this week, Goldman said. Hedge funds piled into these stocks for the fourth straight week and their trades were almost entirely long positions - those that will profit if the stock prices rise. The kind of companies whose shares hedge funds bought included those that sell food and beverages and personal care products.
Yahoo
14-07-2025
- Business
- Yahoo
Hedge funds dump banks, buy the dip in consumer staples, Goldman Sachs says
By Nell Mackenzie LONDON (Reuters) -Hedge funds sold bank stocks for the second straight week and piled into consumer staples at the fastest pace in almost two years, a Goldman Sachs note seen by Reuters on Monday showed, just ahead of earnings announcements this week. Wall Street's march to record highs could be put to the test this week as major banks start to report second-quarter earnings and June's consumer price data for the U.S. is published on Tuesday. Hedge funds fled long positions in U.S. banks and global financial services companies for the second week in a row last week, data from Goldman Sachs prime brokerage desk showed. A long position expects an asset price to rise, whereas a short position bets it will fall. The cohort ditched long positions and added short positions on European financial stocks, said Goldman. Banks, financial services firms and insurance companies were all net sold while those in trading and consumer finance were net bought, said the investment bank. Meanwhile, speculators last week piled into the worst performing U.S. stock sector, consumer staples, the data showed. Consumer staples include products like beverages, food and tobacco which are often relatively shielded in economic downturns because they are essential items. The hedge fund buying comes as analysts expect these next set of quarterly reports to reveal the impact of U.S. President Donald Trump's tariffs on corporate balance sheets and the wider economy. "If the tariffs snap back higher on August 1, and we then get an underwhelming jobs report, that would easily resurrect fears around a U.S. recession," said Deutsche Bank analyst Henry Allen. Consumer staples has been the most net-bought stock sector at the Goldman Sachs prime brokerage desk in July, Goldman said. Global hedge funds trading stock markets systematically are down 1.8% for the month but still up just over 10% for the year. Stock pickers, largely flat for the month so far, have posted a 6.6% return this year. Sign in to access your portfolio
Yahoo
01-07-2025
- Business
- Yahoo
Trading on protection against UK defaults jumped in Q1, says ISDA
By Nell Mackenzie LONDON (Reuters) -Trading of derivatives contracts that provide investors with protection against UK company defaults jumped almost 50% in the first quarter of 2025 to more than $2 trillion, an International Swaps and Derivatives Association report showed on Tuesday. WHY IT'S IMPORTANT Credit default swaps trading reported in the UK rose by 47% to $2.3 trillion, from $1.5 trillion in the first quarter of 2024, trade body ISDA reported. The volume of insurance protection investors took out on UK corporate bonds in the first quarter illustrates the scale of unease ahead of U.S. President Donald Trump's announcement of sweeping import tariffs on April 2. While a UK/U.S. trade deal has since been signed, tariff uncertainty is a headwind for corporates globally as a July 9 U.S. deadline for other countries to strike deals looms. The effective U.S. tariff rate based on announced policies has climbed to 13% from 3% at the start of the year, Goldman Sachs analysts said last week. Even if some of the harshest levies are rolled back, higher effective tariffs this year could still drive up inflation and cut into company profits and consumer spending. KEY QUOTE "Single-name CDS activity was particularly prevalent in the UK, making up 98% of European traded notional, compared to 2% in the EU," the ISDA report said. This week, trade tensions topped a list of investor concerns alongside deepening worries over a potential global recession, a Bank of America investor survey showed on Monday. BY THE NUMBERS Notional European CDS trading rose 28% to $3 trillion in the first quarter compared to $2.3 trillion in the first quarter of 2024, driven by heightened activity in index CDS, ISDA said. UK-reported trades represented roughly 75% of total European CDS notional trading, and almost 82% of the total trade count, while the EU accounted for around 25% and 18%, respectively, the report said. GRAPHIC Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
