Goldman Sachs: Sticking With Shorts

Goldman Sachs note that "markets are struggling to balance a growing list of near-term worries against medium-term optimism on the back of vaccine confirmation. Immediate risks include issues which could have a meaningful impact on growth - e.g., the expanding US COVID outbreak - and several where we see less reason for concern - e.g., lawsuits related to the US presidential election, the expiration of certain Fed facilities, or the ongoing impasse over the EU budget and Recovery Fund. While we acknowledge there could be some wobbles, we are sticking with our pro-risk USD short recommendations. First, monetary and fiscal policy will likely be responsive to a further deterioration in US growth, which may support risky assets through winter lockdowns. Comments from Fed officials on Friday suggested a refinement of existing QE programs remains a live option, and Treasury Secretary Mnuchin indicated fiscal stimulus talks may restart soon. Second, the fact that near-term growth risks are most acute for the US may mean the Dollar can weaken even if equity and commodity markets move sideways or moderately lower (although a sharp sell-off in risky assets would likely support the Dollar through safe haven effects). Lastly, fund flows are now showing the expected rotation into EM FX, and we would be reluctant to back away from USD shorts with that important tailwind now in place. Stay short USD vs. AUD and CAD in G10, and vs. ZAR, MXN, and INR in EM."