LIVE MARKETS-The unwinds to worry about next year

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THE UNWINDS TO WORRY ABOUT NEXT YEAR

Consensus trades that gathered steam at the end of a year can unwind pretty dramatically once the new year starts and everyone in unison suddenly starts reassessing what seemed obvious a few weeks ago.

Of course, consensus can coalesce around a theme and positioning get stretched at any time, but there's something about year en-, maybe all the outlook notes and events, or portfolio rebalancing that means it can be particularly dramatic.

Think about the dollar, which 12 months ago nearly everyone thought would strengthen dramatically under a Trump presidency, only to post a massive first-half plunge.

Mizuho fixed income and currency analysts have a note out that lists 10 consensus trades they are tracking as "recent history shows January often rewrites the script".

Asking "which will crack first", their 10 are:

-Short dollar ; long debasement trades

-Long EM FX carry across high-yield currencies.

-Rest-of-World equities outperform U.S. benchmarks.

-Fed cuts to ~3%; curves steepen as easing accelerates.

- ECB on hold through 2026; hikes in 2027

- UK front-end receivers on BoE cutting cycle.

- Paid JPY front-end rates as BOJ resumes hiking.

-Long euro zone periphery (Italy, Spain) outright and via spreads.

- Long U.S. swap spreads on deregulation hopes.

- Credit spreads seen as too tight

(Alun John)

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