Prepare for another turbulent year in the markets. Investors might move "far and fast" in the new year, just like they did in the aftermath of the U.S. election, as they try to adjust their portfolios to a Donald Trump world.
According to Bank of America Merrill Lynch, "seismic moves" will continue in 2017. The world will finally see to what extent President-elect Trump will implement his protectionist policies and Europe will be subject to several key elections.
As such, BoA Merrill Lynch suggested Wednesday the 10 following trades and trends.
1. Be bullish on the U.S. dollar, mainly against the yen.
2. Buy Euro/U.S. dollar put spread - "Bearish flag pattern puts two year supportive lows at risk of breaking and a continued decline toward parity," the bank said.
3. Buy GBP/U.S. dollar put spread - Price charts indicate downside risks to cable in the first quarter of next year.
4. Be bullish on the S&P 500 – "Technical breakout and retest pattern has upside potential initially to 2,300 and 2,400-2,425 in 2017," BoA Merrill Lynch said in the report.
5. Be bullish on European Banks – after years of low yields, European banks are set to benefit from an increase in U.S. bonds.
6. Be bearish on bonds – With yields expected to pick up throughout 2017, the price of bonds will move down.
7. Sell the FTSE against JSE (Johannesburg Stock Exchange) and focus on USD/ZAR (South African Rand) "as it approaches a major 5 year long supportive trend line."
8. Buy WTI – Oil prices are set to pick up throughout 2017 as OPEC and non-OPEC members implement an output cut deal.
9. Buy HSCEI (Hang Seng China Enterprises Index) – The Hong Kong Stock Exchange is set to benefit from higher yields.
10. Lastly, buy a copper pullback – After a rally in the last quarter of 2016, BoA Merrill Lynch believes there will be a correction in the new year.