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Global Macro Strategy Summary

Core Content

This document outlines the current views and trade ideas of Citigroup's Global Macro Strategy team as of June 13, 2025. The analysis focuses on macroeconomic trends, currency dynamics, and asset allocation strategies in light of recent geopolitical events, trade tensions, and economic data releases.

Main Views

• Oil Prices and Macro Impact: The team expects a modest oil spike due to the limited disruption in energy flows, with oil strategists suggesting prices will not remain high for long. A 2m worst of EURUSD, USDJPY, and USDCHF trade is proposed as a cheap hedge in case of broader supply issues.
• Goldilocks Scenario: Markets are still trading the Goldilocks narrative, characterized by moderate growth and inflation. However, the USD is not expected to rally in line with this, as structural reallocation flows and cyclical dynamics suggest otherwise.
• Equity Market Outlook: Equities are favored, with a long position maintained. The team remains bullish on equities due to the fading geopolitical risks and the potential for a continued Goldilocks environment.
• Currency Positions: The team is long EUR, JPY, and KRW, and short USD against these currencies. Specific trades include adding a JPY 1y1y payer and cutting NOK and CAD receivers.
• Trade War Dynamics: China's leverage in the trade war, including its export dominance of rare earth elements and resilience in trade flows, suggests the trade war may remain contained. This supports a bullish stance on equities.
• Volatility and Carry Strategies: Cross-asset volatility is expected to normalize, which could support further gains in US equities. Carry strategies face some crowding risks, particularly on the short side, but high-carry candidates like BRL, MXN, and COP remain less crowded.

Key Information

Trade Ideas

• New Trade: JPY 1y1y Payer

  • Pay 1y1y JPY OIS at 85p, with a target of 110bp and a risk of $500k or 0.5% of GMS PF.
  • Spot reference: 84bp, with a risk to the trade being a dovish BoJ.

• New Trade: 2m Worst of EURUSD, USDJPY, USDCHF

  • Trade at 5bp, with strike levels at 1.1429, 142.69, and 0.8034 respectively.
  • Notional: $100mio, risking $50k or 0.05% of GMS PF.
  • Spot references: 1.1544, 0.8115, 144.13.
  • Risks include fading geopolitical tensions.

• Closed Trades

  • Long CORZ6 at 97.37 and US 2y SOFR hedge at 3.73%
    • PnL: -$452k or -0.45% of GMS PF.
  • Receive NOK 1y1y at 383bp and US 2y SOFR hedge at 373bp
    • PnL: -$270k or -0.27% of GMS PF.

Geopolitical Impact

• The recent Israel-Iran strike had a limited impact on oil prices and macro markets.
• Historical event studies suggest that oil price spikes above 10% over 3 days typically result in energy prices stabilizing and not causing significant macro disruption.
• The team is prepared for a potential flight to quality if the situation escalates, with USD, CHF, and JPY likely to be bid, while EUR underperforms.

US Inflation Analysis

• Three potential reasons for softer US inflation are considered: trade rerouting, front-running stockpiles, and slowing US demand.
• The recent May data is the first "post-tariff" release, and the team remains cautious, with the burden of proof on inflation bulls for June data.
• The team maintains a short USD position against global currencies, particularly EUR, JPY, and KRW.

China's Trade Leverage

• China's dominance in rare earth element exports, particularly to the defense sector, gives it leverage in trade negotiations.
• The recent export restrictions on rare earth elements, along with the White House's trade deal with China, suggest the trade war may remain contained.

Korean Currency Outlook

• KRW is expected to continue its bullish trend due to a robust current account surplus and increased foreign investment flows.
• The team remains long KRW, with support from the current account surplus and the new pro-market administration in Korea.

Conclusion

The strategy is based on a mix of structural and cyclical factors, with a focus on maintaining long positions in equities and certain currencies while hedging against USD. The team remains cautious about potential tail risks and is prepared to adjust positions if geopolitical or economic conditions change.