Less than two weeks before the November 5th US presidential election, Citigroup, which has been betting on Trump's trade early on, believes that it is now possible to close out some of these trades for profit.

A recent report from Citigroup pointed out that historical data shows that most of the asset price fluctuations occur before the actual election, so even though investors increasingly think Trump is a popular candidate this time, it is best to first lock in the profits from bets on Trump's trade.

In the report, Citigroup's Global Macro Research and Asset Allocation Director, Dirk Willer, wrote:

"We have been long Trump trades. Investors have concluded that Trump will win, but the polls suggest he is only slightly ahead. Therefore, some of our Trump-leaning election trades have been profitable, but some structure has been retained."

Citigroup's profitable exit trades include its positions betting on the bond market indicator measuring inflation in the US over the next five years - the position of the five-year breakeven inflation rate. Stronger-than-expected US September nonfarm payrolls reported earlier this month led Citigroup to increase these positions.

The breakeven inflation rate is calculated from the difference between Treasury Inflation-Protected Securities (TIPS) and standard US Treasury bonds. If investors are concerned about rising inflation, the breakeven inflation rate rises. Currently, the five-year breakeven inflation rate is around 2.3%, higher than the 1.8% earlier this year.

In the trades betting on Trump's election, Citigroup also closed out positions betting on a stronger dollar, especially against the euro. Since the end of September, the US dollar has gained about 3.5% against the euro. On Wednesday, the euro hit a near three-month low against the dollar, and by Friday, it had fallen for four consecutive weeks, marking the longest losing streak in eight months. Options traders in the market also expect a 40% chance of a 50 basis point rate cut at the European Central Bank's December meeting, which means the euro will further weaken.

Willer wrote in the report that institutional long positions in the US dollar have increased significantly, and the probability of Trump winning may be approaching its peak. However, we believe that profit-taking is a wise move. He also said, based on Citi's market forex quant team data, 'Hedge funds are pouring into long US dollar positions at the highest speed in history.'

Meanwhile, Citi continues to hold some Trump trading positions, such as options trading expecting the overnight rate of the British pound to decrease faster than similar linked US currency money market rate contracts next December, and betting on Bank of America outperforming the S&P 500 index.

Wall Street News mentioned on Monday that Goldman Sachs, JPMorgan, and Deutsche Bank have recently collectively voiced their support for the 'Trump trade.' JPMorgan's report last Thursday on the 17th stated that hedge fund flows show a strong preference for Republican themes, with a clear representative of a Democratic victory—wind power being heavily sold in recent weeks.

Goldman Sachs report states that the 'Trump Trade' effect of 2016 seems to be emerging again, with the recent rise of the S&P 500 index being primarily driven by regional banks, large banks, and energy sectors. This round of buying to some extent came at the expense of the artificial intelligence (AI) sector's decline.

Deutsche Bank believes that the market's expectations for Trump and Harris are mainly reflected in the forex market. If Trump is elected, the US dollar will strengthen. If the Republican Party becomes the majority party in both houses of Congress, that is, the result of what is known as a 'red sweep,' the market volatility could be even greater. And if the result is a 'blue sweep,' that is, the Democrats winning both houses of Congress, it would be most unfavorable for the US dollar.

Editor/Lambor