Global Carry Trades Face Major Setback as Markets Shift
Big Changes Ahead! Around three-quarters of global carry trades have been wiped out, according to a recent note from JPMorgan strategists. It seems the market’s been on quite the rollercoaster ride lately!
Low Risk-Reward Ratio
Eyes on the U.S. Elections JPMorgan’s report highlights the low risk-reward scenario for global carry strategies due to the upcoming U.S. elections and the possibility of funders adjusting to lower U.S. rates. They also hint that the momentum of rates is expected to swing against G10 carry, which could push investors towards value investments.
Significant Drawdowns
Tech Sell-Off’s Impact The strategists mention that their stance remains steady, but carry baskets are feeling the pinch after the tech sell-off, experiencing a drawdown of about 10% for G10, EM, and global portfolios. Ouch! That means all the positive returns from earlier this year have vanished.
Recent Trends and Losses
Ongoing Losses Since May Drawdowns for EM currencies have been ongoing since late May, while G10 has caught up more recently. These losses have significantly undercut the gains made since the end of 2022, leaving many portfolios reeling.
Unreliable Measures
A Mixed Bag for Carry Trades Interestingly, the spot component of the global carry basket indicates that 75% of carry trades have dropped off, but strategists caution that it’s not the most reliable measure. It’s a tricky situation!
Contrasting Markets
Equity vs. Carry JPMorgan notes that the drawdowns in carry strategies have been quite steep compared to equities, straying from the usual relationship between FX carry and equities. It’s like watching a tug-of-war, but in the finance world!
Future Opportunities
Next Month’s Light Central Bank Calendar Despite the bleak medium-to-long-term outlook, there’s a potential short-term opportunity brewing for a repricing, especially with a light central bank calendar approaching next month.
Market Signals
Value Takes the Stage The recent sell-off has had some clear consequences. Value strategies are holding strong, FX rates momentum is making a comeback, and growth RV remains resilient despite the chaos in the markets. It’s quite the dramatic scene unfolding in the financial landscape!
