Key Takeaways:
Three-quarters of global carry trade has been removed according to JPMorgan
Risk-reward for global carry is low due to upcoming US elections and potential repricing of funders on lower US rates
Rates momentum is expected to turn more significantly against G10 carry, leading to a rotation to value strategies
Drawdowns for G10, EM, and global portfolios have wiped out all positive year-to-date returns
75% of carry trades have been removed based on the spot component of the global carry basket
Combination of factors may present a short-term opportunity to position for market repricing
Value strategies have gained, FX rates momentum has recovered, and growth RV has remained stable amid volatility- Returns in various carry trade baskets have fallen approximately 10% since May
The clock is ticking for the G10 carry strategy
Carry trades were hit hard by market volatility and central bank actions
There may be a slight opportunity for a rebound in August, but the risk-reward is not attractive- Drawdowns for G10, EM, and global portfolios have wiped out positive year-to-date returns
- Spot component of the global carry basket shows removal of 75% of carry trades
- Strategy drawdown has been more substantial compared to equities
- Combination of factors might present a short-term opportunity to position for a repricing despite long-term deteriorating backdrop
- European and US stock futures declined while some Asian markets saw mixed performances
- Markets have been impacted by central bank policy decisions and weak economic data
Investors unwinding carry trade strategy due to global market volatility- Dollar weakened, impacting Treasury auction demand
- Lasertec shares surged after strong quarterly results
Oil prices steadied amid geopolitical tensions- Global markets continue to be influenced by key events and data points
Market Insights:
With three-quarters of the global carry trade being removed and risk-reward for global carry at a low point due to upcoming US elections and potential repricing of funders on lower US rates, the market is facing significant challenges. Rates momentum is expected to turn more significantly against G10 carry, leading to a rotation to value strategies. Drawdowns for G10, EM, and global portfolios have wiped out all positive year-to-date returns, showing the impact of recent market volatility.
Value strategies have seen gains, with FX rates momentum recovering, and growth RV remaining stable amidst the volatility. However, the clock is ticking for the G10 carry strategy, and the market has been heavily impacted by central bank policy decisions and weak economic data. Investors are unwinding carry trade strategies due to the global market volatility, creating a challenging environment for market participants.