After the recent market rout, which wiped out over $6 trillion in global equities, there is just one question on investors’ minds: is the unwind of the carry trade – which is what prompted the unprecedented speed of the global selling – finally over?
The answer depends on who you ask.
We start with the most balanced take, in this case coming from SocGen, where the French bank writes in its latest equity strategist note that one measure of the USDJPY carry unwind is at the ‘beginning of the end’. As The bank’s strategist Manish Kabra writes (full note here), “a soft US CPI, combined with a hawkish move by the Bank of Japan, is driving a reversal of the USJPY carry trade, which is underpinning risk-off sentiment for the Nasdaq-100. While the JPY is still far from fair value, CFTC positioning on the JPY shows that a majority of the shorts were reversed in July.“
