Global US-Dollar Shortage - Are We Already in a Recession?

[k1976]

Traditional Tiongkok Dance scene

 

[k1976]

Unwind of massive yen-funded carry has room to go, analysts say​

Previous

FILE PHOTO: A man stands next to an electronic stock quotation board inside a building in Tokyo, Japan August 2, 2024. REUTERS/Issei Kato/File Photo

People take pictures on an overpass with a display of stock information in front of buildings in the Lujiazui financial district in Shanghai, China August 6, 2024. REUTERS/Nicoco Chan/ File Photo

FILE PHOTO: A man stands next to an electronic stock quotation board inside a building in Tokyo, Japan August 2, 2024. REUTERS/Issei Kato/File Photo

People take pictures on an overpass with a display of stock information in front of buildings in the Lujiazui financial district in Shanghai, China August 6, 2024. REUTERS/Nicoco Chan/ File Photo

FILE PHOTO: A man stands next to an electronic stock quotation board inside a building in Tokyo, Japan August 2, 2024. REUTERS/Issei Kato/File Photo
Next

• 1
• 2

06 Aug 2024 09:39PM (Updated: 07 Aug 2024 02:27AM)
BookmarkShare

NEW YORK : An epic unwinding of the yen-funded carry trade that has reverberated through global markets may have further to go, analysts said on Tuesday.

Days of havoc in global markets have analysts rushing to calculate the size of a global carry trade in which investors have borrowed money from economies with low interest rates, such as Japan or Switzerland, to fund investments in higher-yielding assets elsewhere.

The strategy, which kept money flowing into global risk assets for years, was shaken after the Bank of Japan raised interest rates last week, forcing some investors to abandon the trade as the yen surged higher. The resulting unwind sparked huge losses in global stock markets and saw Japan’s Nikkei notch its worst day since 1987.
"I’d guess the carry trade is only about 50 per cent unwound,” wrote James Malcolm, a UBS Japan macro strategist based in London, in a Tuesday note to clients.
Malcolm estimates the dollar-yen carry trade grew to at least $500 billion at its peak. He calculated that some $200 billion of the carry trade has been unwound over the last two to three weeks.
“How much the carry trade could unwind depends not so much on the level of the interest rate differential but the change in the interest rate differential,” he said. Comparing the current move with the carry trade unwind of 1998 suggests more unwinds could be ahead, he said.

 

[k1976]

JP Morgan says the carry trade unwind is only half complete​

• The firm's co-head of global FX strategy, Arindam Sandilya, spoke to Bloomberg earlier

Justin Low
06/08/2024 | 08:20 GMT-0
Sandilya argues that the pain in markets from yesterday has more room to run, saying "we are not done by any stretch". Adding that the technical carnage of portfolios means that the sharp moves is not something that will be "easily undone". As such, he argues that any recovery in carry trades prior to the yen surge is unlikely in the short-term.

"The carry trade unwind, at least within the speculative investing community, is somewhere between 50%-60% complete. A good case outcome is stabilisation in markets around current levels, maybe a shallow recovery at best. But in many of these instances you tend to get continuation of the moves, if at a lower velocity than what you had before."


Well, the air is certainly thinning out there in markets at the moment. S&P 500 futures are only up 0.6% now and USD/JPY is down to 144.55 on the day - up just 0.3% currently.

 

[k1976]

Wow...2nd Anniversary for this thread

 

[Eisenhut]

JP Morgan says the carry trade unwind is only half complete​

• The firm's co-head of global FX strategy, Arindam Sandilya, spoke to Bloomberg earlier

Justin Low
06/08/2024 | 08:20 GMT-0
Sandilya argues that the pain in markets from yesterday has more room to run, saying "we are not done by any stretch". Adding that the technical carnage of portfolios means that the sharp moves is not something that will be "easily undone". As such, he argues that any recovery in carry trades prior to the yen surge is unlikely in the short-term.

"The carry trade unwind, at least within the speculative investing community, is somewhere between 50%-60% complete. A good case outcome is stabilisation in markets around current levels, maybe a shallow recovery at best. But in many of these instances you tend to get continuation of the moves, if at a lower velocity than what you had before."


Well, the air is certainly thinning out there in markets at the moment. S&P 500 futures are only up 0.6% now and USD/JPY is down to 144.55 on the day - up just 0.3% currently.

Is it time to buy????

 

[k1976]

Private Credit Fund Burned by Risky Bets Is Bleeding Cash​

As Prospect Capital faces a surge in troubled borrowers paying interest with more debt, concerns over the fund’s finances are growing louder.


By John Sage and Ellen Schneider
August 7, 2024 at 5:00 AM GMT+8

Prospect Capital, a little-known New York firm that helped pioneer the private credit boom, has come up with an unusual technique to keep dividends flowing out of an $8 billion fund it runs.

For years now, it’s sold financial instruments to retail investors and handed over the proceeds to shareholders.

The sales helped the fund deliver hefty payouts even as the performance of its investments — mostly corporate loans to mid-size companies and real estate — deteriorated markedly.

But they’ve also long raised concerns among some analysts who say the strategy obfuscates returns and is unsustainable.

 

[k1976]

Discourse Economy

America's hiring boom is officially over​

The job market is tumbling. How did everyone miss the warning signs?

Pretty much everybody woke up last Friday feeling like America's labor market was in fine shape (to the extent the average person was thinking about it at all). Maybe things weren't perfect, and workers weren't living in the "world is your oyster" situation they were in 2021 and 2022, but in general, things seemed pretty strong.

And then, at 8:30 a.m. ET, everything changed. The jobs report said the US economy added 114,000 jobs in July, far fewer than the 176,000 jobs that economists expected. The unemployment rate jumped to 4.3% from 4.1% the previous month. For some context, back in April it was at 3.9% and had been under 4% for the longest stretch in decades. The weakness of the jobs report tipped the worry scale and sent markets into meltdown mode. Many investors decided it was time to panic after all.

While a single data point isn't a good reason to change one's entire narrative, the report served as a wake-up call that danger is closer than a lot of people thought. The cracks in the economic foundation are increasingly impossible to ignore. While it's not in disaster territory, the labor market has been weakening for a while, and it's not clear what's going to reverse that trend. The report's release just a few days after the Federal Reserve decided to hold interest rates steady rather than cut them in an attempt to restabilize the economy also fueled fears that the central bank is behind the curve and that a recession may be on the horizon.

 

[k1976]

Is it time to buy????

if u the holding power, why not
But dun go all in...reserve some powder just in case

 

[k1976]

Private Credit Boom:
Why It’s BoomingHow It Got So BigBanking Escapees Make BillionsJPMorgan’s TradesFlawed Valuations

Illustration: Patrick Leger
Business
The Big Take

Private Credit Fund Burned by Risky Bets Is Bleeding Cash​

As Prospect Capital faces a surge in troubled borrowers paying interest with more debt, concerns over the fund’s finances are growing louder.


By John Sage and Ellen Schneider
August 7, 2024 at 5:00 AM GMT+8
Save
Prospect Capital, a little-known New York firm that helped pioneer the private credit boom, has come up with an unusual technique to keep dividends flowing out of an $8 billion fund it runs.

For years now, it’s sold financial instruments to retail investors and handed over the proceeds to shareholders.


The sales helped the fund deliver hefty payouts even as the performance of its investments — mostly corporate loans to mid-size companies and real estate — deteriorated markedly.

But they’ve also long raised concerns among some analysts who say the strategy obfuscates returns and is unsustainable.
https://www.bloomberg.com/tips/

 

[k1976]

DBS’s Next CEO Won’t Enjoy the View From the Peak​

The June quarter profit may be as good as it gets. Tan Su Shan will ride the rates rollercoaster down.

August 7, 2024 at 6:30 PM GMT+8
Updated on
August 8, 2024 at 9:05 AM GMT+8
By Andy Mukherjee

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, the Straits Times and Bloomberg News.

It won’t last.
Photographer: Suhaimi Abdullah/Bloomberg
Save

DBS Group Holdings Ltd.’s better-than-expected profit is a snapshot of the global interest-rate rollercoaster at its highest point. Investors should savor the sight from the peak. It won’t last.

The net interest income on commercial lending rose to almost as high as S$3.8 billion ($2.8 billion) in the June quarter. That’s 88% more than what the Singapore-based lender was making on advances before the US Federal Reserve began increasing interest rates in March 2022 from nearly zero. The target fed funds rate is currently 5.25% to 5.5%.

 

[k1976]

Markets are worried about the Chinese yuan sparking a new wave of turmoil​

Huileng Tan
Thu, 8 August 2024 at 2:07 pm SGT4-min read

Scroll back up to restore default view.

• Markets are stabilizing after Monday's selloff, but concerns are shifting to the Chinese yuan.
• Some analysts are warning of potential yuan carry trade unwind.
• Japan's interest-rate hike triggered a massive selloff on Monday due to the yen carry trade unwinding.

The markets appear to have stabilized after melting down on Monday, but there's a new worry on the horizon in the form of the Chinese yuan.

Monday's massive market selloff — the worst on the Nikkei since Black Monday 1987 — was in part triggered by the unwinding of Japanese yen carry trades.
ADVERTISEMENT

"The next carry trade unwind could be the yuan," Khoon Goh, the head of Asia Research at ANZ, told CNBC on Wednesday, pointing out that the offshore yuan already jumped against the dollar earlier on Monday as a kneejerk reaction to the yen carry trade unravel.

The carry trade strategy involves borrowing Japan's longstanding ultra-low interest rate environment to fund higher-yielding assets elsewhere. The Bank of Japan's rate hike last week, however, jolted the market, forcing investors who borrowed to fund their carry trades to liquidate their positions, setting off the global market rout.

Now, analysts and investors are jittery about the same happening in the Chinese yuan.
China is in a low interest-rate environment as authorities are trying to boost the country's flagging economy.

 

[k1976]

Bets Against Yen Crater as Volatility Scares Crowded Carry Trade​

• Japan’s yen strengthened 10% since early July versus dollar
• Those moves led to an unwind of the so-called carry trade

By Anya Andrianova, Carter Johnson, and Mia Glass
August 10, 2024 at 4:00 AM GMT+8
Updated on
August 10, 2024 at 4:20 AM GMT+8


Speculative traders sharply pulled back on bets for a weaker yen amid wild swings in the Japanese currency and a vicious market selloff, according to the latest Commodity Futures Trading Commission data.

Hedge funds cut their wagers against the yen by 49,336 contracts to 20,243 in the week ended Aug. 6, CFTC data released on Friday show. That’s the fifth-largest boost to trader sentiment in data going back to 2006.

 

[k1976]

How Japan’s Yen Carry Trade Crashed Global Markets​

An obscure strategy wreaked short-lived havoc.​

By William Sposato, a Tokyo-based journalist.

A man looks at an electronic quotation board displaying Nikkei 225 stock prices on the Tokyo Stock Exchange.

A man looks at an electronic quotation board displaying Nikkei 225 stock prices on the Tokyo Stock Exchange in Tokyo on Aug. 6. Kazuhiro Nogi/AFP via Getty Images


My FP: Follow topics and authors to get straight to what you like. Exclusively for FP subscribers. Subscribe Now | Log In
August 8, 2024, 1:47 PM View Comments (0)


The global mini-crash on Monday, when stocks dived before largely recovering, can’t be pinned down to one cause alone. But one serious culprit was a long-standing foreign exchange strategy that suddenly turned into a disaster as Japan’s central bank and government tried to pull the yen out of an increasingly destructive nosedive.

The “yen carry trade” is a straightforward maneuver: borrow money in a country with low interest rates, such as Japan (or Switzerland), and invest in currencies with a higher interest rate, such as the U.S. dollar. If all goes well, the result is a cost-free source of profit.

Not surprisingly, this has become very popular with financial traders, businesses, and even individuals who have used the technique to pay for mortgages in their home countries.

At current levels, an investor can borrow yen for around 0.5 percent and find a secure U.S. investment at around 5.5 percent. This means a 4 percent gain with no investment of your own.

The only potential problem is if the exchange rate between the two countries starts to change. In this case, a stronger yen means that you will need more dollars to pay back the loan, potentially wiping out the gain and leaving expanding losses.



“These violent market moves will take place when participants in the ‘crowded trade,’ in this case yen carry, all try to get out of the pool at the same time. Moves on the downside can be swift and violent and at times can lead to changes in market psychology,” said Ichiro Sekimitsu, a former veteran trader in interest rate derivatives.

“A necessary condition for the trade to continue is low volatility, so the predictability of the Bank of Japan and the Japanese Ministry of Finance, along with an underperformance of the Japanese economy, probably helped build the trade.”

All of this came unstuck on Monday as a fast-rising yen fed into a declining stock market, which in turn sparked a greater unwinding of what are known as “yen shorts”—bets that the yen will further decline.


That sent the yen sharply higher in value as traders quickly closed out their positions. In mid-July, the dollar was worth more than 161 yen, but by the end of the Asian trading day on Monday, it stood at 142 yen, a 12 percent fall in value.

That would easily wipe out a year’s worth of yen carry trade interest payments. Small wonder that there was an increasingly hectic race for the exits.

 

[k1976]

 

[k1976]

Construction in the Kai Tak area in Feb. 2024.Photographer: Lam Yik/Bloomberg
By Shawna Kwan and Jinshan Hong
August 13, 2024 at 7:00 AM GMT+8
Save

Hong Kong’s real estate slump is choking off one of the financial hub’s most important sources of government revenue.
For decades, the city’s government generated massive income from auctioning off land to cash-rich developers as prices soared. That helped enable Hong Kong’s low-tax system, which has been crucial to its business hub status. The arrangement largely worked — until recently.

 

[k1976]

It's a great time to buy a Hong Kong mansion from the cash-strapped elite​

Lian Kit Wee
Jul 31, 2024, 1:47 AM ET
Share

Read in app

Sam Tsang/Getty Images

• Some distressed, wealthy homeowners in Hong Kong are selling their exorbitant homes at a discount.
• Hong Kong's property market has been under pressure due to high interest rates.
• The removal of property curbs in Hong Kong has boosted luxury home sales.

 

[k1976]

Wall Street Says a Recession Is Coming. Consumers Say It's Already Here​

Shoppers are getting squeezed and money is disappearing fast

https://www.bloomberg.com/news/arti...recession-2022-businesses-and-workers-say-yes

Deutsche Bank AG Chief Executive Christian Sewing sees a 50% chance of a global recession, a prediction that Citigroup Inc. economists have also made. Federal Reserve Chair Jerome Powell says a US recession is a possibility, but not inevitable. Morgan Stanley economists expect a mild euro-area recession at the end of 2022.

TS observation is correct, but global elites cash buffer and sophiscated hedging take more than 24mths to wear out in this ultra high rate environment

 

[k1976]

The 'real' Japan strategy​

"If you look at our models right now, similar to some of the sentiment you're seeing in the market, they are telling you that you should be buying back into the carry trade. You should be buying into MEX and Brazil and some of these higher-yielding assets [and] start shorting some of the funder currencies," Kelly said.

"I think that's probably wrong. I think there is a structural change. The [Bank of Japan] is still going to need to tighten, the yen is still fundamentally undervalued, the Fed is starting to ease — which is going to change some of these interest rate differentials in the wrong direction," he continued.

"So, I wouldn't be buying back into some of these high-yielding [emerging market] assets. I would probably be looking to go long yen, still in sort of long dollar environment. I think that is the right trade, but it is structural rather than sort of near-term high frequency data."

Kazuhiro Nogi | Afp | Getty Images
The Japanese national flag is seen at the Bank of Japan (BoJ) headquarters in Tokyo on July 31, 2024. The Bank of Japan lifted its main interest rate on July 31 for just the second time in 17 years in another step away from its massive monetary easing programme.
Kelly's comments come as market participants brace for key U.S. inflation figures in order to get a better picture on the health of the world's largest economy.

The U.S. producer price index, a measure of wholesale prices, is scheduled for release on Tuesday and the consumer price index will be released Wednesday. The readings could prompt the Federal Reserve to begin cutting interest rates from next month.

A sharp sell-off in risk assets last week was partly driven by weaker-than-expected U.S. economic data. The figures led investors to worry that the Fed may be behind the curve in cutting interest rates to fend off a recession.

 

[Dr Christopher Cheok C S]

China's rural banks halted bond market​

In a highly unusual move, regulators instructed rural banks in China’s Jiangxi province not to settle recent purchases of government bonds, effectively reneging on their market obligations.
https://finance.yahoo.com/news/china-goes-extremes-crackdown-bond-004150309.html

 

[k1976]