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The summer months are a time to take a break, to sunbathe with friends and family members in the sunshine, and the financial markets, which are amazed for a little or for no obvious reason.
If we approach the season in the northern hemisphere and the markets pass their usual process of thinning and fluttering in the coming months.
An amuse Bouche for this came with some special movements in Yen in Japanese last week. In general, the yen is one of the CurrenciesTogether with the dollar and the Swiss franc, which works pretty well in times of stress. It is not an oasis as such, but the folklore in the markets is that Japanese investors bring their remedies home in turbulent or scary periods and pull up the yen in tow.
Whether these return flows will ever really appear on a scale is a question of the debate. You probably don’t. But muscle memory in markets is a strong force. So when bad stuff happens, the yen is higher, especially in geopolitics.
Not so with the recent reinforcement of violence between Iran and Israel, also involved with us. Instead of shooting higher, the yen weakened. Not dramatic, but the dollar rose to a high of 148 yen at the beginning of this week and marked the weakest point of the yen of a month.
A one -month deep in the yen Maybe it doesn’t sound like a big deal, and it wasn’t for most people. The problem is here because betting on a weaker dollar and a stronger yen is very popular with hedge funds and other speculative investors. When this bet escapes, we saw what Dominic Bunning, an analyst at Nomura, describes as “evil squeeze”. He was about to fold his own recommendation to customers to buy the Japanese currency – never a pleasant moment for an ideas dealer at an investment bank.
It is crucial that the episode indicates that the bet against the money is a little overcrowded and that you do not need a long memory to remember how crowded bets can get angry with speed. Only last summerThe yen shot higher and at the same time the US tech shares shot lower than two highly corrected and very popular positions in heavy hedge funds met a wall and quickly vice versa. The markets were so chaotic (or so I was told – I had the good level of sitting this piece in Turkey on a sun bearing) that the debt markets were the pricing in an emergency interest rate from the US Federal Review Reserve at one time.
Of course, an emergency cut never happened. However, the markets are particularly susceptible to overwhelming when the summer vacation period pulls people away from their desks and gaps open where solid market prices for companies would generally act.
It is therefore worth keeping the eye in the financial markets with widespread consensus if you suffer similar summer blade. The yen is such a area. If the United States is not willing or are unable to reduce interest rates, either because of the sticky inflation or because the economy is better in the first few months of this year than in the opening months, the rise in the yen, for which Hedgies hope hedgies, may not be possible. Investment banks and central banks become less dark in the US prospects and this is an upward trend in order to take seriously.
Chris Scicluna, Analyst on Daiwa Capital Markets, is of the opinion that a continued orderly decline in the dollar is still the most likely result from here and that a summer shaking in his exchange rate with the Yen remains unlikely, although this prognosis, as he determined, could be his “famous last words”.
Shocks cannot be predicted by definition. But Scicluna sensibly points out that a better place could be to the reputation of other markets that had a great run this year and that could drive their luck and be overcrowded a little.
Some European currencies such as the Swiss franc and the Swedish Krona have a spectacular run. European stocks have worked out an impressive and uncharacteristic rise. Even, like me, who believe in long -term rotation from the United States and in Europe, can admit that an increase of 18 percent in German stocks may be a little exaggerated this year.
In the meantime, US shares in Europe’s Wake. If President Donald Trump keeps difficult economic decisions, you may be able to catch up and the dollar can take a break. The feeling here may be excessively dark.
Mini reviews in summer usually fade as quickly as a tan, but they can be burned. A small summer caution is running a long way.
