08/05/2024

What is Behind the Global Market Rout

It's more about the end of cheap funding than the U.S. economy

A meltdown in world equity markets in recent days is more reflective of a wind-down of carry trades used by investors to juice their bets than a hard and fast shift in the U.S. economic outlook, analysts say.

While Friday's weaker-than-expected U.S. jobs data was the catalyst for the market sell-off, with Japan's blue-chip Nikkei index on Monday suffering its biggest one-day rout since the 1987 Black Monday selloff, the employment report alone wasn't weak enough to be the main driver of such violent moves, they added.

Instead, the answer likely lies in a further sharp position unwind of carry trades, where investors have borrowed money from economies with low interest rates such as Japan or Switzerland, to fund investments in higher-yielding assets elsewhere.

Please select this link to read the complete article from Reuters.