The first episode of market accelerated normalization may have concluded for now, as indexes are looking to rebound today after what could have been a big fall. Many factors have influenced yesterday panic-like movement, but probably the one with the biggest impact has been the Yen carry trade unwind. After the worst 3 day fall in history, the Nikkei is rebounding strongly today (10%ish) and the Yen has strengthen vs other currencies, putting a bandaid on the problem. We would need a few days to see if there has been further damage to the system, and see if the necessary liquidity for the markets to function normally continues to be there. As expected, credit spreads widened yesterday as you can see below, but they are still at normal to tight levels. Today’s session will be dominated by short covering and dip buyers, so the real piece of information may come at the end of the week.
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