The immediate storm may be passing – but dark clouds have gathered over the US economy. Japan. Carry Trade

 The US Federal Reserve has waited too long to switch from fighting yesterday’s inflation to fighting tomorrow’s unemployment, allowing pre-recessionary conditions to metastasise.

The immediate storm may already be passing. But there has unquestionably been a massive and sudden repricing of interlinked bonds, equities, and currencies across the world. That is more than a minor tremor.

Parallels with the global financial crisis are completely misplaced.

The eurozone is in stagnation and is reverting to fiscal austerity rather than doing anything about it. 

The Bank of Japan’s long-delayed rate rise finally happened last week, timed to horrible perfection, just as America’s economy wobbles. 

Japan is still the world’s largest creditor with some $3.5 trillion of net global assets. 

When de facto yield differentials between Japan and US narrow suddenly,  and the yen appreciates violently, it leads to massive repatriation flows by Japanese investors.

What happens if the US economy tips into recession with deficit and debt ratios already stretched to extreme levels? 

You don’t want to find out.

Ambrose Evans-Pritchard Telegraph 6 August 2024

https://www.telegraph.co.uk/business/2024/08/06/august-tremor-world-markets-stark-recession-warning/

Unwinding of carry trades is helping - Margin Call

https://englundmacro.blogspot.com/2024/08/market-crashes-usually-have-same.html