JPMorgan Remains Bullish on Global FX Carry Trades Despite Pullback

What happened

JPMorgan said it remains bullish on global foreign exchange carry trades despite the recent market pullback, citing a solid growth outlook, according to Sina Finance. Strategist Anthony DeLair and others wrote that global and emerging-market carry portfolios have fallen from their mid-September highs.

Confirmed

Global impact / market context

If JPMorgan is right, carry trades, which mean borrowing in low-yield currencies to invest in higher-yield ones, could recover. That matters because a rebound would support investor positions that profit from interest-rate differences and could encourage more risk-taking, which means investors would buy assets that carry more chance of loss.

Analyst inference

Global and emerging-market carry portfolios dropped from mid-September highs. JPMorgan says the decline looks too large compared with what rate markets show about fundamentals. The bank still prefers global FX carry trades because it expects economic growth to stay solid, which means the economy should keep expanding at a healthy pace.

Analyst inference

What to watch

1. JPMorgan's strategist Anthony DeLair and others said global and emerging-market carry portfolios have fallen from mid-September highs, but the drop appears too large relative to fundamentals reflected in rate markets, which are the interest rates set for loans and bonds. Confirmed
2. Watch whether the expected solid economic growth actually holds, because weaker growth would reduce the interest-rate advantage that makes carry trades attractive, which could push investors to sell those positions and deepen the pullback. Analyst inference
3. Watch whether JPMorgan's call for continued bullishness on global FX carry trades is followed by other investors or whether further selling in short-term US rates continues, which would signal that the decline is not yet over. Proposed

Evidence

• binance.com