Hello cash and carry

The South China Morning Post/Reuters, Bloomberg and Business Insider all carried a story on the cash and carry trade between Europe and emerging markets. According to the South China Morning Post/Reuters article:

“To the extent that at least some part of that money will head abroad, the turbo-charged easy money will likely invigorate euro-funded carry trades,” Citigroup foreign exchange strategist Valentin Marinov wrote in a note to clients.

“As a result, foreign investors buying euro-denominated assets would be hedging their downside risk more aggressively. Last but not least, stronger domestic demand in the euro zone on the back of the ECB measures could lead to deteriorating external imbalances and weaken the euro.”

The euro will weaken, as indeed it already has, and financial markets globally will get a bit of a fillip, at least until the outcome of the Fed’s rate rise discussion is known later this year.

“You can now all relax and enjoy another strong leg of this emerging markets rally. Yes, this rally will end at some point – although not anytime soon – but the ECB has just given it a new breath of life,” emerging market strategist Benoit Anne of Societe Generale wrote to clients.

A link is here.

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