Yen Carry Trade Unwinds, Recession Odds Climbs, Election Prediction Markets
1.) Yen Carry Trade
The unwind of the yen carry trade, where investors borrow in low-interest currencies like the Japanese yen to invest in higher-yielding assets, is causing significant market disruptions. As Japan's interest rates rise, the yen strengthens, leading to a sell-off in global markets. Analysts warn that the unwinding process is far from over, with potential ripple effects on valuations and market stability in the coming years.
While some strategists see this correction as a healthy adjustment, others caution against re-entering high-yield emerging markets too soon. The ongoing volatility and uncertainty, driven by shifts in interest rates and economic data, suggest that the yen carry trade could continue to impact global markets, with the full effects yet to be realized.
2.) Recession Odds Grow
J.P. Morgan Research has raised the probability of a U.S. and global recession by the end of 2024 to 35%, up from 25% in their mid-year outlook. This adjustment comes as signs of weakening labor demand and global manufacturing slowdowns emerge, though solid gains in the service sector temper some of these concerns. The likelihood of a recession by the end of 2025 remains at 45%.
On the interest rate front, with inflation easing, J.P. Morgan now sees a 30% chance that the Federal Reserve will maintain high rates longer, down from 50% two months ago. The firm expects the Fed to cut rates by at least 100 basis points by year-end, though this shift may not be mirrored globally due to differing economic conditions.
3.) Election Odds on Prediction Markets
Prediction markets are signaling a shift in the 2024 U.S. Presidential election odds, with a 53% chance of Kamala Harris winning, according to Polymarket. Unlike traditional polls, these figures are based on real money wagers, offering a unique measure of public sentiment. The odds have changed notably, with Harris overtaking Trump, who previously led against Biden. The upcoming debate could further swing these numbers.
• 53% chance: Harris leading in prediction markets
• Real money: Bets driving the odds, not just opinions
• Historical precedent: Reflecting on the 2016 polling miss
• Debate impact: Key event that could alter the landscape
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