By Thomas O. Herrick
Chief Market Strategist, Managing Director
On August 5th, we published our viewpoint amid a sudden spike in equity volatility. We believed it was crucial to keep you informed as timely events unfolded. Since then, through this writing, equities have largely recovered from their drawdown. It has become apparent that the dominant factor triggering this mini panic was the global margin call emanating from the unwind of the Yen carry trade, referenced in in our August 5th publication as one of two culprits. Exposure data now available from those trading sessions confirms this unwind, and further confirms that positioning around this trade has diminished by three quarters. Volatility and fear as indicated by the CBOE Volatility Index (VIX) have returned to typical levels. Consequently, the contrarian sentiment support for equities that was pronounced earlier in August has now dissipated.
Nearly all of the net positions in yen contracts have unwound
Source: Charles Schwab, Commodities Futures Trading Commission, Bloomberg data as of 8/11/2024.
Read Part 1 — Asset Management Viewpoints: Volatility Spike, Posted August 5, 2024
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