From the FXWW Chatroom – Our final estimate of month-end FX hedge rebalancing flows continues to point to USD selling and buying of all other currencies today, 31 July, but the signal has slightly weakened since last week’s preliminary calculations.
· Good performance of US equities remains the driver of this month’s signal. The MSCI US equity index has gained 2.96% month-to-date, meaning that foreign investors in US equities will need to sell USD to hedge the increased value of their holdings. The dominant position of US assets in international market cap weighted equity indices and our assumptions of higher FX hedge ratios outside the US leads the model to issue a net USD selling signal even if equities in some European markets have done better than in the US.
· We estimate the aggregate net USD selling need at around -5.6bp of global indexed AUM, made up of -6bp worth of net selling by equity investors and 0.4bp of net USD buying by fixed income investors. Given that the MSCI US index has given up some of the gains in recent days, the USD sell-signal has weakened from -7.8bp in our preliminary calculations and now stands at -0.6 standard deviations. GBPUSD ‘buy’ is strongest at +0.8 standard deviations.
· There are no major data releases or central bank speakers currently scheduled immediately ahead of the 4pm London time fix today, although markets will probably be watching out for key Eurozone data this morning and any follow-through from BoJ overnight.
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