Citi Month-End FX Hedge Rebalancing: September 2018 Preliminary Estimate: FXWW

From the FXWW Chatroom – The preliminary estimate of month-end FX hedge rebalancing flows points to JPY selling and roughly balanced flows in all other currencies on Friday, 28 September.
· Strong gains in Japanese equities are behind the signal to sell JPY. At +4.11%, the MSCI Japan equity index has out-performed all other major markets this month, leaving foreign investors under-hedged relative to their benchmarks. As other global markets have shown mixed performance and Japanese investors typically employ lower passive FX hedge ratios, this allows foreign JPY selling needs to dominate the net flow estimate.
· An unusual combination of large losses in US fixed income and small gains in equities produces roughly balanced estimates for net USD rebalancing flows. Fixed income investors will likely be USD buyers and equity investors USD sellers. However, at just 0.8bp of global passive hedged assets, the size of the estimated net USD buying need falls into the bottom decile of the past 20 years.
· With month-end flows estimated to be light, markets will likely pay attention to data releases and speakers from the Bank of England and the ECB instead.

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