S&P 500 — US Large Cap Index
FTSE 100 — UK Blue Chips
Euro Stoxx 50 — Eurozone Leaders
DAX 40 — German Equities
CAC 40 — French Market Index
Nikkei 225 — Japan Benchmark
Hang Seng — Hong Kong Index
Shanghai Composite — China Mainland
ASX 200 — Australian Market
TSX Composite — Canada Index
Nifty 50 — India Large Cap
STI Index — Singapore Market
KOSPI — South Korea Index
Bovespa — Brazil Equities
JSE Top 40 — South Africa Index
IPC Index — Mexico Market
Geoff Yu at BNY highlights growing vulnerability in Latin American FX carry trades as realized volatility spikes and G10 rates drift higher. With Brazilian and Mexican central banks seen on hold and terms-of-trade support lacking, real rate gains must come from policy. Positioning data show selling pressure in COP and CLP, while BRL needs a sustained recovery in buying momentum.
High-yielders face mounting risks
“Real rates aren’t making headway. The central banks of Brazil and Mexico announce policy decisions this week, and neither is expected to move.”
“By contrast, the risk to G10 rates, including for the EUR and USD, remains to the upside, eroding carry compensation as volatility rises. The biggest frustration for Latin America may be the lack of a clear terms-of-trade lift this year despite evident supply constraints. That leaves central banks, which are reluctant to tighten, to deliver the real rate gains needed to keep policy restrictive.”
“Latin American holdings are a positioning challenge. Our data show that holdings of high-yielders are generally light, but Latin American currencies face risks. COP and CLP are being sold (or hedges are rising) from heavily overheld positions, while attempts to build MXN longs are losing steam.”
“BRL and PEN are underheld, though only BRL shows weak buying momentum – a clear turnaround in profitability is needed to push holdings back into positive territory.”
“Value is opening up in high-carry names. The Brazilian election was always going to be the key risk event for Latin America and high-carry names. The market has materially repriced its expectations, and the region’s political environment should settle into year-end and early next year.”
