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Strategist: If the Federal Reserve significantly cuts interest rates, further unwinding of arbitrage trades may pose risks to U.S. stocks

Strategist: If the Federal Reserve significantly cuts interest rates, further unwinding of arbitrage trades may pose risks to U.S. stocks

Bitget2024/09/09 10:35

ChainCatcher news, Morgan Stanley strategist Michael Wilson believes that if the Federal Reserve significantly cuts interest rates this month, the U.S. stock market may face further risk of unwinding yen carry trades.

He pointed out that if the initial rate cut exceeds 25 basis points, it could support the yen. This would prompt yen traders to withdraw from U.S. assets after domestic interest rates rise, repeating last month's pattern which led to global market turmoil. "The unwinding of yen carry trades may still be a hidden risk factor," Wilson wrote in a report. "The rapid decline in U.S short-term interest rates could further strengthen the yen and thus provoke a negative response from U.S risk assets."

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