SINGAPORE (Reuters) – After a turbulent week on global markets, the worst of the sell-off may be over but investors should “keep a tight rein on large price-sensitive assets for now”, said Tony Pasquariello, global head of hedge fund reporting at Goldman Sachs.
In a client note issued on Wednesday and seen by Reuters, Pasquariello called the market moves of the past week since Friday “a global margin call” and gave an indication of where markets might go from here.
WHY IT IS IMPORTANT
Investors are grappling with whether the widespread stock market meltdown, fueled by concerns about a weak U.S. recession and the unwinding of yen-financed carry trades, is over.
They are also adjusting to the uncertainties surrounding the upcoming Federal Reserve rate cuts and the US elections in November.
CONTEXT
This week’s rout surprised markets, with the S&P 500 down nearly 6% in just five trading days in August, while Japan’s Nikkei fell 10% for the month. The yen has risen 10% from 38-year lows in a month.
Goldman said the entire trading community may not yet be fully purged of risk, as franchise flows and prime brokerage data do not show many sales, though the moves do indicate significant risk transfer.
QUOTES
Pasquariello: “I find it difficult to make a big call on S&P’s risk/reward profile at this point. So I would hold back on big directional investments for now and try to make money in the corners of the market.”
“The worst of the forced risk reduction is behind us, but I think traders are mainly focused on continued selling.”
“Both commodity trading advisors (CTAs) and volatility funds are likely to remain in selling mode for some time to come… I suspect retail confidence will be lacking until the uptrend has clearly been restored.”
(Reporting by Ankur Banerjee in Singapore; Editing by Stephen Coates)