Yen intervention threat keeps GS on sidelines
CAC40 up 1.4%, STOXX 600 up 0.3%
French election result in focus
US futures steady
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YEN INTERVENTION THREAT KEEPS GS ON SIDELINES
The yen, trading at a 38-year low against the dollar, has decoupled from rate differentials, Goldman Sachs noted, but even as conditions may be in place for further weakness, they are reluctant to short the currency while the intervention threat looms.
"The strikingly close relationship between USD/JPY and real rate differentials over the past few years has come into question in recent weeks," GS said in a note on Friday.
"While there have been prior periods of dislocation, none have looked as persistent and prominent as the current one."
That breakdown, GS said, was most concentrated in the week and a half following the Fed's June meeting, when U.S. policymakers scaled back expectations to one rate cut in 2024.
An improving risk outlook through the summer could weigh on the yen further, Goldman argued.
"We continue to think that our baseline macro forecasts (arguing for stronger equities and rangebound US rates) lean against the yen, and the very gradual move higher in Japanese rates is not a sufficient offset."
But with Japanese officials sounding the alarm about the moves in the currency, Goldman is wary about selling it.
"The rising risk of FX intervention does leave us more cautious on being tactically short going into the next few weeks," they added, highlighting that they recently closed their long position in GBP/JPY.
"We would consider looking for opportunities to go long again if we appear to be entering a period of broader risk relief this summer."
(Samuel Indyk)
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For Monday's earlier live markets posts
FRENCH BANKS AVOIDING THE WORST FOR NOW CLICK HERE
SKEWED RISK FROM PAYROLLS CLICK HERE
FRENCH STOCKS BOUNCE BACK, BUT STILL BELOW EARLY JUNE LEVELS CLICK HERE
FRENCH STOCKS SET TO RALLY AFTER FIRST ROUND OF VOTING CLICK HERE
GS yen https://tmsnrt.rs/4bokcmR
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