Monday’s global market sell off and its recovery was spectacular. It is now a common understanding that the primary driving force was unwinding of carry trade. According to JP Morgan, that process is only 20% complete.
The good news is that the market crash could serve a lesson learnt for the central banks – policy coordination remains a critical task for them to maintain market and financial stability globally. Japanese is expected to raise rates and the Fed is to cut rates, however I do not think either of them will conduct monetary policies aggressively in their paces. Hence the unwinding of carry trade will continue but in an orderly manner so to create minimum impact on market dynamics.
As for the US economy, slowdown, in my view, has started at least six months ago, and its pace has been orderly and slow, and I think to continue with the same pace until next year.