Accessible version Liquid Cross Border Flows Q3 halfway mark Key takeaways FX flows so far in Q3: consolidation Consolidation perhaps best characterises FX flows so far in Q3, after – sharp in the case of USD – positioning adjustments in 1H: investors have bought USD, CHF, and EM FX vs. JPY, GBP, and CAD (Exhibit 1). Among BofA investors, USD shorts are light (Exhibit 2). Exhibit 1: So far in Q3 investors have bought USD, CHF, and EM FX vs. JPY, GBP, and CAD Changes in aggregate FX positioning -40 -20 0 20 ...

Summary of Morgan Stanley's G10 FX Strategy Update Industry Overview - The report focuses on the G10 foreign exchange (FX) market, analyzing various currencies against the US dollar (USD) and providing strategic insights for investors. Key Currency Views USD (US Dollar) - **View**: Bearish - **Skew**: Bearish - The DXY is expected to weaken, particularly against EUR, JPY, and GBP. The risk premium has largely driven the post-Liberation Day move, with potential for further increases in risk premium [2][12][17]. EUR (Euro) - **View**: Bullish - **Skew**: Bullish - EUR/USD is under upward pressure due to increased USD-negative and EUR-positive risk premiums, alongside a compression in Fed-ECB rate expectations [3][18]. JPY (Japanese Yen) - **View**: Bullish - **Skew**: Bullish - Optimism regarding a potential Bank of Japan (BoJ) rate hike and concerns about the US labor market may lead to speculation about policy convergence, reducing appetite for JPY carry trades [4][19]. GBP (British Pound) - **View**: Bullish - **Skew**: Bullish - GBP/USD is seen as an attractive option for investors, reflecting a carry-neutral expression of a USD-negative, Europe-positive view. The carry remains crucial for GBP's outperformance [5][21]. CHF (Swiss Franc) - **View**: Neutral - **Skew**: Bearish - Short CHF positions are attractive from a carry perspective, but much of the CHF-negative tariff news is already priced in, potentially leading to underwhelming growth expectations [6][22]. CAD (Canadian Dollar) - **View**: Bullish - **Skew**: Bullish - Anticipation of a decline in USD/CAD, even if upcoming CPI shows signs of deceleration. The convergence of US-Canada rates is expected to weigh on USD/CAD [7][25]. AUD (Australian Dollar) - **View**: Bullish - **Skew**: Bullish - Strong domestic fundamentals and elevated yields could lead AUD/USD to re-test 0.6600, with potential upside towards 0.6900 if CPI surprises positively [8][26]. NZD (New Zealand Dollar) - **View**: Neutral - **Skew**: Neutral - A 25bp cut by the Reserve Bank of New Zealand (RBNZ) is fully priced in, but stronger-than-expected growth raises the risk of an NZD-positive surprise if the OCR forecast does not decline [9][27]. SEK (Swedish Krona) - **View**: Neutral - **Skew**: Neutral - The upcoming Riksbank meeting is not expected to be a major catalyst, but a rate cut in September is seen as underpriced [14][29]. NOK (Norwegian Krone) - **View**: Neutral - **Skew**: Bearish - A bearish tilt on NOK is noted, with expectations of a lower trough rate from Norges Bank, which may not be fully priced in by the market [16][30]. Additional Insights - The report emphasizes the importance of monitoring upcoming economic indicators such as CPI, jobless claims, and PMIs, which could influence currency movements [17][21][25]. - The analysis suggests that the USD's decline since April is primarily driven by risk premium dynamics, with potential for further declines if US rates converge lower towards global peers [12][17]. Trade Ideas - **Long GBP/CHF**: Entry at 1.0927, target 1.12, stop at 1.055 - **Short USD/JPY**: Entry at 147.04, target 135, stop at 151 - **Long EUR/USD**: Entry at 1.1686, target 1.20, stop at 1.11 [16].

One of the more bizarre details of ftx estate is that FTT was deemed worthless but megaSerum (the 7yr locked deals that many ftx ogs got for near free) was assigned a valueA common trade in nov 2022 was to buy ftt going into ftx fud under the logic that 1) either it is solvent and you make money or 2) it goes down and ftt is worthless. There actually ended up being huge gradations in between, the best would’ve been to sell everything to usd and rebuy sol in other accountsThis is a bit similar to gox in that ...

Summary of Key Points from the Conference Call Industry and Company Involved - **Industry**: Foreign Exchange (FX) Market - **Company**: Morgan Stanley & Co. International plc Core Insights and Arguments 1. **Risk Premium Dynamics**: The risk premium has been the primary factor influencing the USD's movements post-Liberation Day, currently estimated to be around 6-8%, having halved from its peak. There is potential for it to rise again, leading to a weaker USD [1][7][34] 2. **Rate Differentials**: While rate differentials remain relevant, they have not changed significantly. The DXY risk premium is currently at 6%, with EUR/USD showing an even higher risk premium of 8% [7][34] 3. **Future Expectations**: There is a belief that the risk premium could exceed previous highs due to ongoing policy uncertainty and FX-hedging flows, which investors may be underestimating [7][34] 4. **Trade Recommendations**: The company recommends maintaining long positions in EUR/USD and short positions in USD/JPY, with specific targets and stop-loss levels provided [10][12] 5. **FX Hedging Impact**: Increased FX hedging, particularly from European investors, is expected to influence the currency dynamics significantly. The hedge ratio on US assets is projected to rise, which could further affect the USD negatively [30][31][34] Additional Important Insights 1. **Convexity in USD Weakening**: The relationship between USD and rate differentials may exhibit a convexity that markets have not fully appreciated, suggesting that lower US rates could lead to a more pronounced weakening of the USD [35][36] 2. **Historical Context**: The analysis indicates that without considering risk premium, EUR/USD should be trading around 1.07, highlighting the significant role of risk premium in current valuations [23] 3. **Market Sentiment**: The report suggests that market expectations regarding trade deals and USD positioning have influenced the risk premium, which saw a reduction in late July [27][29] 4. **Long-term Outlook**: Elevated volatility and uncertainty regarding US trade, fiscal, and monetary policies are seen as catalysts for potential increases in risk premium, which could further weaken the USD [34] This summary encapsulates the critical insights from the conference call, focusing on the dynamics of the USD in the FX market, the role of risk premium, and strategic recommendations for investors.

Summary of Key Points from the FX Strategy Presentation Industry Overview - The document focuses on the foreign exchange (FX) market, particularly the outlook for the US dollar (USD) and other major currencies, as well as the impact of tariffs and macroeconomic factors on currency valuations [1][5][6]. Core Views and Arguments - **Bearish USD Outlook**: The expectation of further USD weakness is based on cyclical factors (US economic moderation, tariffs) and structural factors (valuations, fiscal dynamics, policy uncertainty) [6][11]. - **Short-term Consolidation Signals**: Some indicators have turned less bearish for the USD, suggesting potential short-term consolidation, but this is deemed less relevant for the medium-term outlook [6][11]. - **EUR/USD and G10 FX**: A bullish stance is maintained on EUR/USD with a target of 1.19 for Q3 and a peak target of 1.22. The outlook for cyclical G10 currencies remains positive [6][21]. - **Emerging Markets (EM) FX**: A neutral tactical stance is taken on EM FX, with a more constructive medium-term view. Specific targets include USD/CNY at 7.10 and USD/BRL at 5.75 [6][12]. - **Tariff Risks**: The risk of broad tariffs has resurfaced, which could pose unpriced global growth risks. If implemented, defensive currencies like CHF and JPY are expected to outperform [6][12][14]. Important but Overlooked Content - **Historical Context**: Historical data indicates that periods of 10% weakness in the DXY index are typically followed by consolidation or partial reversals, necessitating lower Federal Reserve rates to weaken the dollar further [9][11]. - **Tariff Announcements**: Upcoming tariff announcements could significantly impact the FX market, with potential increases in effective tariff rates that exceed market expectations [15][14]. - **FX Hedging Flows**: Several developed market (DM) countries have been reducing their hedge ratios, indicating potential for increased hedging activity in the future [16][20]. - **Regional Growth Risks**: There are evolving risks related to regional growth, particularly in the Eurozone, which could affect the bullish outlook on EUR/USD [25][27]. Currency-Specific Insights - **JPY**: A bullish view on JPY is maintained, with targets of 140 for USD/JPY in Q4. However, uncertainties surrounding tariff negotiations and domestic politics are noted [32][34]. - **GBP**: A bearish outlook on GBP is emphasized due to evident growth slowdowns and fiscal concerns, with targets set at 1.36 for GBP/USD in Q4 [35][37]. - **CHF**: A bullish view on CHF against both USD and EUR is maintained, with targets of 0.75 for USD/CHF and 0.92 for EUR/CHF [44][51]. - **NOK and SEK**: Both currencies are viewed positively, with NOK benefiting from regional growth resilience and SEK from lower yields due to US moderation [54][63]. Forecasts and Projections - **Exchange Rate Projections**: Specific forecasts for major currencies against the USD include EUR at 1.19, JPY at 140, and GBP at 1.36 for Q4 [136]. - **Market Dynamics**: The document highlights the importance of separating G10 and EM drivers in 2025, with G10 currencies showing a carry-to-value rotation while EM currencies are wrapping up their cutting cycles [125][128]. This summary encapsulates the key insights and projections from the FX Strategy Presentation, providing a comprehensive overview of the current state and outlook of the foreign exchange market.

Investment Rating - The report provides a detailed forecast for various asset classes, indicating a bearish outlook for equities and a mixed sentiment for fixed income and commodities [2]. Core Insights - The report highlights significant declines in equity indices, with the S&P 500 expected to drop by 20.7% in a bear scenario, while the MSCI Europe is projected to decline by 22.3% [2]. - The report notes that the AAII survey for Net Bulls has reached a six-month high, indicating a potential shift in market sentiment [6]. - US Quality metrics have fallen to their lowest levels since 2001, suggesting deteriorating market conditions [6][9]. Summary by Sections Equities - S&P 500 forecasted returns range from 4,900 to 7,200, with a base case return of 4.7% [2]. - MSCI Europe shows a similar trend with a forecast range of 1,610 to 2,620 and a base case return of 7.3% [2]. - Topix is projected to decline by 23.3% in a bear scenario, with a base case return of 5.0% [2]. Fixed Income - UST 10-year yields are forecasted to range from 2.85% to 4.35%, with a base case return of 12.1% [2]. - US Investment Grade (IG) credit is expected to yield excess returns of -0.1% in a bear scenario [2]. Commodities - Brent crude oil is projected to have a bear case return of -23.6%, with a base case return of -8.3% [2]. - Gold is expected to decline by 20.6% in a bear scenario, with a base case return of -6.5% [2]. Market Sentiment - The Market Sentiment Indicator (MSI) reflects a negative sentiment shift, with various indicators showing increased volatility and negative positioning [55][62]. - The report indicates a significant divergence in positioning among asset managers, hedge funds, and dealers across different markets [62]. Cross-Asset Correlations - The report notes that cross-asset correlations have increased, with equities showing a correlation of 71% and credit at 82% [73]. - The correlation between equity and rates is notably negative at -7%, indicating a potential decoupling of these asset classes [73].

Investment Rating - The report maintains a high conviction level on several currency pairs, including short CNH against an equal-weighted basket (EUR, AUD, KRW) at 4/5, long EUR/INR at 4/5, and long USD/HKD outright at 4/5 [6][10][16] Core Insights - The report suggests a bias towards a weaker USD, despite some short-term headwinds from stronger-than-expected US nonfarm payroll data [8][12] - Key focus points include potential changes in US trade agreements and the influence of Fed Chair Powell's position on USD strength [11][20] - The report highlights the importance of monitoring developments in US tariffs, particularly concerning Japan and other major trading partners [19][20] Summary by Sections Asia FX Strategy - The conviction level on short CNH against an equal-weighted basket has been raised to 4/5, targeting a 4% return by the end of July [11] - Long EUR/INR is favored with a conviction level of 4/5, driven by RBI's bias to maintain FX reserves and local growth slowdown [17] - Short USD/TWD is maintained at a high conviction level of 4/5, with expectations of continued foreign equity inflows and robust local fundamentals [15] G10 FX Strategy - Long EUR/GBP is retained at a conviction level of 4/5 due to fiscal pressures on GBP and potential for further deterioration in economic data [21] - Short USD/JPY recommendations are maintained, with expectations of downward pressure on USD against JPY amid rising tariff risks [19][20] - The report indicates a modestly positive outlook for AUD, with expectations of a rate cut from the RBA [22] Asia Rates Strategy - Conviction on pay 10y HK IRS is raised to 4/5 due to increased HKMA intervention and expectations of upward pressure on USD/HKD forwards [25] - The conviction on pay 5y outright in China is maintained at 4/5, while the conviction on 2s5s steepener is reduced to 3/5 [26] - In India, a 2y NDOIS receive position is maintained, with limited near-term catalysts expected [27]

Investment Ratings - USD View: Bearish with a bearish skew [2][21] - EUR View: Bullish with a bullish skew [3][22] - GBP View: Neutral with a bullish skew [4][23] - JPY View: Bullish with a bullish skew [5][24] - CHF View: Neutral with a bullish skew [6][25] - NOK View: Neutral with a bearish skew [7][26] - SEK View: Neutral with a bearish skew [8][27] - AUD View: Neutral with a bullish skew [9][28] - NZD View: Neutral with a bullish skew [10][29] - CAD View: Bearish with a bearish skew [11][30] Core Insights - Dollar weakness is a prevailing theme in G10 FX views, driven by US growth and rate convergence with the rest of the world, alongside increased FX hedging [21][22] - The EUR/USD is expected to rise to 1.20 and beyond, supported by European investors hedging US assets [3][22] - GBP is seen as constructive due to its carry-to-vol ratio and low perceived trade tension risks [4][23] - JPY may benefit from US-Japan trade uncertainties and lower US terminal rate expectations [5][24] - The CHF is expected to face downside risks due to yield compression despite low inflation [6][25] - The NOK is viewed with a bearish skew due to lower oil price risks and rate headwinds [7][26] - SEK is anticipated to react to incoming economic data with a bearish bias [8][27] - AUD fundamentals remain strong, indicating potential for performance catch-up against the USD [9][28] - NZD's downside against AUD is limited due to minimal yield advantage [10][29] - CAD is recommended for short positions against CHF due to broad USD weakness and negative terms of trade [11][30] Summary by Sections USD - The USD is expected to weaken as growth and rates converge with the rest of the world, with a risk premium of approximately 6% due to increased FX hedging [63][65][68] - The current account deficit stands at 4.6% of GDP, indicating a widening trend [68][70] EUR - The EUR/USD is projected to rise significantly, with options markets underpricing the potential for it to reach 1.25 [99][101] - Europe's current account surplus is increasing, primarily from goods and services [104][106] GBP - GBP's strength is supported by a favorable carry-to-vol ratio and limited trade surplus with the US [135][137] - The UK's current account deficit is stable but financed by more volatile forms of investment [140][142] JPY - JPY may gain from continued weakness in US economic data affecting terminal rate pricing [171][173] - Japan's current account remains positive, with a narrowing trade deficit [176][178] CHF - The CHF is expected to strengthen due to low inflation and yield compression potential [206][209] - Switzerland's current account surplus is high, driven by a strong goods surplus [212][217] NOK - The NOK faces downside risks despite a higher neutral rate estimate from the Norges Bank [238][240] - Norway's current account surplus benefits from oil and gas exports [244][246] SEK - SEK is sensitive to yield differentials, with potential upside risks against EUR [269][271] - Sweden's current account surplus is improving, driven by trade [274][276] AUD - AUD's strong fundamentals suggest a potential catch-up against peer currencies [299][300] - Australia's current account has shifted to a deficit due to increased imports [305][307] NZD - NZD's downside potential against AUD is limited due to a lack of yield advantage [336][338] - New Zealand's current account deficit is narrowing after a peak in 2022 [341][343] CAD - CAD is expected to decline against CHF due to unfavorable terms of trade [371][373] - Canada's current account deficit has narrowed, primarily due to a lower income deficit [378][380]

Investment Rating - The report suggests a bearish outlook on the USD and recommends selling USD while buying curve steepeners [9][13][53]. Core Insights - The report indicates that the consensus view aligns with a weaker USD and a steeper yield curve, but the expected magnitude of these moves is significantly larger than what the consensus anticipates [9][13]. - It is projected that the USD will weaken by approximately 9% on a DXY basis and that the US Treasury curve will steepen by around 100 basis points over the next 12-18 months [13][20]. - Investor positioning is currently cautious, but supportive fundamentals and strengthening sentiment suggest a favorable environment for the recommended trades [9][13]. Summary by Sections G10 FX Strategy - The report highlights that while a weaker USD is a consensus view, the extent of the weakening is underpriced, with only a 15-25% chance assigned by the market to reach the forecasted levels against major safe-haven currencies [3][31]. UK Rates Strategy - The report notes the closure of a long position in SFIZ6 due to a recent rally in front-end rates, but identifies an attractive entry point for upside option structures given low implied volatility [4][26]. Japan Rates Strategy - The focus is shifting from the Bank of Japan (BoJ) to the Ministry of Finance (MoF) regarding long-end issuance and quantitative tightening (QT) pace, which may influence market dynamics [5][30]. US Rates Strategy - The report discusses entering 2s10s CPI swap steepeners, as the TIPS breakevens curve has steepened, indicating potential for further widening based on financial conditions and inflation expectations [6][36]. General Market Dynamics - The report emphasizes that recent USD declines are primarily driven by reduced investor appetite for USD exposure due to policy uncertainty rather than concerns about US growth [17][20]. - It also notes that the USD discount reflects a negative policy premium associated with uncertainty around US trade and fiscal policy [18][19].

Investment Rating - The report maintains a bearish outlook on the US dollar due to moderating US exceptionalism and a more growth-supportive monetary and fiscal mix overseas [6][11][14]. Core Insights - The report highlights that while tariffs remain a headwind for global growth, several currencies such as Antipodeans, NOK, EUR, and JPY are expected to turn the corner on growth [6][11]. - In developed markets (DM), the bearish USD recommendations are barbelled for either a US slowdown (long JPY) or a soft landing scenario (long Scandis, Antipodean, EUR) [6][11]. - In emerging markets (EM), there is a broadening overweight across regions with a preference for Asian creditor currencies (like KRW) and CEE euro-proxies (like CZK) [6][11]. - The report emphasizes that 2025 is different from previous years as no single factor is dominating global FX returns, necessitating a separate analysis of G10 and EM [6][11][24]. - G10 FX forecasts remain unchanged for EUR/USD at 1.22 and USD/JPY at 139, with upgrades for GBP, NZD, and CAD based on improved domestic prospects [6][11][48]. - EM forecasts include a reduction for USD/CNY to 7.15 and USD/ZAR to 17.50, reflecting a more favorable outlook for these currencies [6][11][48]. Summary by Sections Key Currency Drivers - The report identifies several macroeconomic factors influencing FX returns, including US-China trade talks and tariff adjustments [7][8]. - It notes that the reduction of tariffs from 145% to approximately 41% for a 90-day period is a significant development [7][8]. FX Models - The report discusses the performance of various currencies and highlights that the best-performing currencies are often those with current account surpluses [24][25]. - It also notes that the carry-to-value rotation is finally playing out in G10, with surplus countries outperforming [24][25]. G10 FX Short-term Fair Value - The report maintains forecasts for major currency pairs, with a bullish bias on EUR and JPY due to US moderation [56]. - It also highlights that GBP and NZD forecasts have been upgraded based on growth resilience and improved domestic conditions [56]. Technicals - The report indicates that external balances, particularly current account surpluses, have been among the best signals for global FX returns this year [24][25]. - It emphasizes that equity momentum has been a strong strategy for G10 currencies, benefiting from lower policy activity among central banks [24][25]. Trade Recommendations - The report suggests rotating AUD/USD into a long AUD and NZD basket against USD, citing improved domestic prospects for New Zealand [41][56]. - It also recommends an overweight position in EM currencies, particularly in Asia and EMEA, while remaining selective in commodity and frontier markets [23][56].