The market is fighting something of a hangover today after all the drama of the past two weeks. Japan was out for holiday today and the US economic calendar is empty, so it's a good moment for markets to catch a breather.
What's notable though is that the yen is broadly weaker with USD/JPY up 98 pips to 147.60. It looks like carry trade longs are dipping their toes back in the water after the rout that culminated in a drop to 141.67 last week.
JP Morgan was out with a note on the weekend estimating that 65-75% of carry trades had bee cleared out in the USD/JPY drop, though they note that's a highly uncertain estimate. It resonates with CFTC data released on Friday that showed yen net shorts declining to 20.4K from 118K at the peak in July. That's the most-balanced since 2022.
Carry trades also do well as volatility and risk aversion decline. S&P 500 futures are up 10 points and yields are up 1-2 bps across the curve.
