On August 5, Ed Yardeni, the Founder and President of Yardeni Research, was interviewed on Bloomberg TV, where he expressed his views on the recent global market selloff. Yardeni argued that the selloff was overdone and attributed it more to the unwinding of carry trades than to weak economic numbers from the US.
Yardeni stated that the Japanese Central Bank and the finance ministry’s moves towards tighter monetary policies triggered the unwinding of carry trades. He emphasized that the market underestimated the scale of these trades, which compounded the impact when they were unwound.
He mentioned that the market reaction also coincided with concerns over a slight rise in the US unemployment rate. Yardeni explained that historically, significant rises in unemployment leading to recessions occur during credit crunches, which he does not currently foresee.
Yardeni addressed the issue of geopolitical risk, highlighting widespread nervousness about the potential for a broader conflict in the Middle East. He indicated that this geopolitical uncertainty contributes to the overarching concern about US economic growth.
Discussing equities and bonds, Yardeni said that he believes that the selloff has been excessive, driven largely by forced covering of carry trades. He noted the difficulty in gauging how much more unwinding remains but observed that traders’ rapid movements have resulted in a swift global selloff.
He also addressed the risk that the selloff could induce recessionary fears, leading to behaviors that might actually precipitate a recession. Yardeni expressed his concern about this risk but drew parallels to the 1987 market crash, where fears of recession did not materialize.
Yardeni maintained that the current selloff is more about market internals rather than an impending recession. He argued that the US labor market remains strong and that the service sector continues to perform well.
Yardeni concluded by expressing optimism about the US economy’s resilience, suggesting that the selloff is likely a technical aberration rather than a precursor to a recession. He reiterated that the fundamentals of the US economy are still solid despite the market turbulence.
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