LIVE MARKETS-FX hedge adjustments to lead to euro selling

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FX HEDGE ADJUSTMENTS TO LEAD TO EURO SELLING

Markets need to brace for a fair chunk of euro selling in the coming days, regardless of the newsflow, as the approaching quarter-end means equity investors are going to have to rebalance their currency hedges.

While not all equity fund managers seek to hedge out their currency risk, many do, as dollar-funded investors who own a large amount of European stocks are inherently long euro/dollar, and vice versa.

And large stock moves lead to changes in fund managers' mechanical FX positioning, and hence rebalancing at the end of the quarter, and this time round it could be big.

"Month- and quarter-end duration rebalancing flows in bonds, and equity rebalancing will inevitably spill over into FX," says Kenneth Broux, head of corporate research for FX and rates in a Monday note.

"The eye-popping outperformance of European equity indices over the past quarter (Stoxx 600 +8.2%) vs the US (S&P -4.4%) means investors must adjust their FX hedge by raising the short leg on the euro."

(Alun John)

FOR MONDAY'S OTHER LIVE MARKETS POSTS:

DON'T TURN YOUR BACK ON EUROPEAN VALUE RETAILERS YET CLICK HERE

EUROPEAN STOCKS FLAT, MINERS RISE CLICK HERE

EUROPE BEFORE THE BELL: STOCKS HEAD FOR UPLIFT DESPITE TARIFF ANXIETY CLICK HERE

IN GOOD SPIRITS AFTER HINTS OF TARIFF RETREAT CLICK HERE