It was an eventful summer , that eventually gave rise to a promising outlook . The yen carry trade came to an end , and the US Federal Reserve ( Fed ) both acknowledged that the country ’ s economy is slowing and threw its weight behind monetary stimulus .

This summer was a turbulent one for equity markets . Weaker-than-expected GDP growth in the US alerted investors to the fact that US stocks may have been overpriced . This was soon confirmed by companies ’ Q2 earnings releases , prompting slight downwards revisions to earnings growth forecasts for H2 . In particular , cautious statements from artificial-intelligence heavyweights made investors worry that they may have pushed those stock prices up a little too high , too fast . Meanwhile , with Joe Biden out of the race to become the next US president , the election became harder to predict and supply-side policies to bolster economic growth became less likely . Elsewhere in the world , geopolitical tensions remained high in the Middle East , and Beijing continued to frustrate investors with its apparent

reluctance to take steps to counter China ’ s economic slowdown . The Bank of Japan confirmed its intention to tighten monetary policy with a rate hike in July .

The higher Japanese interest rates played a major role in the equity market correction this summer , because they effectively put an end to the yen carry trade . For more than 10 years , this strategy saw investors take advantage of the yen ’ s structural weakness ( caused by the country ’ s zero interest rates ) to borrow money in yen and invest it in other currencies and assets expected to offer a higher return . This carry trade had been supplying liquidity to financial markets for years . But after the rate hike , the yen appreciated 10 % in the space of just a few days , causing investors to rapidly unwind their positions .

The most notable corrections occurred in the Mexican peso – one of the biggest beneficiaries of the carry trade – and in stock markets , which in many cases dropped between 10 % and 15 %. The Japanese banking index lost 17 % in a single day , but without any real contagion to vulnerable

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