Geopolitical shock prompts risk reduction – Money News
Investing.com — Citi revealed in a observe on Wednesday that it’s chopping risk throughout a number of macro positions after a sharp and sudden volatility occasion pushed by geopolitical tensions.
Analyst Dirk Willer wrote that “geopolitics usually causes very sharp, but short-lived, market disruptions,” however added that present cross-asset strikes “feel like a VAR shock, and this can intensify before the situation ultimately stabilises.”
Willer declared that risk management is now the precedence.
According to Citi, the staff “cut some part of our risk, either where trailing stops were hit or where positioning is more stretched.”
The bank has unwound its long EURUSD place, taken revenue on an EM FX carry basket, exited HUF and BRL receivers, and closed its long 30-year Gilts versus OATs commerce.
The observe described the episode as “a proper VAR shock,” including that whereas situations might stabilise, “buying the dip just one day too early can create major losses.”
Citi is lowering publicity in areas the place positioning is heavy, significantly in EM FX carry and in charges markets the place expectations for imminent cuts have drawn substantial curiosity.
The U.S. greenback has reemerged as a risk-off hedge. Citi stated the phrases of commerce shift following Iran-related headlines has outweighed different drivers, pushing EURUSD to ranges that triggered the bank’s drawdown limits.
“We respect our drawdown limit and close our long EURUSD spot trade,” Willer wrote.
He added that whereas these shocks are usually short-lived, “these assets must be bought back at some stage,” as soon as volatility subsides.
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