Strategist Warns of Impending Economic Breakdown or Further Tightening Measures

Strategists at BNP Paribas warn that global liquidity is drying up due to factors such as TLTRO repayments in the eurozone and increased pressure on reserves in the US. They suggest a defensive approach to engaging with the FX carry theme and note that popular longs like the Hungarian forint, Brazilian real, and Mexican peso have struggled recently. The strategists argue that either policy tightening is nearly enough and a deterioration in data is imminent, or even more restriction is needed. Recent price action, with higher yields and a drop in the S&P 500, indicates a shift towards a more challenging risk environment.