Many casual readers of the financial press will have learned a new term in the past few days: the “carry trade”. This is the culprit for the rollercoaster state of markets, many market commentators and journalists have opined.
Indeed it also played a role in kicking off the credit crunch and resulting global financial crisis in 2007-08. Should we fear a repeat? The answer this time is both yes and no.
The current rumpus started on Friday August 2 when markets in America dropped in response to worse-than-expected data on the number of new jobs created in July. Then Japanese stocks took a bigger battering on Monday, posting the biggest ever one-day drop in the Nikkei, the country’s main share index. Since then, markets have gyrated up and down as traders and investors attempt to understand what is going on.
