Citi‘s Most Read – Europe

Research evidence excerpt

Citi‘s Most Read – Europe

Emerging Markets Strategy Weekly - Summer of Carry?

Flagship

As we head into peak summertime, EMFX carry trades have made a popular

comeback, as risk has been re-deployed after the likely peak in oil prices. In this

analysis, we backtest EMFX carry trades from a seasonal perspective, using

different iterations of the carry trade. We find that while July offers a historically

favorable risk-return profile, August consistently proves to be a volatile and

unfavorable month across our backtests. It exhibits high volatility and negative

mean returns, which we attribute to crowded positioning creating vulnerability to

unexpected headlines. Conversely, January is the strongest period historically,

consistently delivering high returns with low volatility as new risk is deployed at

the start of the year. We also find that vol-weighting strategies can mitigate some

August downside, but caution is still warranted.

Luis E Costa, CFA | Rohit Garg | Donato Guarino | Bhumika Gupta | Alexander Rozhetskin

EMFX carry seasonality: Average return Mean and volatility of monthly EMFX carry

heatmap across different carry strategies returns

Global Gas and Power Insights - Henry Hub price premium through 2027,

especially Jan’27, to erode

US Henry Hub prices are more likely to fall in the weeks to come. This report

conducts an extensive analysis on price levels, cash price behavior and, in

particular, the Dec-Jan and Jan-Feb price spreads. Key drivers include: peak

summer demand is in view, new Permian pipelines are about to come online

unleashing stranded gas there, and the winter outlook amid a strong El Nino gets

more attention. Last Thursday’s larger than expected storage build, possibly a sign

of looser fundamentals, catalyzed an initial price drop.