FT: Hedge fund short sellers suffer $43bn of losses in market rally

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THE FINANCIAL TIMES writes:

Hedge funds betting on a decline in US and European stock markets have suffered an estimated $43bn of losses in a sharp rally over recent days.

Short sellers, many of whom had built up bets against companies exposed to higher borrowing costs over the past year or so, have been caught out by a “painful” rebound in “low quality” stocks this month, said Barclays’ head of European equity strategy Emmanuel Cau. That has come as the market has grown more confident that the US Federal Reserve’s cycle of rate rises is finally over.

The rally, which has left Wall Street’s S&P 500 index on track for its strongest month since July last year, was sparked by US Federal Reserve chair Jay Powell’s recent perceived reluctance to tighten monetary policy any further when he left rates on hold at the start of the month.

Weaker than expected US consumer price inflation data released on Tuesday last week then gave stocks a further boost, with the S&P 500 and the tech-heavy Nasdaq Composite indices both enjoying their best days since April. Analysts said the upswing triggered a brutal “short squeeze” in which some hedge funds repurchased stocks to cover their negative bets, which helped push share prices even higher….

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