By Saikat Chatterjee and Dhara Ranasinghe

LONDON, (Reuters) – Russia’s invasion in Ukraine caused a number of popular trades to be rearranged. This has resulted in heavy losses for investors who were bullish on European stocks as well as the euro. Investors bearish on government debt and the Japanese yen have also suffered significant losses.

Before the attack, there was an assumption that global recovery was going well, earnings from companies were strong, and central banks were facing increasing inflation. They were planning to increase interest rates at least three times in 2019.

However, the rising geopolitical tensions are continuing to fuel inflationary pressures through the oil channel. They also undermine some of the largest consensus trades on the markets.

We just suffered a huge pain point with the Russian invasion. It was sufficient to eliminate the aggressive short-term positions,” Aaron Hurd, currency senior portfolio manager at, said. State Street Global Advisors Boston (NYSE:).

Hurd predicts that some of the most established bets may come under greater pressure, if conflict affects wider growth prospects.

Here are five charts that show the consensus position on global markets.

1 SHORT YEN, LONG EUROS

Based on the presumption that Japan’s Bank of Japan would hold its global counterparts behind in tightening their policy, the Japanese currency yen was every currency trader’s preferred short. According to Commodity Futures Trading Commission data the net short positions of hedge funds on the Japanese dollar were below the three-year mark.

These positions could have suffered from the rise of the yen to its three-week highest on Thursday.

A large consensus trade was long euros. According to CFTC, net longs rose $1.2 billion last week and are now at 6-month highs.

The derivative markets showed that traders were buying put this week to hedge against losses as the currency dropped below $1.11, which is its lowest level since July 2020.

The growing trend of betting against the dollar — the long-dollar positions fell to their lowest level since August — also backfired as the rose to an all-time high in mid-2020.

JPY positions – https://fingfx.thomsonreuters.com/gfx/mkt/klvykbzzzvg/JPY%20positions.JPG

euro risk reversals – https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrlaaevm/euro%20risk%20reversals.JPG

2/ BEARS MOOD DOWNBEAT, PROWL

A BofA monthly survey found that European stocks are the most desired region for investors, with a net 30% excess.

However, it’s also most susceptible to fallingout from Russia conflict. European stocks fell to their lowest point since May 20,21 on Thursday. European bank share, a highly-preferred trade, has fallen 6.5% thanks to ECB rates hike bets.

Goldman Sachs’ European stocks prediction was cut by 8% at end-2022 by Goldman Sachs. The chief economist of the European Central Bank stated that conflict could result in a loss of as little as 0.4% to the GDP for the Euro zone.

The price of options on European stock indexes has fallen 10% from the current level for March contracts, indicating that risk aversion is taking root. The highest ever level of open interest, or the total number of outstanding contracts is at 11.

AAII – https://fingfx.thomsonreuters.com/gfx/mkt/xmvjoellbpr/AAII.JPG

stoxx puts – https://fingfx.thomsonreuters.com/gfx/mkt/myvmnxggjpr/stoxx%20puts.JPG

NON SO AGGRESSIVE NOW

The traders were convinced that the U.S. Federal Reserve would increase interest rates quickly and in a big way, and they placed bets on Treasuries as well as most of the major bond markets.

Treasury shorts in the rate-sensitive front end of the bond curve, increased, and bearish bets placed on 2-year note options at the highest levels since October.

In the race to secure trades, those bets are quickly being canceled. According to CME’s Fedwatch tool the odds of a Fed rate increase of 50 bps next month are down half compared with a week ago. Expectations of ECB rate increases have fallen as well.

“Central banks’ stagflation trade-off has only become more difficult amid the Russian invasion,” said Kristoffer Kjær Lomholt, chief analyst at Danske Bank.

U.S. Treasury short positions being unwound – https://fingfx.thomsonreuters.com/gfx/mkt/gdpzybyxwvw/CFTC.PNG