Ipek Ozkardeskaya
Swissquote Bank Ltd
The combination of dovish Fed minutes and the big downside revision to the annual payrolls number (-818K jobs!!) sent the US yields lower and the dollar lower yesterday. Gold consolidated near the $2500 per ounce as the risk on environment directed capital toward the stocks rather than the safe haven gold, while crude oil extended losses to the lowest levels since August despite a 4.6-mio barrel decline in US oil inventories last week.
What’s interesting is, about three weeks ago, when the US had released weak jobs data, the US dollar had fallen on the rising recession odds for the US and the stocks had fallen as well but yesterday, the equity market’s reaction to the BLS revision was completely different: they gained!
Walking into the meeting, the swap markets are back to pricing in a 100bp cut from the Fed before the end of this year. The latter implies a jumbo rate cut at one of the last three FOMC meetings of the year. And because a jumbo rate cut wouldn’t arrive unless there is a deeper economic and financial trouble, the market pricing of the moment is unsustainable for either the US dollar – which has gone too low with the expectation of a 100bp cut, or the stock markets – which have gone too high with the same expectation disregarding the fact that economic trouble is never good for profitability.
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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