Jobs Shock Prompts Stimulus Rethink

Reuters Article

Dollar/yen was one of the strongest-performing major currency pairs last year and many hedge funds have been betting the trend will continue as the Fed cuts back its huge bond-buying programme and on expectations the Bank of Japan will provide even more stimulus this year.

But many traders were taken by surprise by the U.S. non-farm payrolls data, which showed a rise of 74,000, well short of the 196,000 analysts had expected.

My opinion: If the Fed continues to expand its balance sheet in light of the weak job numbers, then I would expect the assets in the shadow banking sector to maintain their value – the current ballast for the housing recovery.  When the Fed tapers this will leave a hole in the shadow banking market that will need to be filled by other agents (ie. hedge funds); however, it sounds like hedge funds will focus on currency trading instead.  I will be very interested to see how the Fed eases out of QE without shocking the housing market too heavily.  Going to need very strong jobs numbers next month to warrant a taper imo.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s