Following the disappointing Jan NFP, it is probably legitimate to question whether something has changed following this “shocking” number.
Dec NFP were a major event as the almost year long correlation between various assets has exploded. The so called “risk trade” was no longer valid and a new logic has emerged: back to fundamentals…
On Friday, Price action post Jan NFP wasn’t clear cut to say the least. USD went down, along with stocks, and bonds went up buying the story that a deteriorating Job market would affect the US recovery and growth worldwide. But later in the day, things quickly reversed with a new story stating that a bad job market would allow the Fed to keep rates low and that was good for assets, hence a full reversal in prices with new highs in stocks on Monday !
Since then, central bankers around the world seem to have downplayed the possibility of keeping exceptional measures, jobless recovery or not, and have warned again about keeping those for too long. China is starting to take care of its domestic economic exuberance (but maintains the Yuan peg to the USD, not a good sign for the world growth imho).
After a few days of trading, it seems that fundamentals will prevail again, even though intraday price actions are still suspicious. The “growth story” should be the main driver of currencies. Good news will be good for the USD, stocks and bad for bonds. Gold and silver can still be considered as currencies (not true commodities). The main implication being that a correction downwards in the stock market could well be USD negative this time round…
