Tuesday, October 6, 2015

Nonfarm Payrolls: bad news is again good news? - BAML

FXStreet (Guatemala) - Analysts at Bank of America Merrill Lynch explained that the stocks and EM FX rallied after the worse-than-expected NFP.

Key Quotes:

"The market seems to be taking comfort in the likelihood that the slowdown of the US labor market could keep the Fed on hold for even longer (the market is pricing only one and a half 25bp hikes between now and the end of 2016). Is bad news now good news?"

We are skeptical:

The fact is that since the September FOMC meeting when the Fed kept rates on hold, inflation breakevens have declined further while credit spreads have widened. Until these two key channels of monetary policy begin to respond more enthusiastically to the outlook of easier policy, we are wary of celebrating too soon.

If investors have until now looked to the US as the only bright spot in the world economy, the possibility the US could be succumbing to recoupling pressure is bad news for the crowded decoupling trades. The fact announced layoffs have spiked recently and are approaching the highest since 2011 suggests the weak September NFP may not be a fluke."
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