The latest macro market read through on Friday's #JobsBomb goes like this:
Dovish Fed = Down Dollar = Reflation Up
In short, imagine what would have happened to the reflation trade if the jobs report wasn’t a bomb…
Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning:
"They eviscerated the Dollar on the jobs bomb (and ISM Services slowing print of 52.9 for May) taking USD down -1.6% on the day (massive 1-day move) and ramping up everything that is inversely correlated to it (which, at this point, from Gold to Russian and Australian stocks, are a lot of things) – can they do this daily?"
To sum up the post #JobsBomb market reaction...
Take a look at the ramp in gold...
Meanwhile, in commodity-driven markets abroad...
Australian equities popped.
Australian equities are just one example of the many markets tethered to reflation that are up this morning. Similarly, Oil jumped another +1.1% on the latest thinking that Dovish Fed = Down Dollar. On that, Russian stocks are up +1.7%.
Over in Japan, central planners can't stop the bleeding.
In the past week, Down Dollar = Up Yen = You guessed it... Down Nikkei (it's still crashing).
Speaking of crashing...
The same story rippling through Japan is handicapping Italian equities. (Down Dollar = Up Euro = Down FTSE MIB)
So where do we go from here?
For those of you keeping score, here's the past seven months of frenetic Fed pivots:
- HAWKISH (December) raising rates in front of a horrible Q1 slow-down (economic and profit cycle)
- DOVISH (March/April) trying to undo the hikes with rhetoric, devaluing Dollars to reflate asset prices
- HAWKISH (May) post the stock market bounce and Atlanta Fed GDP Tracker rising
Now the market is expecting the Fed to go dovish but what if Yellen & Co. don't deliver? A final note on Fed policy from Hedgeye CEO Keith McCullough in this morning's Early Look:
"For those of you who get the game we are in, the only thing that matters to macro markets right now is which way the Federal Reserve pivots from here. Post Friday’s Jobs Bomb, not going back to dovish during Yellen’s 12:30PM speech could crush markets."
In other words, heads up. It could get ugly.