Does anyone have additional insight? Previous better than expected job reports have happened in the past, and this one is worse than expected…don’t they average out to better overall?
I think "Japan raising rates" is more significant than the US jobs report.
For the US, I think there are two major possibilities.
1: unemployment spikes which leads to the Fed lowering rates significantly which leads to more money floating around which leads to higher stock markets.
2: the unemployment goes back to normal, which puts the stock market back to normal.
Both presidential candidates have loose money platforms and neither have plans to balance the budget (Trump through tax cuts, Harris through spending). Balancing the budget would result in tight money which would destroy the stock market. And since the American public thinks stock market == economy, it's not going to happen.
I'd guess that people who were doing the YEN/USD carry trade overwhelmingly used the USD to buy US tech stocks (for the same reasons anyone else would). Now that the carry trade is unwinding, they have to sell the stocks to cover their positions. A bunch of people dumping large amounts of stock will cause the price to go down.
Edit: Also, I'd guess that once the tech stock prices started tumbling, it caused a lot of people who have nothing to do with the carry trade to sell, causing further price decline.
Sorry my ignorance, but when you long YEN/USD you're short USD. That trade uses up USD, it doesn't give you USD. You cant use it to buy stocks. Instead you have to give up buying stocks in order to put on that trade. Am I wrong?
The “carry trade” is borrowing one currency (yen) at a low rate, swap it for a currency that is more expensive to borrow (usd), then use the expensive currency to buy assets (bonds, stocks, whatever). The difference between the yield you get from the asset and the cost of the original loan is where the profit is.
Now I'm even more confused. I thought that yen was the one with high interest rate, of the two. If yen is the one with the low ir, why does it matter that the boj cut ir?
Yeah, I think you misunderstood the situation :) - Japan raised their rate from 0% to 0.25% and cut back their bond purchases in a move to strengthen the yen, at the same time the dollar got weaker. The Nikkei tumbled because many large companies in Japan - 1) had carry trade positions they had to unwind, and/or 2) export to the US (harder when dollar is weak vs yen and harder if the US enters recession).
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[ 2.4 ms ] story [ 40.6 ms ] threadFor the US, I think there are two major possibilities.
1: unemployment spikes which leads to the Fed lowering rates significantly which leads to more money floating around which leads to higher stock markets.
2: the unemployment goes back to normal, which puts the stock market back to normal.
Both presidential candidates have loose money platforms and neither have plans to balance the budget (Trump through tax cuts, Harris through spending). Balancing the budget would result in tight money which would destroy the stock market. And since the American public thinks stock market == economy, it's not going to happen.
Edit: Also, I'd guess that once the tech stock prices started tumbling, it caused a lot of people who have nothing to do with the carry trade to sell, causing further price decline.