Weak economic data should be bearish for the US dollar but unfortunately the disappointment in Non-Farm Payrolls only led to limited dollar selling. The dollar’s biggest loss was against the Japanese Yen and Euro. Interestingly enough, the dollar strengthened against high yielding currencies like the Australian and New Zealand dollars despite the bad news. The main reason is because traders believe that weak US payroll growth has broad ramifications for the global economy. If the US falls into a recession, it would be difficult for other countries to maintain their current growth rates. Furthermore, recessionary conditions in the US would deter risk appetite which is exactly why the Dow and carry trades suffered so significantly today.
The Dow fell another 256 points, making this the worst first trading week of the year in over a century. The Nasdaq also fell 3.8 percent, which was the biggest one day point loss for the index since September 17, 2001, the first day it reopened for trading after 9/11. Of the 30 Dow components, only one was spared, which was Coca Cola (KO). The biggest loser was Intel Corp (INTC) which fell 8 percent. Other stocks such as IMS health, Pacific Sunware and Bed Bath and Beyond were also down because of new layoff announcements, restructuring and worse than expected earnings.
Ten year bond yields are trading lower (now 3.863 percent) on the belief that the Federal Reserve will continue to lower rates as recession fears grow.