Earlier today we showed that even the big banks are officially throwing in the towel on the “artificial market” when Deutsche’s Jim Reid summarized the complete insanity of Bernanke’s (because it still is his) centrally-planned new normal as follows. “So far this year markets have gone down on good data, gone up on good data, gone down on concerns over weaker data and also gone up on weaker data.” Now we can add yet another item to the list of explanations that will send futures higher: a plunge in Australian job numbers. Moments ago, Australia reported that in December employment fell by a jarring 22,600 jobs on expectations of a 10,000 gain, driven by a 31,600 plunge in full-time jobs offset by an increase in 9,000 part-time jobs (do they have Obamacare in Australia too?).
Well, as one can assume the immediate reaction in the Aussia dollar (AUD) was not good, as this latest data increased the odds of an RBA rate cut, and confirmed that the Chinese economic slowdown is indeed having major spillover effects on derivative economies. And sure enough, the AUDUSD tumbled by nearly 100 pips to 0.8825 from levels earlier in the session.
That much was expoected. What made zero sense was the offsetting reaction in the completely unrelated USDJPY pair. Because while the news for Australia was declidedly negative, somehow the offsetting reaction to some algo somewhere, was to send the USDJPY soaring.
And since as everyone knows, equity markets are now nothing but a derivative of the Yen-carry trade, the Nikkei (green line in chart above), promptly exploded higher. Whether this is on the expectation that the Bank of Japan will somehow print more Yen because jobs in Australia are cratering, or “just because” nobody knows. And frankly nobody cares. Point being: we are once again back to the old regime where good news is great for stocks, but bad news is better.
Finally, since the US algo army will shortly pick up the baton from Japan in a few hours, look for the S&P futures to soar to new record highs on, what else, a crashing and burning Australian economy.
“#Ref! – it’s the New Normal”