Friday was one of the more interesting days we’ve had for a long time. It wasn’t that we experienced a snapback rally — we’ve had plenty of those. Rather, the plunge across the board aptly illustrated l the dilemma the Fed and other central banks face with respect to propping up markets.
With an imminent rate increase likely off the table — at least in June — the US dollar will have a hard time maintaining its strength. If DX continues falling, then the yen carry trade will continue to falter. Even though oil futures have become more powerful in driving stock algos, USDJPY still matters (as we saw on Friday.)
They can continue to drive CL higher, but that will simply increase inflationary pressures — which will make the continuation of ZIRP/NIRP that much more alarming. To be clear, I don’t see any way they get out of this conundrum without stocks taking a hit or consumers taking a hit. I guess we know which way that usually plays out…
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