Since September ’08 when the Lehman bankruptcy put global deleveraging into overdrive, all major asset classes had a certain correlation, sell stocks, corporate bonds, commodities, and foreign currencies and buy US Treasuries and the US$. Looking at the S&P/US$ relationship since September, thus going back 50 weeks, only 11 weeks (22%) saw a positive correlation between the two where the same week the S&P’s rose, the $ index (DXY) did too and vice versa. If this week’s trends hold, we will have seen the 3rd straight week where both stocks and the DXY have moved in the same direction. What seems to have occurred is that the $ has been trading more in line with its historical influence of interest rate differentials and less towards a risk aversion trade. Again assuming trends hold this week, the direction of 10 yr bond yields has been matched by the $ index for four straight weeks. Of course at some point this trend will change again as persistent US$ weakness will be followed by higher commodity prices and thus higher interest rates.
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