$/stocks, changing correlation

By Peter Boockvar - August 19th, 2009, 12:48PM

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.

PERMALINK
Category: MacroNotes.

Comments

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

5 Responses to “$/stocks, changing correlation”

leftback Says:
August 19th, 2009 at 1:47 pm
EUR:JPY has been more tightly correlated with risk assets.
Moss Says:
August 19th, 2009 at 2:30 pm
Of course at some point every trend changes.
Dr. Kenneth Noisewater Says:
August 19th, 2009 at 2:39 pm
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.

What higher interest rates? Treasury has been giving free money away for more than a year, and real interest rates have hardly budged.. The laws of economic mathematics have been repealed!

Then again, with a 70-day treasury sale with BtC of nearly 5, nearly 0% interest, wonder if an equity crash is imminent (or believed to be by the primary dealers, which is essentially the same thing)?
Andy T Says:
August 19th, 2009 at 7:24 pm
A few weeks does not a trend make. We’ll see if the inverse DX/Asset relationship is breaking down or not…
Damien Hoffman Says:
August 19th, 2009 at 10:10 pm
This has been a very important indicator. Nice analysis.