Enis’s Macro Wrap – Macro Correlations Rising

by Enis November 5, 2012 7:28 am • Commentary

Macro markets are back.  I mentioned last week that micro was trumping macro, as indices were ending unchanged frequently, while single stocks were making big moves.

I’m seeing increasing signs that macro moves are starting to dominate.  Foremost among these is the increasing correlation among various asset classes.  Back to the classic risk-on or risk-off behavior we were so used to in 2011.

When currency markets start to sync up with other asset classes, it usually indicates that global money flows are matching financial market flows.  Along those lines, increasing correlations are making it hard for global investors to find alternatives among non-dollar currencies.

For example, here is the correlation between the Euro and Gold over the past 3 years:



At close to 0.6, the correlation is near the highs of the past 3 years.  Granted, in the past 3 years, gold is up 50%, while the Euro is down 15% vs. the dollar.  But in the past few months, traders and investors are having trouble finding non-dollar currencies not correlated to each other.  Precious metals are starting to move inverse to the dollar in a similar fashion to the Euro, like we saw on Friday.

In this environment, macro is likely going to dominate individual stock price action.  We might start to shift our trading to broader ETFs if that remains the case.

Markets overnight:

  • Asia finished mostly in the red, but no moves greater than 1% in the major markets
  • Europe is down 1%, and SPX futures have fluctuated between indicating an unchanged and a -0.5% open, now around -0.4%
  • The dollar is slightly higher, as are Treasuries, while commodities are more mixed (oil flat, gold up, copper down)
  • Turkey was raised to an investment-grade credit rating by Fitch – no one cares but me
  • Important vote in Greece regarding the international bailout…again.  Vote either takes place this week, on on Sunday, Nov. 11th.
  • ISM Non-Manufacturing Composite data comes out at 10:00 am