Tuesday, December 22, 2009

Changing Global Macro Themes

We've been seeing 10-year Treasury rates climb recently--they're above 3.7% so far this morning--and that has been accompanied by a firm U.S. stock market (which this morning is trading near its bull market highs) and a firm U.S. dollar. All in all, the markets are telling us that the U.S. economy going forward into 2010 may end up stronger than investors had previously anticipated.

But anticipated U.S. strength does not necessarily mean global strength. Note that emerging markets are well off their equity peaks (middle chart) and commodities--reflecting the stronger U.S. dollar--have pulled back significantly. Oil (bottom chart), for example, is hardly reflecting a booming global economy.

All of this is to suggest that intermarket and global macro themes seem to be shifting as we move into the new year. The weak dollar/strong commodity/strong emerging market dynamic has seen a retracement. It would not surprise me to see the lagging banking sector also find new favor amidst the ever-steepening yield curve, as financial institutions borrow cheap and lend out at higher rates.

Catching those themes--and especially shifts in themes--is very helpful riding longer timeframe trends. It's not just what's in the chart, but what connects different charts that moves markets.