Squaring the Circle

Global Macro not stacking up

IF

The market is rallying on the belief there will be further Central Bank stimulus, as well as fiscal expansion

THEN

Commodities and inflation expectations (proxies by oil/gold ratio and TIPS) should be rallying

SUGGESTING

Strong EMFX, a weaker USD, higher copper prices, higher copper/gold ratio (proxy for global risk appetite and global growth), and even higher USDJPY.

Currently, the only asset behaving accordingly is EMFX, which is making new YTD highs (as per the JPM ELMI+ Index). However, the EMFX rally will require the aforementioned assets to join it if it’s own rally is to continue.

Copper hasn’t managed to break to new highs YTD, despite trying a couple of times; USDJPY – aside from what the BoJ may or may not be doing – should at least have been rising off the 100 level much easier; the DXY is gradually grinding higher.