Correlation Breakdown?

And no I’m not talking about the relationship between markets and sanity. That has been at -1 for a long time. I mentioned yesterday that some predictability had returned to the markets. Equities had fallen, risk FX had sold off, as had commodities and bonds rallied. Now this morning Mr Market has turned that on its head somewhat. Equities are better, bonds had rallied to though and we’ve also seen a sell off in the risk currencies…and a big rally in JPY, all of these things counter-intuitive, although in the latter case you can put that down to the better Machinery Orders. Anyway, we’ll have to see which asset classes are leading and which are lagging or maybe this is the start of a breakdown in the old reliables. There certainly is an increasing feeling in the market of buying $ as not being a de-risking trade anymore, in fact it is a risky one as the market becomes increasingly concerned with the inflation outlook. Moving on, we saw an ugly German GDP, but of course, the market cares not. Asia rallied overnight but may reassess on Sunday post the stinky Hong Kong GDP, -4.3% QoQ vs -2.6% est. No GAMMA slowdown here. Looking through the breakdown, it was a bad quarter across the board but what really weighed on it was the trade element, with both imports and exports taking a dirtnap (although clearly only exports add to GDP).
I’ve seen a couple of interesting articles today…one talking about how the price of titanium dioxide, a key ingredient in paint (obviously!) can be a good barometer for future economic activity…and guess what, it’s down. I’d take this with a pinch of salt but it’s different anyway
Another is on rail traffic falling (both first and second derivatives) and the last is talking about the bailouts being a sham…and this is coming from someone who is not only well respected, but also benefitting directly from them.

So all in all, the usual hope and good tidings!