Tuesday, February 3, 2015

When Oil Bottoms, Dollar Should Stop Soaring (excerpt)

Last year, I focused on several cross-market correlations, which worked very well. The price of a barrel of Brent crude oil has been highly correlated with the inverse of the trade-weighted dollar in recent years, and especially last year. Now that the price of oil may be stabilizing around $50, let’s see if the dollar stops soaring.

By the way, in the past, there was a close correlation between the price of oil and the Emerging Markets MSCI stock price index in local currencies. That hasn’t been the case over the past year. The relative strength of the EM MSCI suggests that the drop in oil prices reflects excess supply rather than significant weakness in demand attributable to slowing global economic growth. Using local currencies, the EM MSCI is up 8.9% y/y, but only 2.7% in dollars.

Today's Morning Briefing: Bad Play. (1) Woody Hayes on forward passes. (2) Three paths for stocks. (3) Playing corrections requires two great calls. (4) Barometers don’t always work. (5) Playing the averages doesn’t always work. (6) Volatility can be a bearish signal, or just what happens in a sideways trading range. (7) Dollar and oil mix. (8) Headwinds for earnings. (9) Quarterly earnings estimates falling fast. (10) Is valuation getting boost from falling earnings and stronger dollar? (More for subscribers.)

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