For the past few months the stock market had been taking its cue from the FX market. We think that this is about to change. The FX "tell" has lasted a long time - longer than most - but it is too widely followed now and, with all the competitive devaluation, commodity inflation, final goods deflation, bailouts and EM currencies its ability to provide a clear road map is getting low. We always transition from one driver to the next. LIBOR, Greek spreads, bank spreads, Baltic Dry, oil prices, Turkish lire - you name it and at one time or another the stock market was fixated on it.
We think that rates, both in the US and Germany, are likely to become the new drivers. Where can the safe countries fund themselves. In a week, we'll probably be listening non stop to treasury price action on CNBC. Right now it does not seem to be telling a positive story. Maybe it will become the next "tell" or maybe it will be something else, but blindly following FX moves is no longer the right strategy.