With today's highly suspicious BLS job data (we are waiting to hear from TrimTabs' Charles Biderman for his take on this number) we would like to highlight some of the majorly broken correlations that are getting broken today and causing major pain for traders on the other side. And while any statistician will tell you correlation does not imply causation, in this market of low volume algo trading, correlation is likely the only thing that implies causation. The questions now: i) when does Bernanke succumb to the inflation hawks who will beat the drum on tightening even louder, and ii) will the fund flows out of bonds into futures be enough to offset the dollar surge, whose natural expression is to push stocks lower.
The chart below highlights how the dramatic move in futures is so out of sync with the core underlying move in the dollar (higher), and the corresponding move in gold (lower).
And here are some chart highlighting the recent correlations between key asset classes:
Dollar and S&P - linear:
Dollar and Oil - linear:
Dollar and Gold - parabolic - those caught on the other side of the dollar trade right now are hurting big:
As the charts indicate the excess liquidity which has pushed the dollar ever lower has been the sole reason for corresponding moves in correlation pairs. Today all these correlations are broken, which is why the closing print will be so critical: can flight from bonds take on the reverse carry trade?