As we discussed earlier, markets remain mired in their addiction to liquidity and the global macro-picture seems synchronized to this central bank largesse with an inability to function without at least the hope of more QE around the world. Nowhere is this more clear than in the extreme high levels of correlation across global risk assets. Barclays notes that the correlation between global equities, the USD, emerging market FX, high-grade credit, and commodities remains near cyclical highs and rising. Furthermore, 'safe haven' correlations are at record levels relative to risk assets (especially US Treasuries) and they remain tactically biased to fade any rally here as the correlations have driven an 'extreme valuation gap' between 'safe haven' and risky assets - which creates a strong potential for 'spasmodic relief rallies'.
Financial markets remain macro-driven...
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and 'safe-haven' correlations have become even more exaggerated...
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