Correlation Divergence
Well I must admit that I don’t have a clue what’s happening in the markets now. The markets opened positive on large positive surprise in non-farm payrolls and in mid of trading everything reversed. Three reasons come to my mind: first is a deeper look in unemployment numbers; the second one would be the new low in Nakheel bond indicating a stall/collapse in Dubai World debt restructuring efforts and the third would be distorted correlations at opening today that disoriented algorithm driven trading.
Calculated Risk Blog provided superb in-debt look at the unemployment figures: If the Economy lost Jobs, why did the Unemployment Rate decline? If the details would matter we would probably not rally 65% from the lows…
Nakheel bond? I titled one of my posts on Dubai: One Day Scare, I tend to think it will remain just that.
So, I would bet on distorted correlations. U.S. dollar moving 1.6% up caused gold to fall 5%.
Chart 1. U.S. Dollar Index
Source: StockCharts
Chart 2. SPDR Gold Shares
Source: StockCharts
So the question is: What if the U.S. dollar reversal continues? It could get ugly…
