[RealInose]

Jan-Oct 1987: USD -10% vs. Yen, Treasury yields +300bps…equity market crash

What drives equities…

The US dollar rarely the big driver of equity markets
Lead indicators, commodities, spreads and volatility more closely correlated

Weak dollar…strong equities in ‘09

In recent years, weaker dollar = stronger equities
Note correlation switched around Iraq invasion (oil, budget deficit concerns)

Credit, the US Dollar, Equities, Commodities
2009 has been about policy and positioning
Credit leading reflationtrade; equities & dollar playing ball; commodities lagging

Going forward, an EM-led recovery means strong EM FX & domestic commodity demand
tradeA growth model geared towards domestic demand in China, especially investment, is likely to accelerate oil demand growth

Oil prices are affected by individual currency movements, but they also feedback into exchange rates by changing the terms of trade

Chinese oil demand has accelerated in recent months compared to a significant reduction in the United States