Key Takeaways

  • Financial markets are beholden to the decisions of global policymakers like never before, and asset prices hang in the balance.
  • Precious metals, notably gold and silver, have surged amid dollar weakness and the latest plunge in the US real yields.
  • If the US dollar continues to fall, we expect financial markets generally to rise, most notably foreign assets denominated in local currencies. Emerging market equities, for example, are one way to play a weaker dollar trade as they tend to have a higher negative correlation and beta with the US dollar than developed market peers.

 

The world has seemingly become one big macro trade centered around the fate of global monetary and fiscal policy. It drives everything from global equity markets to sovereign bonds to the direction of the US dollar; fundamentals have largely been tossed by the wayside amid a spike in global liquidity. Put simply, markets are beholden to the decisions of global policymakers like never before, and asset prices hang in the balance.

This week’s price action has been driven by two primary (yet related) factors: US dollar weakness and the fall in real yields. The catalyst for both is tied to recent announcements (or lack thereof) on the fiscal policy front, which indicates a stronger economic recovery could take place outside the US if current conditions continue.

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