The recent liquidity rally has seen stocks, bonds, commodities and precious metals all rally together. So markets are back in sync whereby global investors, feeling more confident, sell the US dollar and buy stocks, commodities, and risk currencies (the Australian dollar benefiting most by this appetite for risk). But the pattern reverses when investors become spooked as they shift money out of equities, commodities and risk currencies and back into US dollars.
This 'risk on v risk off' trade is again seeing various markets develop high positive correlations as virtually all financial markets move more or less as one depending on global liquidity flows. But the recent rally in markets has occurred on declining volumes and increasing complacency of the on-going global risks. As recent history has shown, this is the ideal set-up for the next wave of selling - in ALL asset classes.
