A rallying day for the equity markets and a down day for the dollar, oil was up big for another day as well. There seems to be a bit of decoupling going on that can leave investors scratching their heads. The dollar was thought to be rallying because of the sole strength of the US economy and the imminent rise in interest rates coming, despite other notions cutting rates or implementing QE. This had an effect on the dollar, about 2% off a 52 week high to a basket of currencies, which went against the bond market where yields are dropping.
What does this mean for the overall markets and where they might lead in the future? Much will depend on if the current theory that the US has reached terminal velocity and pulled away from the global economies woes or the bad news will pull the soaring US back to earth.
Bad news is creeping into the US economy through company earnings and manufacturing numbers as we have seen today. If this were to get worse we could see the lackluster growth of the global economy reach the US. On the other hand major trading partners are taking action to promote growth and pull out of their slumps. In this case the US could see continued prosperity and further gains in the equity markets. In terms of bonds the former scenario would be the most beneficial, with the possibility of delaying the FED's rate increases. I do not see a possible win for the dollar as the raising of rates will cause inflationary pressures (I will attempt to explain that theory in another posting) and a slowing economy will make the US look less attractive to other countries.