The markets had one week of good news, with various “risk” assets rallying, and selling in areas like Treasuries.
In its latest FX Pulse note, Morgan Stanley has a word of caution.
There’s still plenty of evidence that the fuel for the boom is running low. It’s still likely that the world is going into tightening mode, and when this happens, risk currencies come off. Now to be sure, they’re talking about currencies here specifically, but given the inter-correlation of everything (from the aussie dollar to oil to silver ot US equities, etc) the lesson could be applied broadly.
This chart, regardless, is telling, showing the aussie dollar against a measure of global liquidity.
Photo: Morgan Stanley
So figure that Asia is still in a tightening cycle, QE is coming to an end, and per Morgan Stanley (and everything else) the European solutions are likely to prove temporary, and you have a good case for not getting too long on risk at this stage.