05/10/20 – Correlations Weekly

(30-day rolling Pearson correlations calculated to the 2nd of October 2020)

  • USD’s modest negative correlation (and G10/USD correlations in general) to S&P 500 broadly stable since mid-September. However, correlations of more risk sensitive G10/USD pairs to S&P 500 substantially higher than start of September.
  • EUR the exception; correlation to US and European equities broadly stable since early September and weaker than over past few months.
  • DXY’s negative correlation to gold at multi-month highs.
  • JPY increasingly in the USDJPY driving seat in recent weeks.
  • AUD’s positive correlation to gold picking up, to crude oil falling in recent weeks.

G10/USD vs S&P 500

Since mid-September, rolling 30-day G10 FX correlations to the S&P 500 have been broadly stable; AUDUSD and NZDUSD are the two G10 USD major crosses currently most sensitive to US equities, with positive correlations to the S&P 500 of above +0.6. GBPUSD, NOKUSD and SEKUSD are the next most sensitive dollar majors to US equities, with positive correlations to the S&P 500 of above +0.5. EURUSD and CHFUSD have a much more modest positive correlations to the S&P 500 of around +0.2, while USDJPY has had virtually no correlation to the US equity index since prior to the start of July and DXY currently has a negative 30-day correlation of just under -0.2.

Rolling 30-day correlations between G10 dollar majors to the S&P 500 declined throughout August (a time of seemingly excessive equity market optimism), culminating in the DXY’s typically negative 30-day correlation with the S&P 500 falling to 0 at by the start of September. However, amid a sharp correction lower in US equities at the start of September, correlations between the more risk sensitive USD majors (as well as CHFUSD) and the S&P 500 rose sharply and the negative DXY/S&P 500 relationship has reasserted itself, albeit not quite back to July levels (when the negative correlation was mostly below -0.4). This is mainly because, despite a rise in correlations to the S&P 500 of other USD majors in the first half of September, EURUSD’s 30-day rolling correlation to the major US equity index has remained broadly unchanged around +0.2. In other words, EUR’s correlation to US equities has fallen over the past three months.

Chart 1

EUR vs risk

EUR does not just have a weak correlation to US equities, but also companies based a little closer to home. EURUSD and EURJPY have virtually no correlation to the Stoxx 600, while both have weak correlations to the S&P 500 of below +0.2. EURGBP has a strong negative 30-day correlation to the S&P 500 of below -0.5, but that is driven by the much more risk sensitive GBP. EURGBP, however, has a much weaker relationship to the Stoxx 600.

Chart 2

G10/USD vs Gold

Most G10 dollar majors have a strong correlation with gold, almost entirely driven by the strongly negative correlation between the precious metal and the USD itself (seen in DXY’s below -0.6 correlation to gold). Indeed, DXY’s negative 30-day rolling correlation to gold is at multi-month highs. Aside from USD, AUD, EUR, NOK and SEK (when looked at in their USD major pairing) currently have the highest correlations to gold, while GBP and CAD have the lowest.

Chart 3


A closer look at DXY correlations; as noted prior, the dollar index has currently has a strong negative 30-day correlation to gold of under -0.6. Its negative 30-day correlation to the Refinitiv Commodity Index is also fairly strong, at below -0.4, while, as discussed its negative correlation to the S&P 500 is more modest at just under -0.2. Elsewhere, DXY has had virtually no correlation to price action in the US 10 year bond future over the past 4 weeks.

Elsewhere, looking at USD vs other “haven” currenies; JPY appears to be driving dynamics in USDJPY more and more; the cross’ correlation to DXY has been falling since the start of September and is only about +0.3. Conversely, USD continues to sit in the driving seat of the USDCHF cross; its correlation to DXY remains close to +0.8.

Chart 4

GBP to risk

As seen earlier, GBP has a strongly positive correlation to US equities, with this also being seen across its crosses with JPY and EUR, as well as in GBPUSD. The 30-day rolling correlation between GBP and US equities weakened substantially in August, but rebounded strongly in early September.

Chart 5


CAD not only has a strong positive 30-day correlation to US equities, but also to front-month WTI and Brent oil prices, as well as the Refinitiv Commodity Index; USDCAD’s 30-day negative correlation to WTI and Brent is currently around -0.5, up a little from -0.6 lows set in early September. Meanwhile, the negative 30-day correlation between USDCAD and the Commodity Index is currently close to -0.6, down from around -0.4 at the end of August.

Chart 6


AUDUSD has a strongly positive correlation to gold prices, which, until the second half of September, this was being driven largely by USD’s negative relationship with the precious metal. Until the second half of September, the 30-day rolling correlation of AUDJPY to gold was very weak. However, over the last few weeks, the positive correlation of AUDJPY to gold has picked up significantly (to current levels around +0.4), sending AUDUSD’s positive correlation to gold above +0.6.

Also over the last few weeks, AUD’s correlation to crude oil (WTI) has been on the decline; AUDUSD and AUDJPY have both seen their positive 30-day correlation to WTI drop below +0.3 from closer to +0.5 at the mid-point of last month. Currently, AUD’s correlation to oil is as low as it has been at any point since the start of July.

The same cannot be said for AUD’s positive correlation to the Refinitiv Commodity Index, which has strengthened substaintially sicne the start of September (AUDUSD to above +0.6 from below +0.4 and AUDJPY to above +0.4 from close to 0).

Chart 7

Trump health improves, re-election hopes fade

5th October 2020 – Macro Daily

Market Update

Markets begin the week in a reasonably upbeat mood, with major European equity bourses opening with solid gains (Stoxx 600 +0.9%), which is being mirrored over in the US (S&P 500 futures +0.6%). Meanwhile, crude is a little higher, the US treasury curve a little steeper and USD is flat but has had a downside bias.

A few factors are being cited as boosting risk appetite: US President Trump’s health condition is reportedly improving (reports suggest the possibility that he could be discharged as soon as today), the tone of US fiscal stimulus talks is also better (House Speaker Pelosi: we are making progress, Senate Majority Leader McConnell: we are getting closer and Kudlow: we are in the neighbourhood of USD 1.5trln for a stimulus deal) and Democratic Presidential Nominee Biden’s national lead over Trump has widened substantially to 14% according to the latest, post-debate NBC/WSJ poll.

Looking more closely at FX markets; moves are generally modest. Amid the improved market tone, JPY is the G10 underperformer (down 0.2% vs USD after BoJ Governor Kuroda gave us nothing new in this morning’s speech). GBP is the next worst performer, and is marginally lower vs USD; GBPUSD is off overnight highs in the 1.2950 region to trade in the 1.2920s.

UK PM Johnson and EU Commission President von der Leyen spoke as planned over the weekend regarding the Brexit situation. Both noted that while substantial progress had been made as of late, large gaps remain and, as such, Chief Negotiators EU’s Barnier and UK’s Frost had both been instructed to accelerate the pace of talks. No mention of a deadline for talks to conclude was mentioned in the joint Johnson/von der Leyen statement on the their discussion, but Johnson seems for now to be sticking to his 15th October deadline.

Elsewhere, EUR, NOK, AUD and NZD are broadly flat, as the former awaits October Sentix Investor Confidence data at 0930BST/0430EDT then today’s Eurogroup meeting starting at 1100BST/0600EDT and the latter tonight’s NZIER Business Confidence data for Q3.  AUD awaits tonight’s RBA rate decision. CHF, SEK and CAD are outperformers, the former awaiting weekly sight deposits data at 0900BST/0400EDT.

The Day Ahead

0900BST/0400EDT, Final Eurozone Services & Composite PMI (Sep)

0930BST/0430EDT, Final UK Services & Composite PMI (Sep)

0930BTS/0430EDT, Sentix Investor Confidence (Oct)… Seen snapping a five month improvement streak in October, with Investor Confidence expected to fall slightly to -9.5 from -8.0.

0930BST/0430EDT, BoE Chief Economist Haldane delivers opening speech at seminar… In his last speech, the BoE’s Chief Economist’s main point was to note that he thinks that the UK’s better than expected economic recovery is not being given enough credit and that the “prevailing economic narrative among businesses and households currently is unduly negative”. Elsewhere, he again pushed back strongly against negative rates, saying none of the conditions for them are yet satisfied. Most expect that he will reiterate this sentiment this morning.

1100BST/0600EDT, Eurogroup Meetings (participation by ECB President Lagarde and Panetta)

1500BST/1000EDT, ISM Services PMI (Sep)… The pace of the economic recovery in the US has slowed since July, (as shown by August ISM Services PMI and August/September jobs data). Markets look for a continuation of this trend in today’s latest ISM services reading, with a slight dip in the headline to 56.3 from 56.9 in August. Further driving home expectations for more weakening of the headline number ahead; last month’s business activity and new orders sub-indices saw substantial drops (the former to 62.4 from 67.2, the latter to dropping more than 10 points to 56.8). Wells Fargo comment; “considering that COVID-19 continues to circulate and many restrictions on close-contact services remain in place, we expect services activity to continue to moderate in coming months”.

Fedspeak: 1500BST/1000EDT, Fed’s Barkin, 1545BST/1045EDT, Fed’s Evans, 2015BST/1515EDT, Fed’s Bostic.