Global Macro: Roadmap to Big Data, 'Little' Syria

TheStreet.com

NEW YORK (TheStreet) -- As summer ends, investors look toward a busy September for economic data and policy to give them direction for the rest of the year.

Conflict in Syria provides a downward catalyst to already fearful markets; but as we move deeper into September, investors will return their focus to monetary policy.

With nonfarm payrolls this Friday, labor market data in September is sure to have a heavy influence on policymakers. As the strength of both growth and the labor force becomes clear, speculation over the future of U.S. monetary policy will begin showing up in financial markets.

The first chart below is of PowerShares DB US Dollar Index Bullish . The U.S. dollar has seen a massive selloff to yearly lows over the past few months as the market fled uncertainty in favor of more stable currencies, such as the yen and euro.

What looks to be taking place now is the bid higher of the dollar. Investor's see that although monetary stimulus has not been as effective as many would like in the real economy, it has acted just as expected for financial markets.

Equity markets and sentiment are approaching all-time highs, which gives policymakers room for reining in stimulus at the September Federal Reserve meeting. This turn in policy should provide strong justification for a correction lower in riskier assets.

The U.S. dollar should spike higher as conflict in Syria remains and investors begin pricing in tighter policy.

The next chart is of iShares Barclays 20+ Year Treasury Bond . Long-dated treasury bonds have sold off alongside the dollar as uncertainty over future monetary policy dominated investors' minds for much of the year.

As the conflict in Syria grew, the market began hedging risk by buying the safety U.S. treasuries provide. Although this move was unrelated to monetary policy, it did provide a pullback leading up to the September Fed meeting.

The downward trend in long-dated treasuries has only slightly been broken, and increasing tension in North Africa could push bond prices up higher. However, the downtrend should stay on course as the Fed announces the beginning of tighter policy in late September.

The last chart is of Guggenheim S&P 500 Equal Weight over SPDR S&P 500 . This pair represents a breadth indicator measuring the amount of participation stocks have during index moves.

As the pair breaks lower, it signals that a majority of the components in the index are leading the move lower, and thus is a bearish sign.

The chart shows that prices had been in a strong uptrend since late June, and subsequently formed a bearish double-top pattern in August. The breaking of the upward trend line due to the Syrian conflict could be just the beginning of the correction lower.

The fear of higher rates and less Fed intervention could lead to weakness throughout the fall season, with a potential move higher in winter. Stay attuned to the actions of the Fed and Syria to gauge market sentiment and future direction.

At the time of publication, Sachais had no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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