Global Macro: This Week Was All About Rates

TheStreet.com

NEW YORK (TheStreet) - The market's focus this week was on interest rates, which affected assets across the board from the U.S. dollar to gold. Oil, however, is still more influenced by geopolitical risks.

Minutes from the Federal Reserve's last Open Market Committee meeting, released on Wednesday, showed that although rates have spiked higher, the Fed has done ittle to push the market in the opposite direction.

That could be a signal that Fed members no longer desire to hedge their policy by taking one stance during official meetings and then quickly redirecting markets in the coming days. Analysts believe that indicates a September start date to slow down quantitative easing.

The first chart below is of the U.S dollar futures contract. The dollar had disregarded increasing rates over the past few months as investors sold bonds and the dollar on policy uncertainty. As the Fed's policy change has become more probable, investors have turned back to the fundamentals and resumed bidding dollars higher alongside higher rates.

An exchange-traded fund that closely tracks the price of the U.S. dollar is PowerShares DB US Dollar Index Bullish. Treasuries look to have room to move higher, which could be a positive or negative catalyst for the dollar. Watch for correlations between the price action for a more definitive answer.

The next chart is of gold futures. As the U.S. dollar, Treasuries and U.S. equities have all sold off, gold has caught a bid higher. An ETF that closely follows the price of gold is SPDR Gold Shares.

Gold broke out of its yearly downtrend and rushed to resistance at the $1,375 level. Now with U.S. assets likely to bounce off lows, money could come out of gold and push the price to below $1,300.

The main driver in this picture is flow of funds. As funds flow out of classes such as U.S. assets, they flow to other regions or sectors such as European equities or gold. Continue to monitor flow of funds to gauge where gold will move in the future.

The last chart is of Brent crude oil futures. Oil is heavily influenced by geopolitical risks. The North African region remains unstable, which compromises major trade routes, such as through the Suez Canal. United States Brent Oil, an ETF, closely follows the price.

As investor fear has increased, so has the price of crude oil. The chart below shows a potential break higher as the tone of the region remains hostile.

Look for crude to continue disregarding intermarket principles, such as dollar strength or interest rates, due to a premium priced in for geopolitical risks.

At the time of publication, the author had no position in any of the stocks mentioned.

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

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