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The pullback seen in the US dollar in the wake of the Fed minutes does seem to reflect a lot of uncertainty around the pace of rate hikes by the Fed. It is this US-dollar weakness and ongoing swoon in commodity prices that provides a jarring counterpoint to the gains seen in Asian equities of late.
Many markets appear to be at an important juncture where they are set to break out dramatically to the upside or the downside. Given we did see such a dramatic equity selloff in Q3 and markets generally perform well in the final month of the year, further upside does seem likely in the near term. But the uncertainties over future Fed policy in the wake of a potential December rate hike, ongoing China slowdown concerns and the commodities rout do not bode well for Q1.
However, it is the copper price that provides the greatest source of dissonance for the performance of global equities. Copper is still trading at close to its lowest level since 2009. Why is this such a concern for global equities?
The four great bull markets of the 20th century were preceded by a turnaround in the copper price. In 1921, 1932, 1949 and 1982 after a dramatic selloff in equities, it was the steady increase in copper prices that portended the following multi-year bull markets.
Given that, it is difficult to be too optimistic about the trajectory of global equity markets until we see an end to the slide in commodities and copper in particular.