The story that drove markets last week was Dollar Down, Rates Down on the Fed move.
Here's a quick update on what's happening in early morning trading today via Hedgeye CEO Keith McCullough in a note sent to subscribers:
"Dollar Up, Rates Down this morning – as opposed to the reflation trade (many head-fakes in the last 18 months), that’s the #Deflation risk on move. I'm watching that closely this week with USD signaling immediate-term oversold on Friday."
It's worth noting, over the past two weeks, the USD has been inversely correlated with oil.
"Oil was down -2% this morning (it has a -0.8 inverse 15-day correlation to USD) after a +2.4% wk (WTI) with an immediate-term risk range of $34.65-41.53 and OVX (Oil Volatility) holding @Hedgeye TREND support with a risk range of 42-56."
But then ... oil speculation (insert: "rumors") took over.
Oil prices have rebounded sharply up 1.5% today on talks of an OPEC/Russia oil production "freeze." Potomac Research Group Senior Energy Analyst Joe McMonigle continues to point out, Iran plans to ramp up its oil production and that is in no way bullish for the price of oil, freeze or no freeze.
Click the image below to watch McMonigle's recent interview on this subject.
Here's the deal. Macro markets are getting whipped around by frenetic wishes and whims of traders. Meanwhile, economic fundamentals continue to deteriorate. So what happens once reality sets in?
It could get really ugly.