Last year, I focused on several cross-market correlations, which worked very well. The price of a barrel of Brent crude oil has been highly correlated with the inverse of the trade-weighted dollar in recent years, and especially last year. Now that the price of oil may be stabilizing around $50, let's see if the dollar stops soaring.
By the way, in the past, there was a close correlation between the price of oil and the MSCI Emerging Markets stock price index in local currencies. That hasn't been the case over the past year. The relative strength of the MSCI EM index suggests that the drop in oil prices reflects excess supply rather than significant weakness in demand attributable to slowing global economic growth. Using local currencies, the MSCI EM index is up 8.9% year-over-year, but only 2.7% in dollars.
Source: Ed Yardeni — Ed Yardeni is the president and chief investment strategist of Yardeni Research Inc., a provider of independent investment strategy and economics research for institutional investors.