The slide in commodities and EMs is either about to get a lot worse, or those markets will finally find footing. TIPS spreads and AUD/USD, to name one high-beta pair, tend to follow the commodity cycle. They have both fallen since 2011 and are now near long-term support levels. AUD/USD’s up trend-line from 2001 and 2008 lows is at 0.7150 this month vs a 0.7216 low thus far. 10-yr TIPS spreads at 1.6% are very close to the 2010 low at 1.58%, which in and of itself sounds odd within the context of Fed telegraphing a rate hike at the Sept FOMC or shortly thereafter. Recently the market’s gaze has been on listing China growth and demand for imports, but years of CB stimulation have also encouraged overproduction elsewhere. Unless the Fed blinks, another wave AUD/USD and TIPS spreads selling looms with L-T support breaks. “IFR”
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