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Global Macro: Emerging Market Equities and China Sink

NEW YORK ( TheStreet) -- Poor economic data continues to flow from the macro environment's most important countries. Early Wednesday, German business sentiment missed the target of even the most pessimistic analysts. Investors saw this as a final straw in pushing the ECB towards more accommodative policy.

The U.S. durable goods reading gave no form of respite. The release highlighted the drag that higher payroll taxes have had on the U.S. economy. In spite of the negative tone, equities were able to see a silver lining in Goldman Sachs' advice on being "overweight" equities, which kept markets at break even. The deterioration of global growth and tepid inflation is seen within the inter-market charts below.


The first chart, above, is of DB Commodity Index Tracking Fund (DBC) over Barclays 20 Year Treasury Bond Fund (TLT) . Commodities have felt selling pressure due to declining global demand. As industrial production falls, countries find themselves needing less oil, copper, etc. In a risk-on environment this pair should see strength. The fact that the trend broke down in mid-March falls in line with other inter-market indicators. The global economy lost some luster towards the end of the first quarter, further represented in the charts below.


The next chart is of Barclays TIPS Bond Fund (TIP) over Barclays 20 Year Treasury Bond Fund. This ratio directly measures inflation expectation, similar to that of the commodities indicator at the beginning of the article. People are viewing near term inflation as less of a threat with weakening China, euro region and U.S. economies. Growth is necessary for risk assets to see a valid move higher, central bank easing can only do so much. It can create a floor that keeps risk assets afloat, but it looks as if the TIPS market has become weary of this game.

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