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Global Macro: Central Banks Still Fighting

NEW YORK (TheStreet) -- The Reserve Bank of Australia cut its cash rate on Tuesday, an indication of risks to growth in China and a lack of fear about inflation around the world. The European Central Bank similarly cut its cash rate last week, citing economic contraction throughout the eurozone. Central banks have been forced to stay ahead of the markets, keeping a floor on prices of risk assets.

Chart Courtesy of Stockcharts.com

The first pair above is of MSCI Germany Index Fund (EWG) over Total World Stock Index ETF (VT). Germany released stronger-than-expected industrial production numbers Tuesday, but remains in a strong relative downtrend. German equities are outperforming on an absolute basis, but look to be a less attractive investment than American or Japanese equity markets.


As Germany continues to underperform -- a trend that began earlier this year -- the euro has followed suit. The descending FXE, seen under the pair, shows that economic contraction from the region has weighed down currency and equity-market strength. The ECB stepped in to take action to limit investor fear, but growth and stability in the eurozone are the only things that will bring back relative strength in both currency and equity markets.

Chart Courtesy of Stockcharts.com

The next pair is of United States Oil Fund (USO) over an equal weight DB Commodity Index Tracking Fund (DBC). Oil has been whipped around lately due to volatile economic data, with weaker inflation expectations around the world one minute and strong labor data from the U.S. the next. The pair above has trended sideways for much of the year, but is approaching overhead resistance.

Central bank liquidity around the world and geopolitical tension in the Middle East have kept oil prices on the rise, but another round of good economic data is needed before oil can break through.

Chart Courtesy of Stockcharts.com

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