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Global Macro: Fed Rattles Markets Around the World

As China continues to weaken and central banks hesitate to add more stimulus, commodity-linked currencies like the Aussie dollar will continue to underperform.

The final chart is of iShares MSCI Emerging Markets Index Fund (EEM) over Total World Stock Index ETF (VT), which measures the relative strength of emerging-market equities over a basket of world equities.

Similar to the story of the Aussie dollar, emerging markets have relied on stimulus and strong exports to developed economies.

This year, the U.S. dollar strengthened versus other world currencies, which weighed on emerging markets. A stronger dollar makes U.S. equities more attractive and pushes money out of funds tied to emerging markets.

Higher rates in the U.S. make it more difficult for emerging-market corporations and economies to borrow the funds they need to grow. It makes growth more expensive because they must borrow at higher rates over the Treasury yield.

What Bernanke chose to do on Wednesday makes sense: he is most likely leaving office beginning in 2014 and wants to shore up all of his loose ends before taking off. The U.S. economy is growing at a moderate pace and is in much better shape now than many other world economies.

The Fed chairman has done a solid job providing support to the economic recovery, but the move to eventually cut off stimulus sent shockwaves through world markets and drastically weakened assets that have relied so heavily on the easy money policies the Fed created.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a senior at Georgetown University earning a degree in Economics.
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