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Global Macro: Roadmap to Big Data, 'Little' Syria

NEW YORK ( TheStreet) -- As summer ends, investors look toward a busy September for economic data and policy to give them direction for the rest of the year.

Conflict in Syria provides a downward catalyst to already fearful markets; but as we move deeper into September, investors will return their focus to monetary policy.

With nonfarm payrolls this Friday, labor market data in September is sure to have a heavy influence on policymakers. As the strength of both growth and the labor force becomes clear, speculation over the future of U.S. monetary policy will begin showing up in financial markets.

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The first chart below is of PowerShares DB US Dollar Index Bullish (UUP). The U.S. dollar has seen a massive selloff to yearly lows over the past few months as the market fled uncertainty in favor of more stable currencies, such as the yen and euro.

What looks to be taking place now is the bid higher of the dollar. Investor's see that although monetary stimulus has not been as effective as many would like in the real economy, it has acted just as expected for financial markets.

Equity markets and sentiment are approaching all-time highs, which gives policymakers room for reining in stimulus at the September Federal Reserve meeting. This turn in policy should provide strong justification for a correction lower in riskier assets.

The U.S. dollar should spike higher as conflict in Syria remains and investors begin pricing in tighter policy.

The next chart is of iShares Barclays 20+ Year Treasury Bond (TLT). Long-dated treasury bonds have sold off alongside the dollar as uncertainty over future monetary policy dominated investors' minds for much of the year.

As the conflict in Syria grew, the market began hedging risk by buying the safety U.S. treasuries provide. Although this move was unrelated to monetary policy, it did provide a pullback leading up to the September Fed meeting.

The downward trend in long-dated treasuries has only slightly been broken, and increasing tension in North Africa could push bond prices up higher. However, the downtrend should stay on course as the Fed announces the beginning of tighter policy in late September.

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