At the beginning of the week, Asian markets sold off on the poor U.S. payrolls number from last Friday. The CurrencyShares Japanese Yen Trust (FXY) spiked higher as a result and continued to rise as U.S. markets paused ahead of earnings.
After the early week selloff, U.S. equities reversed course, breaking out to the upside by Wednesday. The S&P 500 index had been in a consolidation pattern since late December, which made the breakout to fresh highs even more significant.
The move higher came on strong retail sales, but underlying technical factors appeared to be really driving the price action. Both the long-dated Treasury bond index and U.S. equities broke higher alongside one another. That reintroduced the strong positive correlation of the two assets that has been a characteristic of the quantitative-easing era.
The idea has been that the Federal Reserve would artificially keep interest rates low by providing excess liquidity. That belief has driven equities higher from their bottom in 2009, and the removal of stimulus was supposed to cause stocks to fall.
Last month, the Fed said it would reduce its monthly bond purchases, but equities continued to rise, even as interest rates increased. Economic data and corporate results continued to be firm, which led investors to believe that Fed support was no longer needed in the current environment.