By James Saft
(Reuters) – The after-effects of the Great Crisis may still be with us, but the great correlation in global financial markets may be coming to an end.
After years of seemingly disparate markets all going up or down in concert, recent weeks have shown signs of assets actually trading on their own merits. If sustained, this would be an important sign not just of a return to normality in financial markets, but that investors see a more stable world.
Then again, it might be a giant head-fake.
Sometimes called “risk-on, risk-off”, or Ro-Ro, this has been the dominant trade since the financial crisis broke, with commodities, stocks and especially currencies moving very tightly together in predictable ways, mostly driven by major economic news and global events.
When investors felt things were good, everything “risky”, like equities or commodities tied to economic growth, rallied together, sometimes almost without reference to regional or individual differences. At the same time, good news was bad for the dollar, which would rally instead on disappointing or negative developments.
Now there are signs this is ending, especially in the currency markets, which, as the biggest, most liquid and frenetic market often leads the way in setting trends.