Strong trends versus weak trends

G20 Financial markets lately are divided between those that are trending strongly and those that are not. The Average Directional Index (ADX), a good measure of trend strength, brings out this dichotomy clearly. On one side, the downtrend of EM equities and commodities is showing no signs of slowing. 

On the other, the dollar, US fixed income and developed equites are stuck in ranges. The reason for this tale of two cities is obvious. Investors, increasingly concerned about China, are reducing their exposure in the markets most directly tied to China (EM and commodities). 

"Even though investors still seem reasonably upbeat about the prospects for the US economy in 2H and believe the Fed is on track to start hiking rates in September, concerns about spillover of the Chinese slowdown is tempering bullish sentiment toward the USD against the likes of EUR and JPY and bearish sentiment toward US rates", says BAnk of America.