Bouncing Bonds and Lurking Bears

US govies didn't have a friend in the world until last Thursday's 30yr auction. The rallied hard on the back of its success and this has followed on today. The Greenback too is continuing upwards. Given this heady mix, ordinarily you’d expect equities to be off on a day like this; and they are… although in light of the positive, if somewhat (very) premature talk of exit strategies coming from the G8 meeting over the weekend, you’d certainly have a decent case for seeing a market in the blue today, especially given the market’s propensity for blinkered Green Shootery. However US assets are getting their bid from Russian comments about it being too early to talk of an alternative reserve currency to the dollar and it looks like the $ strength is causing the equity sell off as the resource and energy names retreat for obvious reasons. Markets have been flat-lining for a few weeks now and we’re expecting a break, one way or the other. Today’s move is providing fuel to the bear fire although it should be noted that we’re still within the recent range, albeit at the lower end…so support could well be met but a break down towards the 2400 level in the Estoxx would certainly give me more confidence in the sustainability of running a short. Given the market wariness of a possible sharp move one way or another, it is not surprising to see that sector performance has had a defensive bent to it over the last few days and this continues today, while all sectors are down, the foodies, tobaccos, telco and pharma are holding up better than their cyclical, resource related and financial brethren.

TomTom provided the relative excitement on Friday, jumping 20% on talk of Apple taking a stake via a capital raising. The rumour was half true. Unfortunately, not the half anyone who bought it on Friday wanted. Another company taking advantage of the rally, and who can blame them? Could be good timing too as there’s a bit more impetus to the bear camp today with a Barron’s article getting quite a bit of press, saying we’ve come too far, too fast and Forbes running a story noting Sheila Bair is still cautious on the banks and expects further failures. Remember though, it’s expiry this week and low volumes in expiry weeks can lead to exaggerated and unexplained intraday moves.