Why the About Turn?

The market was full steam ahead first thing this am but has reversed course somewhat. Why so? I think it’s to do with a few things…

First and foremost, and as we’ve noted for a while, fixed income just really isn’t paying attention to equities and this is holding us back. Coming in this morning and the 10yr yield had fallen back through the 3.50 level. This in spite of equities having had broad gains and the fact there hasn’t exactly been a dearth of govvie supply; $20bn of 10yrs yesterday and $12bn of 30yrs today.

The dollar has started to rally back a bit, particularly against the commodity currencies. We saw poor data from Australia yesterday and overnight, comments from the minutes of RBNZ noted that rates were likely to remain unch and that the strength of the currency was an issue. Both AUD and NZD are falling today as is CAD. So essentially, this looks like a bit of a risk off trade.

Thirdly, Zhu Min from the Bank of China has come out talking of asset bubbles forming. Ok, Wen Jiaboa has also said that the country will not pull away from its stimulus plan. This could easily be construed as a positive, albeit an artificial one but it doesn’t seem to have had much effect today.

On top of all this, we’ve had another raft of secondaries overnight and this morning as the insider buying:selling ratio remains extremely high so perhaps the market is just taking stock of this before deciding whether or not it wants to push on, especially as we’re at levels at which we’ve encountered resistance before.