EUR 8.84 For Business Accounts Only

The Morning Track rotation

- The Morning Track – Rotation by Bob Savage
http://track.com/articles/the-morning-track-rotation/

Do we face the winds of change? The earth’s rotation generates much of the wind shifts in the world and that leaves much of the weather predictable. The rotation of markets and focus doesn’t have the same clock but many investors want to wish they did. Markets are waiting for the FOMC decision, more data, the formation of the UK coalition as May keeps her job for now, Brexit talks to start, more from the BOE, BOJ, SNB and, of course, the drama of the Senate and Sessions testimony later today. This isn’t sufficient to explain any of the price action. Markets were on edge all day yesterday and show relief today as the reversal proves to be a rotation trade. Stock markets focused first on the Trump trade, then on the FAANG trade and now the jury is out on the next mover. This shift in money from high-flyers to value picking isn’t something that excites other markets and leaves bonds to focus on central bankers and inflation –witness the 6bps jump in UK 10Y Gilt
yields post CPI. Witness also the divorce of commodities from markets as copper and iron ore are lower but AUD rallies with the BOC shift in policy guidance – perhaps intentional – driving C$ below the 200-day and opening 1.30 again while A$ and NZ$ blindly follow despite RBA statements to hold. The risk of more rate normalization beyond the US matters most to the story today and leaves rates the macro focus as FX other than C$ and SEK aren’t really moving and in commodities –oil waits for the API. Markets in rotation aren’t fun, unless you have the right new place where capital flows. Most bet that its financials over tech in US – but it maybe more complicated than chasing the 25bps FOMC rate move. For now, it’s easier to see where its not going – and that is still US bonds, the USD and gold. Wake up if 10Y break 2.23% and expect a test of 2.30% to follow into the Fed decision tomorrow.