The rotation out of the recent winners (especially the ‘reflation trades’) continued yesterday.
In particular, the oil price was sharply lower (-6%); bond yields continued to ease, with the US 10 year yield off again (by 6bps); and the Russell 2000 was notably weak (-3.6%, i.e. given its ‘reflation’ and energy exposure). On this occasion, the beneficiary of that rotation was some of the defensive sectors, with the S&P500 staples, utilities, and real estate sectors all higher on the day. As we show in this brief clip, recent weakness in a number of key asset prices has pushed our short term models lower. Many of which suggest that this bout of risk aversion is now ‘long in the tooth’.
Key macro data today includes flash Markit manufacturing and service sector PMI estimates for the month of March (for a number of countries including the US, the UK, Germany, and France). US durable goods orders for February are due at 12:30pm London time. Key events today include testimony by Powell and US treasury secretary Yellen (i.e. to Congress at 2pm) as well as speeches by the Fed’s Daly and Evans.