The market is in need of a new narrative. The Fed meeting in December is too far off and for now, the US election is not something that entices excitement. With central banks on hold, markets are pushing the envelope in terms of risk, so pushing risk assets ever higher. Whether we are extremes is always up for debate. The German 10 year (not a risk asset) has been pushed below the zero level once again, but such moves have prompted rallies elsewhere. We’ve seen corporate bonds outperform, with higher yielding currencies also pushing ahead, such as the Aussie which has pushed higher against the USD every day this week.
As with all risk rallies, it’s more about momentum, rather than valuation. Clearly bond yields below zero make many uncomfortable, but that does not stop you making a return should they push even more negative. The upshot is that we remain in a very unbalanced financial world, largely created by central bank policies. Yes, they have largely been in a lose-lose situation. Today’s a Friday, so the main issue is whether risk asset rally further into the weekend, or a modicum of profit-taking is seen. If anything, I think we’re probably going to err towards the latter, but the bigger picture probably remains for further modest gains overall. Just data in Canada today in the form of retail sales and inflation