Wednesday, 15 June 2011

under the hood of a sentiment change

there has been a dramatic change in sentiment over the last month and a half.

the spy is down  -7.41%, iwm -10.11%, qqq -8.51%.

tlt is up +3.50%.

gld is down -0.86%

there have been many blog lines spilt on this topic, suffice to say, this has absolutely nothing to do with the debt ceiling, nothing to do with Japan, or Libya, and probably not that much to do with Greece either.

What then is driving this repricing? digging deeper than just the headline numbers;
size +1.20%
value vs growth +8.33%
momentum +1.69%
liquidity provision strategies +0.81% (unlevered)

consistent with the market shifting to more defensive footing in anticipation of slowing growth and macro economic weakness. My narrative is this; the commodity spike over the last couple of months hurt consumers, a small disruption to supply chains from Japan have undone a lot of the monetary policy heavy lifting of the last year. Demand remains weak.

What is not being talked about enough, is the tightening of Chinese monetary policy, and the risk that we see a hard landing there, which could seriously impact the commodity economies such as Australia. 

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