Everything from a recently arrived alien to an open-minded machine learning algorithm knows that there are two things for certain about markets: bonds go up, and every argument ends in the words ‘policy response’.
Not much more than a week ago we were scratching our heads at how markets seemed to be both ‘risk on’ (the NASDAQ up 10% YTD) and ‘risk off’ (US 10yr bonds +3% YTD, gold +7% YTD, and the US dollar +3% YTD) at the same time. We speculated that maybe a moderate amount of tangible concern, around something like the coronavirus outbreak, was a Panglossian ‘best of both worlds’ for all asset markets, big enough to see a bit of flow into safe havens, but small enough that equity markets can rally on expectations of more central bank stimulus without being overwhelmed by the risks to growth.
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