The exuberance in risk assets is less a consequence of a stronger economy than a driver of it
The expectation of rate easing was never critical – which is why the exuberance has largely persisted even as yields have backed up
It is instead the direct consequence of investor crowding following easy central bank balance sheet policy – and vulnerable to any reduction in CB liquidity
Is the mini-correction in markets a foretaste of something bigger, or does the still-strong real economy give risk assets scope to bounce back?
Should investors be rotating out of equities and into bonds, or are the latter still vulnerable to buyers’ strikes against a backdrop of fiscal indiscipline?
