Bonds, the dollar and tech stocks were all bruised yesterday while EM markets (ex China) performed strongly and for a third session. The day started with 10y JGB bond yields “doubling” from 4 to 8 bps on speculation about what the BoJ policy meeting might bring today after BoJ Governor Kuroda  aired the idea of a “reversal rate theory” suggesting that monetary policy brought too far squeezes banks and perversely hurt credit growth... This led to speculation as to what the BoJ might announce at its policy meeting today. German Bunds followed suite climbing 4bps to 45bps ahead and then after June German inflation came out at 2.1% confirming that Germany reached the ECB inflation objective which, if taken in isolation, would fully justify a departure from the extremely accommodative ECB stance. The S&P500 dropped -0.6% while US tech space was savaged again with the Nasdaq shedding -1.4% compounding losses from the past couple of days. Weakness was most pronounced among the narrow list of Fang shares with even fortress Amazon dropping 2% yesterday in line with losses inflicted on MTUM, an ETF concentrated on US shares exhibiting the highest momentum and the top performer of all indices for quite some time. Europe outperformed despite EUR strength and value stocks did best, suggesting investors may become more discriminate and readying for a paradigm shift away from momentum into value shares. Biotech (-2.6), Social Media (-3.2) and 10Y Bunds (-2.9) stood at the bottom of our z-score report yesterday (exhibiting the worst momentum). Also see our Leaders & Laggards report. Morgan Stanley (and Credit Suisse) opined this might be the beginning of a more severe correction, an opinion that we are not far from sharing considering the importance of tech and within tech of the smaller subset of over owned and overpriced Fang shares which are technically breaking down while still accounting for “all” of the S&P500 gains so far this year. The dollar lost ground vs. most of its G10 counterparts yesterday snd the dollar index dropped -0.2% nursing heavier losses vs. EM currencies such as RUB and MXN. Swedish krona outperformed after Sweden’s economy grew stronger than expected (SEK remains one of the cheapest currencies on a PPP basis). Gold and silver barely moved. Oil returned to 70USD, erasing all of Friday’s losses as threats of production cuts from the North Sea conjured with Iranian supplies expected to be trimmed by 700k b/d. Overnight, Japanese Industrial output contracted at the sharpest pace in five months in June as production of machinery fell, but a government forecast projects a rebound for July and August, the FT reported. Chinese non-manufacturing and manufacturing data came out slightly weaker than expected.

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