Equities: Higher yields drive risk‑off rotation – Danske Bank

Danske Research Team reports that equities sold off again as rising global bond yields and debt and inflation concerns overshadow an otherwise constructive macro and earnings backdrop. The move was rates‑driven, with long‑end US yields leading, prompting rotation into defensive value, minimum volatility and energy, while the bank’s base case assumes long‑end yields and geopolitical risks eventually stabilize.

Rates‑driven selloff and rotation

"Equities sold off again yesterday, with the same narrative that has dominated since late last week: the combination of debt concerns, inflation worries and oil/geopolitics still overriding an otherwise constructive macro and earnings backdrop."

"The equity rotation was therefore very consistent with a rates-driven risk-off move: defensive value, minimum volatility and energy outperformed."

"Some pause and reversal in the cyclical/tech trade should not be seen as particularly unusual after the extreme equity returns and very aggressive rotation into cyclicals that we saw from the 30 March lows into mid-May."

"Still, our base case is not that long-end yields continue to rise on debt fears, just as our base case remains that the Strait of Hormuz reopens relatively soon. It goes without saying, as long as this is the dominating narrative, then we are wrong in our view. "

"This morning, the same dynamics are visible in Asia, with Japanese equities leading the decline, while semiconductors are less under pressure today. European and US futures are also lower this morning."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)