For all that the market is supposedly worrying about a double dip, actually equities have been moving in a range, metals are fairly strong and currencies are saying that the recovery is on — witness the strength of the AUD and SGD. At the same time, gold and the bond market say that there is trouble brewing.

A coherent explanation is that the trouble is not actually here yet (as the Conference Board Coincident Indicator shows). Policy-makers are worring about unemployment, but from the market’s point of view a jobless recovery has been the expectation for many months. So while bond markets are adjusting to falling inflation expectations, metals and currencies are reflecting an ongoing recovery with continued good trade flows. Equities are somewhat below their recent peak but are supported by high dividend yields (relative to bonds) and the fact that it can take actual rather than predicted economic trouble to overcome bullish sentiment when a market is not especially overvalued. Gold has its own drivers — perhaps largely post-hoc rationalisations for why it is going up.

However, there is not enough good news to push equities upwards, even as trade flows push Asia-Pacific currencies towards their recent highs against the USD. Yesterday’s initial jobless claims number was not unambiguously good (some states gave estimates), but it was at the better end of the recent range and better than expected, and equities rather shrugged it off. In addition, my supply and demand indicators suggest that demand for equities remains on a downward trend and the recent little rally has been driven by a fall in supply. This makes me think that now might me a good time to get short of equities before risk assets take the hit that I am expecting. Consequently I have shorted the S&P this morning.

Incidentally, I seem to have been too early in going long USD/SGD — as I say above, trouble is not here yet — but the currency band is keeping me in the trade, just.