The conflict has been playing out in the local market with its unusually high number of dividend paying "bond proxies" which seem to be flavour of the day one minute, only to be out of favour the next, depending on who is winning the argument.
Much has been made of the Reserve Bank of Australia's (RBA) move on Tuesday to pump an additional A$100m into the economy through its quantitative easing programme, despite saying that recovery from the Covid-19 pandemic was stronger than expected.
Salt Funds managing director Matt Goodson said the RBA's action is being seen as representative of how serious central banks are in their quest to keep bond yields, and through them borrowing costs, low to facilitate a post-Covid recovery.
Aside from that overarching "reflation" theme, it had been a quiet, post-results season day with limited news flow, he said.
"The key thing going on in markets is this battle between central banks and the market, where the market is pushing a reflation trade whereas central banks are showing signs of resisting that," Goodson said.
"We have seen a very sharp lift in bond yields since last year as the market is really starting to sniff out signs of inflation, and that of course links through to the equity market," he said.
"I think that battle is very much coming to a head and it will be very interesting to see if the Reserve Bank of New Zealand makes any comments or takes any action in this market," Goodson said.
Cyclical stocks like Fletcher Building, which gained 3c to $6.54, continued to benefit from the shift towards more cyclical stocks, true to the trend seen over the last six months.
"Clearly we have a housing bubble which they are benefiting from," Goodson said.
Units in dairy co-op Fonterra gained 4c to $5.03 after a very strong Global Dairy Trade auction result, even though higher prices act as a brake on the co-op's earnings, given milk is its highest input cost.
Fonterra has rallied by 27 per cent over the last 12 months.
Goodson said Fonterra was benefiting from a generally positive outlook for dairy, and commodities in general.
"The outlook for Fonterra is quite promising because the reality is that grain prices have been very strong globally and the competition from northern hemisphere milk relies heavily on grain," he said.
Some stocks were benefiting from "reopening" trades - based on optimism that business would start to return to near normal after Covid shutdowns sooner rather than later.
In that camp was Sky City, which gained 8c or 2.6 per cent to $3.13.
Conversely, cinema software company Vista - another potential "reopening" trade stock - dropped 2c to $1.76 after a stronger start to the week.
Power generator Genesis firmed 10c or 2.7 per cent, to $3.74 while takeover prospect Tilt Renewables gained 10c to $6.45.
In the retirement village sector, Summerset firmed 4c to $13.00 while dairy genetics company Livestock Improvement gained 5c to 95c.
Volatility in fishing company Sanford continued, the stock falling 16c to $4.54.
