Strategist: 3 Reasons Why Risk-On Is Back in Fashion

Markets are shifting towards a more "risk-on" attitude and there are three reasons for this, according to Mike Lenhoff, chief strategist at Brewin Dolphin.

Comstock | Getty Images

The first reason is that "the momentum the U.S. economy has been regaining looks sustainable," Lenhoff wrote in a research note.

In the U.S., employment is growing faster than expected, with last week's jobs figure showing an increase of 243,000 compared with analyst expectations of just 150,000 in January, and with unemployment falling to 8.3 percent versus expectations that it would stay flat at 8.5 percent.

But aside from that, "the latest revisions to the series for 2011 show that more jobs were created than estimated – and broad money supply growth is beginning to pick up again after the loss of momentum for much of last year," Lenhoff said.

"Second, while the developing world is losing momentum, central banks are responding by easing policy and have plenty of scope to continue doing this, through conventional means," he wrote.

Analysts are expecting the Bank of England to continue its policy of buying government bonds, adding 50 billion pounds ($79 billion) to its bond-buying program already worth 275 billion pounds, while a third round of quantitative easing is anticipated from the Federal Reserve.

"Third, a more constructive phase for policy makers is underway in Europe," Lehnoff said.

The European Central Bank's long-term refinancing operation back in December was "a giant step" towards easing the banking crisis which, together with the widening of the range of collateral it accepts at its market operations, showed that the survival and functioning of the euro zone banking system "were beyond question," he added.

Yields in quality bond markets have stabilized and even a few of the euro zone's distressed sovereign debt markets – like Italy and Spain – have "made up some of their lost ground," according to Lehnoff.

"With money at one percent for the three-year loans the ECB is making available through its Long-Term Refinancing Operation (LTRO) – the second of two is coming at the end of this month – there are great carry trades here," he wrote.

"They are available too in equity markets where yields are high and where dividends are likely to grow," Lehnoff added.