At a Time when the world’s advanced economies are printing money like crazy and offering unprecedented monetary and fiscal stimulus programs, “reflationary trading” has become a new market favorite.
Christoph Rieger, head of fixed income strategy at Commerzbank AG, said.
At the moment, it is difficult for investors to resist inflationary trades, the shadow of Inflation is everywhere.
Indeed, commodity prices of almost all kinds are soaring.
First and foremost, the most obvious reflection of market expectations of inflation is U.S. bond yields. The current U.S. bond yield curve is already the steepest it has been since 2015.
Similar to this is the change in UK Treasury yields. Prices of both Food and Crude Oil are rebounding rapidly. Global liquidity is continuing to increase.
Similar to global inflation expectations, the 10-year break-even inflation rate in the U.S. is at its highest level since 2014.
In Europe, inflation levels are also rising rapidly.
What does this mean for U.S. equities and even global equities?
Zero Hedge, a leading U.S. financial blog, believes that U.S. stocks are now increasingly detached from fundamentals and can continue to rise as long as there is a sustained inflow of capital and continued inflation.
However, others believe that if one observes the spread between long-term and short-term U.S. Treasuries, the likely outcome will be a short-term inflationary boom followed by a deflationary depression.
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