The market rethinks deflationary trade


Call it the end of the euphoria of reopening. Wealthy workers rushed to high-end restaurants and cocktail bars as soon as they were approved, and they soon realized that working from home did not save as much as they thought. Likewise, the market has begun to reassess how much the pandemic has actually had on the prospects for continued global economic growth.Concerns about the rapid rise in inflation that dominated the market a few weeks ago have been Nervous about growth.

This week, investors reconsidered the so-called reinflation transaction: supported by the Fed’s continued easy funding and generous fiscal stimulus measures, a strong economic recovery will push up inflation and inevitably force the Fed to issue more The signal is faster to raise interest rates. . Combination Production bottleneck — Continued chip shortages hinder car manufacturing — and The more infectious Delta variant Now the optimism about economic growth has been reduced. Long-term U.S. Treasury Bonds As bonds have sold off, yields—a reflection of inflation and growth expectations—have fallen.

Most parts of the world are now suspicious of the United Kingdom, where one of the most successful vaccination programs in the world is not enough to prevent the proliferation of the Delta strain. Although the British government is firmly committed to reopening, consumers and workers may begin to voluntarily distance themselves from society and stay away from crowded places—thus reducing the impact of reopening on economic growth.On Thursday, Mary Daly, President of the San Francisco Branch of the Federal Reserve, stated In an interview with the Financial Times The premature announcement of the victory over the coronavirus is one of the greatest threats to global growth.

Nevertheless, market trends do not indicate that investors are keen to get rid of risk from their portfolios.Although some of the more frothy parts of the market have lost their vitality-Bitcoin and the so-called “Emoticons” Prices have not recovered after falling-other more traditional risk assets, such as technology stocks and junk bonds, have risen as long-term interest rates have fallen. Investors did not become more fearful, but reassessed the prospects for future currency tightening. The market, which was more worried about inflation, is now in line with central bankers, who said that inflation may be “temporary.”

The market action this week is also right The Fed adopts a more hawkish tone At the most recent interest rate setting meeting last month. Central bank policy makers predict the rate of interest rate hikes faster than they said before. This undoubtedly reassures some investors that the central bank will control inflation without eventually having to react late and raise interest rates further. future.

In general, however, these measures may simply reflect the old adage of the market “not responding, they overreacting.”The initial reaction of the bond market to just a few months Higher than expected inflation It can be said to be too much. The latest wage data in the United States shows a month-on-month increase of only 0.3%-consistent with the standard for anemia before the coronavirus outbreak. In the best case, interpreting economic statistics is difficult; the volatility and uncertainty caused by the pandemic make it more difficult than ever.

Concerns about economic growth and the latest sell-off of long-term Treasury bonds may also prove to be an overreaction, which has been corrected again as more data on the strength of the pandemic recovery begins to emerge.



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