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Charts & Reports
Charts & Reports

On day of terrible jobs news, biggest bond sell-off since AP called U.S. prez election for Joe Biden To be clear this is intraday data. so not the biggest daily increase - but the biggest 30 minute "POP" "bad news is good news"... (More)

Reflation trade?

I hear a lot about reflation, but something is not very clear to me. As I understand it, reflation works as follows:

  1. Some stimulus (endo or exo) boosts demand and employment
  2. Wages increase and as a consequence prices increase as well (costs)
  3. Inflation kicks in
  4. Central banks raise interest rates to calm things down
  5. Bond prices fall
  6. Stocks might fall (because highest rates make them less attractive) but generally rise as a reflexion of the reflationary growth (steps 1,2), and commodity and value stocks tend to be the winners

Now, bond price fell and value stocks / commodities won.

However:

  • There was an incease in demand, but I don't think wages have risen, probably because consumer goods are not produced domestically. Hence no real inflation
  • The view on RV seems that monetary policy is dead (i.e rates will not increase in a forseable future.

Does that mean that the reflationary trade has no legs?

Whichever way this goes, seems...important. #UBFutures #meltupormeltdown