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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)
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I hear a lot about reflation, but something is not very clear to me. As I understand it, reflation works as follows:
- Some stimulus (endo or exo) boosts demand and employment
- Wages increase and as a consequence prices increase as well (costs)
- Inflation kicks in
- Central banks raise interest rates to calm things down
- Bond prices fall
- 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?
