The core principle of the "reflation trade" was, well, reflation.
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Only time will tell if we are in an actual reflation cycle or just a reflation expectation binge.
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In stocks, the "reflation trade" sectors of financials, materials and industrials have been the clear leaders, with defensive and interest-rate sensitive sectors lagging: This is reflation!
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Equity excitement — U.S. equities particularly — seems everyone's favorite reflation play.
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Revival, reflation and reform should be the mantra going ahead.
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Yet despite the lack of surviving commodity price pressure, reflation remains.
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As such, reflation becomes a cause and effect of asset appetite.
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Reflation is going global as the second quarter of 2017 begins.
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Tax cuts and infrastructure spending and the reflation theme move the markets.
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He said to stick with gold and silver in a reflation environment.
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I call it the growth and reflation trade," Cote told "Squawk Box.
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But broadly, the scepticism about the so-called reflation rally seems justified.
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The Trump reflation sentiment has played a key part in this strength.
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"Revival, reflation and reform should be the mantra going ahead," he added.
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That, he said, would confirm the reflation trade and the market rally.
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By "reflation" I mean expansion, as in expanding economies, not necessarily inflation.
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"The global reflation picture is nearly on the Fed's doorstep," McDonald said.
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Reflation is alive and well, and encouraging economic stability across the world.
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Global reflation and ample liquidity have consistently trumped politics in recent years.
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"To some extent there is concern about the reflation trade but actually the pause in reflation had started a few weeks ago," UBS strategist Manik Narain said, pointing to a recent retreat in cyclical shares as an example.
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Also, according to BlackRock, Europe is set to benefit from U.S. led reflation.
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But markets are showing signs of that they expect reflation under Mr Trump.
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But with Dow 20k and the rampant reflation trade, the losses couldn't hold.
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Those wedded to the "reflation" trade of want to see the curve steepen.
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Now, thanks to the yen's recent strength, even the reflation is in doubt.
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There are other gnawing worries, like, is the reflation trade a head fake?
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"They are betting on reflation, while I am skeptical of it," he said.
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To be sure, it's uncertain whether the reflation trade will truly pick up.
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Investors have rotated into macro-themed "reflation" investments, such as industrials and commodities.
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Theme 1: Broadening reflation We believe the reflation trade—overweighting cyclical equities—has room to run, especially outside the U.S. We see an inflection point in growth, inflation, and monetary policy, and markets are catching up to these fast-changing dynamics.
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Medecin says you need to own oil services groups, and other beneficiaries of reflation.
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They argue that "the 'reflation trade' is tiring" and are neutral on stocks. Really?
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Rising interest rates, sector rotation and reflation throughout 2017 remain major themes for Johnson.
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Stocks gained Tuesday, even though the reflation trade lifting industrials and banks also faded.
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Wells Capital's James Paulsen said some of the so-called reflation trade is overdone.
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The fight between the reflation camp and the complacency camp is far from over.
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This reflation trend will continue to dominate as the main macro theme for markets.
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At the same time, reflation and higher yields in general should also support financials.
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This is somewhere between a reflation trade, but much more importantly a liquidity trade.
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"I think there were three forces at play ... reflation, realignment and relevering," he said.
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"We could see reflation and that would bring us back to normal," Jacobsen said.
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"I would be comfortable with any 'reflation' that might come from this," he said.
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Hogan said the pattern was also the same in what was a broader reflation trade.
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Reflation trades helped support oil prices, as did hopes for a thaw in Sino-U.
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The reflation recipe is tried and tested: Equities rise, bonds dip and the dollar rallies.
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Rather he promised reflation in order to make up the ground lost during the downturn.
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Reflation trades helped steady oil prices, as did hopes for a thaw in Sino-U.
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Those "reflation" bets have already taken some steam out of emerging markets since mid-October.
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"That is the risk… it is the materialization of this reflation narrative," he said Wednesday.
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The reflation trade centers around stocks that benefit from higher inflation and yields, including financials.
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Two elements in the Trump agenda are fundamentally positive for banking profitability: deregulation and reflation.
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Wilson said on CNBC's Fast Money that Wednesday's rally was fueled by the reflation trade.
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"Clearly investors are not buying into the reflation story," Mizuho's rates strategist Antoine Bouvet said.
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Industrial metals advanced on talk of demand from China and the whole global reflation trade.
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On reflation days, Treasury yields can gain some altitude and lift bank stocks with them.
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Yet strong equity returns globally, including Japanese small caps, suggest our reflation theme is intact.
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"To us, it is WHEN, not IF we should fade this recent reflation trade," it said.
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There is talk of a "reflation trade", with tax cuts in America pepping up global growth.
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"We think the best 'reflation' plays lie in being overweight energy and financial equities," they added.
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The "Trump trade" has become the reflation trade, with investors buying cyclical stocks and selling bonds.
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Zhou said the country could use monetary policy to address domestic reflation and various external pressures.
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"Clearly there's a sensation that the reflation trade is coming back on the agenda," Cau said.
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Remember, the reflation trade was happening before Trump was elected, even if it gained steam after.
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The usual macro suspects, like spiking wages and commodity prices, do not presently explain reflation expectations.
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Expectations remain elevated for policy-driven reflation to deliver what markets have spent four months pricing.
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The reflation trade refers to stocks that could stand to benefit from higher inflation and yields.
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He also said the reflation trade, lifting small-caps, energy and banks recently, is a positive.
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Reflation trades also supported oil prices, as did hopes for a thawing in the Sino-U.
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Currie's outlook for commodities boils down to three R's: reflation, reconvergence of global growth and releveraging.
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Financial stocks, often the reapers of reflation trade, posted gains with the financial index 0.3 percent higher.
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The reflation winners are clearly the oil exporters, commodity exporters and cyclical markets, and higher yielding markets.
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"And if you have tax cuts in Germany, it should be positive for reflation assets," he said.
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Questions still hung over the 'reflation' trades that had lifted markets since Donald Trump became U.S. president.
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He specifically likes reflation trades, and thinks housing, master limited partnerships and industrial metals should do well.
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The bond market has priced in economic weakness and priced out the post-election Trump reflation trade.
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The dollar has become a play on reflation, and its decline is linked to that, Katzive said.
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Source: FactSet But the reflation trade has been under siege lately because of the decline in rates.
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Citigroup economists, in a note this week, questioned whether "Trumponomics" and reflation have already run their course.
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In recognising that reflation and reform go hand in hand, Abenomics is an unusually coherent economic strategy.
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Questions still hung over the "reflation" trades that had lifted markets since Donald Trump became U.S. president.
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The two underpinnings of this rally — the Trump Rally, and the reflation trade — are both very much intact.
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"The election fall out has driven the reflation trade to new highs," BAML analysts said in a note.
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He said reflation was already taking place in some countries and there had been "obvious changes" this year.
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That inflow, notably, happened alongside massive official buying of bonds by central banks seeking to engineer a reflation.
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Consumer stocks may benefit from a "reflation" rally Of course, rather than pick individual winners based on their specifics, it may be simpler to just bank on the idea that broad tax reforms will help businesses and consumers alike, thus boosting discretionary spending and continue the "reflation" of growth in America.
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Bond yields globally have risen recently on Trump "reflation" bets and growing signs of strength in the global economy.
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Investors are talking about a Trump-inspired "reflation": the president-elect promises to embark on a public-spending boom.
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"The reflation trades are being driven by two main things," said Neil Williams, chief economist at fund manager Hermes.
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This will disappoint those hoping for a sustained period of reflation that could help to erode corporate debt burdens.
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In line with the reflation theme, interest rates have risen, consistent with the market's outlook for improved economic growth.
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Just look at the trend since the election: This is a very definition of what the reflation trade looks like!
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Jumping on the reflation trade, stocks rallied hard, smashing records across the board Wednesday and setting up for further gains.
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The reflation trade to me looks intact and compared to other regions I think that Europe is ready to go.
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"Three Rs - Reflation, Restructuring and Regulations - will make 2017 a pivotal year," the analysts said in a note to clients.
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Tech giants coining money in a deflationary innovation boom are thriving alongside cyclical "reflation" sectors feeding a global production surge.
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That's either in harmony with retail investors' legendary ability to pick the top or a canny bet on global reflation.
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The "reflation trade," or the bet on an expanding global economy, can be seen in the estimates for cyclical companies.
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RBC Capital Markets told investors the market will rise the rest of year primarily due to reflation and an improving economy.
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UBS on Wednesday upgraded the sector to 'neutral' from 'underweight', citing rising reflation expectations and a seemingly more benign regulatory environment.
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HS: Yes, certainly, I mean, meeting the US bank leaders, as I've done yesterday, there's huge optimism about the reflation trade.
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Investors are not just expecting a rally — we've already had that — they are expecting some kind of global reflation to occur.
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And Emmanuel Cau, executive director of global equity strategy at JP Morgan & Co in London, said the reflation trade was back.
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Caterpillar is the second best-performing Dow stock in 2017, and Ross credited to the company's success this year to reflation.
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Koesterich and other investors saw that reflation narrative driving stocks' strong performance since Donald Trump's election last November as U.S. president.
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Value, high beta and smaller stocks began falling in a rotation labeled "an unwind of the 'Trump reflation' trade," Kolanovic said.
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"Fundamentally, the reflation trade that we've seen since October has played itself out," Thiel told reporters at a conference in London.
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Strengthening reflation also reinforces our view that we have seen the bottom in bond yields globally after a multi-decade slide.
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Draghi, of course, is playing the old game of talking both sides of his book, but Peter Tchir, macro strategist for Brean, told me the markets were reacting to that magic word, reflation: "The bond markets are clearly focusing on the 'new news' of Draghi talking reflation rather than the 'old news' that inflation is muted," he told me.
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Because there have been long periods in the last two months when the reflation trade has just sat there and done nothing.
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"We believe European equities should benefit in such a reflation scenario, absent (of) any other shocks," BlackRock strategists said in a note.
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U.S. government debt prices were mixed on Friday as the post-election reflation trade regained traction, while investors digested key economic data.
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It is possible that markets reckon American reflation will boost global demand, leading to higher expectations for demand growth and inflation elsewhere.
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It was already moving higher but the expectation of reflation, less financial regulation and a reviving economy will benefit all of them.
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Interest rates in similar periods have been depressed for long periods but the reflation has resulted in huge losses for bond holders.
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Central Banks Loosen Their Monetary Policies As China's producer price inflation continues to fall, so, too, will the outlook for global reflation.
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But if we truly have a reflation trade and cyclicals are the place to be, then watch for a commodities charge in 2017.
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We're back to bonds' pain and stocks' gain again today, as the "reflation rotation" wheel turns and momentum serves as its own reward.
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At the Bank of Japan's most recent meeting, one policymaker said that the prospects for growth and reflation stand at a "critical juncture".
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The main issue has been whether it means more protectionism, what it means for metals, and whether there is going to be reflation.
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"This sector has been relatively flat year to date, while other reflation assets have actually traded higher," said "Fast Money " trader Tim Seymour.
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"'Reflation' is the theme du jour following Donald Trump's unexpected emphasis on infrastructure spending in his acceptance speech on election night," Himmelberg wrote.
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We have also been warned about the narrow leadership in the S&P thanks to tech, now that the reflation trade is flagging.
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Benchmark U.S. bond yields topped 2300 percent for the first time since October 22.4, with analysts saying the OPEC agreement boosted reflation expectations.
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He does like energy, tech, financials and industrials, and he said the next phase of the reflation trade is taking hold after consolidation.
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So far, the pan-European STOXX 600 index has rallied almost 1 percent in 2017, as the so-called "reflation" trade gathered pace.
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Wall Street's three main indexes also reached record intraday highs as investors focused again on the U.S. reflation trade after a brief lull.
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"You can buy cyclical stocks in Asia and benefit from the reflation trade," said Sat Duhra, an Asia fund manager at Henderson Global Investors.
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Homebuilders are very cheerful, but we think there's a very good chance that housing will be the first victim of the Trump reflation story.
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The bond market, even with Wednesday's post-Fed sell-off, has priced in economic weakness and priced out the post-election Trump reflation trade.
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Reallocation to assets positioned for higher growth and higher inflation is the portfolio expression of reflation — unless those assets are oil and other commodities.
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Benchmark U.S. bond yields topped 22.4 percent for the first time since October 23, with analysts saying the OPEC agreement had boosted reflation expectations.
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"The impression ... is that the Trump reflation trade may be getting back on track," said Shaun Osborne, chief FX strategist, at Scotiabank in Toronto.
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"You have a confluence of the reflation trade, rising rates and the tax cut trade," said Martin Small, U.S. head of iShares at BlackRock.
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"Bottom line: investors continue to position for reflation via TIPS over munis, HY (high-yield) over gold & Japan over U.S. equities," BAML's analysts said.
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Benchmark U.S. bond yields topped 210 percent for the first time since October 20.3, with analysts saying the OPEC agreement had boosted reflation expectations.
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"If U.S. real rates rise, long USD/JPY offers the best risk-reward irrespective of the direction of break evens/reflation trades," the note said.
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Whether you're talking infrastructure/construction, banks, aerospace/defense, or industrials like Caterpillar, the reflation trade is very evident: So why is there so much whining?
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As discussed in this week's CNBC PRO column, yields need to resume their rise for the cyclical/financial/reflation trade to lift the indexes again.
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Trader Tim Seymour said he's slowly adding to his positions in industrials, metals and other "reflation trades" —sectors that do well when growth picks up.
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Equity investors should brace themselves to walk the tightrope between "stagflation" and "reflation," according to Peter Oppenheimer, the chief global equities strategist at Goldman Sachs.
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The acceleration of this "reflation" trade, hinging on quicker growth and fiscal stimulus, sent a spasm of withdrawals from bond funds and inflows into stocks.
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The Trump 'reflation trade' that favored banks and sectors linked to infrastructure spending, among others, was back Thursday, with the S&P 500 financial sector .
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Financials and commodity-related sectors, the biggest beneficiaries of the reflation trade that accelerated in the aftermath of Trump's election win were the biggest drags.
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"We're not holding our breath on today's tax plan...prompting markets to seriously reprice U.S. reflation prospects," said Viraj Patel, ING currency strategist in London.
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ECB Chief Mario Draghi recently said that reflation was coming back, but in the same speech he also said inflation was more muted than expected.
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But the dominant "America First" theme in Friday's inauguration speech has raised concern about the priority such policies will take, leading investors to rethink reflation trades.
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"Fundamentally, the U.S. banks are simply being used as a vehicle to express reflation and 'Trumponomics'," wrote Chris Weston, chief market strategist at IG in Melbourne.
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Markets are on high alert for signs Germany and other governments will use such cheap borrowing rates to support the reflation policies of their central banks.
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And Michael Hartnett, chief investment strategist at BofA Merrill Lynch, wrote in a note a couple weeks ago that the reflation trade was far from over.
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But that kind of thinking may do more damage to your wealth than it's worth, for a simple reason: No two reflation trades are created equal.
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The reflation trade — the rise in interest rates and the slow, near-synchronous improvement in economies in the U.S., Europe, Asia and Latin America — is continuing.
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However, the FTSE's heavy weighting in defensive sectors that underperform during times of reflation has seen it stay in a 300-point range since the election.
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Banking and mining, which had seen the greatest gains from the 'Trump trade' as investors bet on reflation and infrastructure spending, were the biggest sector fallers.
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What's more is the so-called "reflation trade" many investors saw as kicking off in November actually began in the beginning of 2016, according to Sluymer.
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For Stockman, those "four no's" consist of a combination of no escape velocity, no earnings growth, no dry powder from the central banks and no reflation.
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"Event risk does seem to be minimal for now so that reflation theme is coming back," said Orlando Green, European fixed income strategist at Credit Agricole.
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Therefore, the narrowing yield curve, falling commodity prices, and C&I loan growth, which is in the cardiac care unit, all belie the Trump reflation scenario.
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"We've seen this reflation trade and that's correlated with tax reform," said Jeff Zipper, managing director of investments at the Private Client Reserve of U.S. Bank.
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The rally in global equity markets since Trump's election has been driven by a reflation trade, on the hope for increased infrastructure spending and tax cuts.
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In terms of sectors, investors favored "Trump trade" areas that would benefit from reflation that would come with President Donald Trump's pro-growth agenda getting implemented.
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The biggest risk is a sudden surge in the dollar, which would hurt the reflation trade and likely lead to more capital outflow from Emerging Markets.
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European stocks were down 0.1 percent with mining shares, the biggest beneficiaries of the reflation rally spurred by Trump's election win, the biggest drag on the indexes.
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Any expectations that a softer Brexit stance and fiscal expansion could arise from the election could renew global reflation trades and push bond yields up, analysts said.
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"Equities may not benefit from the reflation as much as we would like, owing to already elevated valuations and rising rates capping upside," the Goldman note advised.
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The "reflation trade" appears to be on for a variety of reasons, not the least of which is negative interest rates in many countries around the world.
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"If this was a strong positive, we would be talking about the Trump reflation trade," said Jim Caron, fixed income portfolio manager at Morgan Stanley Investment Management.
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"Reflation is positive for commodities, but palladium, although it is sensitive to global economic conditions, has quite a specific demand source — cars," Macquarie analyst Matthew Turner said.
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"You can make a case to get back into that reflation trade," Link said as stock in the industrial materials and financial sectors fall to lower levels.
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T – formerly darlings of Abe's reflation policies – have returned to levels when BOJ Governor Haruhiko Kuroda set in motion a burst of massive stimulus in April 2013.
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Global equities have rallied since Donald Trump was elected U.S. President in November, driven by a reflation trade on hopes for increased infrastructure spending and tax cuts.
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Financial stocks in the U.S. and at home have made the most of the recent rally as they are seen as a natural hedge against reflation trade.
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Flows to exchange-traded funds now show market players looking for more dependable growth sectors than the reflation areas that dominated the earlier part of the year.
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After a disappointing few months, it's "time to revisit the reflation trade," BofAML's London-based investment strategist James Barty and his team wrote in a Friday note.
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As the primary fear factor in markets transitions from deflation to reflation, the Federal Reserve will be forced to abandon gradualism and hike rates faster than expected.
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"The Australian dollar remains very well supported as the reflation dynamics continue to run high, with both China and U.S. inflation indexes printing higher than expected," Innes said.
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A weakening euro, improving economic growth globally and U.S. led reflation were key reasons for BlackRock strategists to adapt their outlook for European equities from neutral to overweight.
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"We have to be a bit wary about the reflation trade going on at the moment, especially with the political risks coming up," said ING strategist Benjamin Schroeder.
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The Trump 'reflation trade' that favored banks and sectors linked to infrastructure spending, among others, was back Thursday, with the S&P 500 financial sector up 1.983 percent.
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And if this kind of "reflation populism" improves the near-term prospects for America's economy, it may dissuade Mr Trump from resorting to full-strength "anti-trade populism".
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So far, the market has celebrated the reflation trade and has not focused on the protectionist comments from Trump that spooked some of Wall Street before the election.
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The Trump 'reflation trade' that favored banks and sectors linked to infrastructure spending, among others, was back Thursday, with the S&P 500 financial sector up 1.2 percent.
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Gabriela Santos, global market strategist at JPMorgan Asset Management, credits the market's strength to the global reflation trade rather than President Donald Trump and his pro-growth agenda.
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"Market views on reflation, realignment and re-levering have driven a premature surge in commodity prices we believe are not sustainable," the team led by Jeffrey Currie wrote.
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"The prospect you're not going to get reflation in the U.S. and China might slow further, that's something where people would have to evaluate the magnitudes," he said.
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"The market had given up on the Trump reflation trade and this is coming back with a bit more detail on tax plans," said Commerzbank analyst Rainer Guntermann.
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One market in which this divergence has played out is the bond market, where U.S. Treasury yields have risen in "reflation" trades since Donald Trump's election in November.
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Dennis Davitt, a partner at Harvest Volatility Management, echoes Wolff's sentiments about Goldman but believes the revival of the reflation trade could benefit some of the other names.
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In recent weeks, despite record highs in the markets and hopes for a rebound in economic growth in 2020, the bond market has not confirmed the reflation trade.
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Investors believed in a "reflation trade", with tax cuts from Donald Trump's administration leading to faster American growth, to which the Federal Reserve would respond with higher interest rates.
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John Bilton, global head of multi-asset strategy at JPMorgan Asset Management told CNBC that rising growth and the shift towards reflation reinforces the view on stocks against bonds.
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"The real question is...how much are real yields a function of Trump reflation versus a retreat from central bank (quantitative easing) measures?" noted Deutsche Bank strategist Alan Ruskin.
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Monetary policy, he said, could be left to handle reflation, prevent an outbreak of financial risks and counter the spillover effects of an interest rate upcycle across the Pacific.
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Selling traditionally less volatile positions and buying traditionally more volatile assets generally pushes up indexes and sends a reflation signal to those who infer a trend from equity markets.
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Bianco disagrees with the view that the trading into energy, financials and industrials in the past several sessions indicates that the "Trump" trade or reflation trade is back on.
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"Reflation trends make a flexible and unconstrained approach to fixed income paramount," he said, adding that there were still areas of value in high yield and investment grade bonds.
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"For the most part, those indicators demonstrate that the global 'reflation and growth stabilisation trades' have already come a long way," he wrote in a research note to clients.
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Asian markets have been strong this year as reflation remained a key theme for the region, said Andrew Swan, head of Asian and global emerging markets equities at BlackRock.
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"Central bank reflation efforts have been more successful at fuelling wealth creation for a subset of the consumer and less effective in stimulating broader income growth," according to UBS.
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The reflation trade saw E-mini futures for the S&P 500 add another 0.5 percent and spread betters pointed to solid opening gains for the major European bourses.
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Banking stocks were set for their biggest weekly losses in more than a month, down 0.5 percent on the day, another sign that so-called reflation trades were losing favour.
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Goldman Sachs, one of the most influential banks in commodities, and another spread bull, has also counselled traders to be patient ("Patience is working, but reflation requires time", April 12).
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"Some wind has been taken out of the reflation trade, at least for the short term," said Jeff Zipper, managing director at the Private Client Reserve, U.S. Bank in Florida.
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This is adding to the "oversupply trade" that is now taken over as the dominant motif in the energy trade, replacing the "reflation trade" that has dominated for several months.
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But the experience of QE since 25.3 suggests that this is too slow a road to reflation to justify the way that it distorts asset prices and upsets currency markets.
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The Trump trade, the reflation trade (led by oil) and the U.S. economy improving story are three cornerstones of the global rally that began in the middle of last year.
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"We have stronger conviction, not so much about the reflation trade in the U.S. but the resynchronization trend that's going on," said Ron Sanchez, chief investment officer at Fiduciary Trust.
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REUTERS - Markets rose for the third straight week, supported by good Q3 earnings and on hopes of global reflation trade getting revitalised on U.S. President Donald Trump's pro-growth comments.
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Wall Street traders have notoriously short attention spans, and it's showing in the latest round of whining, this time around the idea that the Donald Trump "reflation trade" is winding down.
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The real reflation trade began in the summer, when interest rates finally began rising and better economic data began materializing in many countries, much of it driven by higher commodity prices.
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Rising commodity prices have fueled increased inflation expectations in Europe, and sparked the so-called "reflation" trade since last summer as investors rushed into shares of banks, industrials and resources firms.
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The reflation trade also saw futures for the S&P 500 and Dow Jones industrial add another 20143 percent after the Dow chalked up best week in five years last week.
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"We are starting to see some pull back on the U.S. reflation trade and stabilisation in US rates," said Fan Cheuk Wan, head of Asia investment strategy at HSBC Private Bank.
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New bond supply from the bloc also put some upward pressure on yields, as did a renewed emphasis on global reflation trades in the wake of ebbing political risks in Europe.
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The bet was that there would be a reflation trade from his tax and stimulus programs, and bonds would weaken, with yields moving inversely higher on rising interest rates and inflation.
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"(Caltex is) a unique retailer with energy exposure, and of course reflation with oil prices going up is going to increase their margins for the energy side of things," said Somasundaram.
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Be in no doubt, a float of the yuan will be a sharp weakening and we will once again be talking, not about a Trump reflation, but about global deflationary forces.
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On Friday, both Bank of America Merrill Lynch and Fundstrat issued reports touting value stocks such as financials and a stronger U.S. dollar, an investment strategy known as the reflation trade.
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Consequently, the Richard Bernstein Advisors portfolio strategist encourages investors to get into cyclical sectors like tech, financials and consumer discretionary given that he believes earnings are going through a reflation period.
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The skeptics think the market's knee-jerk reaction to the reflation theme and financials is temporary and will eventually dissipate in favor of more rational investing based on long-term fundamentals.
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Spreading global reflation is driving a long-awaited rebound in global corporate earnings, with the sharpest recoveries seen outside the U.S. This synchronized global recovery in corporate earnings is supporting equities.
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"There were record nondealer awards because investors have bought into the reflation trade idea and are willing to pay up for inflation protection," said Ian Lyngen, head of rate strategy at BMO.
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Yes. Kernen: No, you never answered me whether it's weird to see the bond markets so well behaved when so many people are suddenly worried about reflation or-- you know-- deficit spending.
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Economists have not built much extra growth into their 2017 forecasts from the Trump programs, though markets were lifted in a "reflation" trade on the hope that the economy would be boosted.
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US activity defied the malaise, rising by 22005% as investors traded around the US presidential election and positioned for the Trump reflation trade, which is expected to provide support to equity markets.
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Reflation relates to stimulating an economy that has just suffered a dip in the business cycle, and Oppenheimer believes that the global economy looks poised to enter one of these two scenarios.
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"I would just add that the Trump trade is really just a hyperactive, accelerated version of the reflation trade ... we're just getting the extra boost" from prospects for business deregulation, Azzarello said.
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And she thinks that the reflation trade can still be strong enough to propel stocks higher even if the Trump agenda fails, although the magnitude of the move will likely be different.
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It's all about the reflation trade: Energy, Materials, Industrials, Financials, and Consumer Discretionary lead the earnings gainers in the U.S. and Europe, and Tech is also strong in the U.S. and Japan.
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"The recent selloff is mostly related to a stirring of the reflation trade following the announcement by the Trump administration of the long-awaited tax reform proposal," Mitsubishi analyst Jonathan Butler said.
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They cut their rating on autos to "neutral" and added they now favor defensive sectors such as utilities and telecoms which have significantly lagged in the reflation trade underway since last summer.
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"The confluence of low volatility, a fluid reflation narrative and signs of complacency in rates & credit markets have created positioning and correlation extremes for equity managers," wrote Boroujerdi in the Wednesday report.
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Long-term investors have since started to trade on Trump's promises of tax cuts and higher infrastructure spending that will stimulate U.S. growth and pull the world economy along, or the reflation play.
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Yes. JOE KERNEN: No, you never answered me whether it's weird to see the bond markets so well behaved when so many people are suddenly worried about reflation or-- you know-- deficit spending.
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"Rural reflation, infrastructure spending, streamlining of the goods and services tax, direct tax reforms and the consolidation of public sector banks are likely to be key priorities," Varma wrote in a Monday note.
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"To some extent, people were pinning their hopes on a global reflation trade getting a boost from fiscal stimulus in the States," said Chris Scicluna, head of economic research at Daiwa Capital Markets.
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Investors are underestimating the positive impact of the synchronised reflation trend that is helping to lift global asset prices, he said, noting that Europe is also benefiting from substantial European Central Bank stimulus.
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"It's not just the risk of protectionism that we are worried about in emerging markets, it is the combination of that risk along with reflation which is undermining the story," van Nieuwenhuijzen added.
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Bank stocks have been the most sensitive to signs a promised tax reform package would materialise, reigniting the "reflation trade" which sent stock markets surging after the election of U.S. President Donald Trump.
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Tellingly, shares of brokerages and property firms - formerly darlings of Abe's reflation policies - have returned to levels when BOJ Governor Haruhiko Kuroda set in motion a burst of massive stimulus in April 2013.
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"We continue to be positive on the 'golden age' for semis, where cyclical reflation, secular drivers and discipline will drive earnings growth and attract new investors," analyst Vivek Arya wrote in the report.
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The dollar index, which measures the greenback against other major currencies, is seen ending more than 23 percent lower in 2017 as the reflation trade seen at the start of the year faded.
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"The reflation trade is starting, and there's going to be a lot of money that's going to need to come out of these areas such as health care and the utility stocks," said Johnson.
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"We are seeing the strong performance as very much a continuation of the themes that have been ongoing - reflation trading, the move into hard assets, and dollar-based (strength)," ING analyst Oliver Nugent said.
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Investors in the space were betting on sure-fire economic growth, reflation around the world, deregulation, and interest rate and balance sheet normalization following the U.S. election, he wrote in an email to CNBC.
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But those "reflation trades" have since come under selling pressure as Trump has concentrated his efforts on areas other than economic reform, and that selling intensified after the healthcare bill's failure late on Friday.
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"You see the market giving back a bit from yesterday, it's taking some profits off the reflation move," said Jeff Zipper, managing director at the U.S. Bank Private Client Reserve in Palm Beach, Florida.
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Across fixed income allocations, fund managers added to their exposure of British debt, raising it to 2.1 percent, while the collapse of the U.S. reflation trade saw holdings of Treasuries rise to 24.4 percent.
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Shares in utilities and more defensive stocks also suffered as investors piled into a 'reflation' trade, favouring shares in mining and construction companies expected to benefit from Trump's plans to up spending on infrastructure.
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Chris Weston, chief market strategist at IG Index, said the current investment environment has been driven by the "central thematic of reflation, nationalism and de-regulation" coming out of U.S. President-elect Donald Trump's administration.
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Morgan Stanley took Japan equities to overweight from underweight, making it the top regional pick globally, replacing the U.S. "Global reflation and U.S. dollar strength favors Japan equities," it said in a note dated Sunday.
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This growth-stock dominance ended a dramatic, but brief, resurgence of the value style in 2016, most of which occurred after the election and went by the names Trump trade, reflation trade or cyclical rotation.
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"It's more of a pause than a big reversal in the reflation trade," said Ed Campbell, portfolio manager at QMA, a $116 billion multi-asset manager wholly-owned by Prudential Financial, in Newark, New Jersey.
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This will drive a shift to fiscal reflation in the near term and increases our confidence that the normalisation of US monetary policy will progress faster over the next year following Wednesday's interest rate rise.
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Expectations Trump will boost fiscal spending and lift U.S. growth have fuelled a global reflation rally over the past month, with the recent deal by world oil producers to cut output adding to the momentum.
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LONDON (Reuters) - Donald Trump's first week in charge in the United States was the best for bond funds in four months, a good one for reflation enthusiasts and for emerging markets, fund flow data shows.
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LONDON, March 29 (Reuters) - The reflation trade that has pushed government bond yields sharply higher over the past six months has come to a halt, BlackRock's head of global bonds Scott Thiel said on Wednesday.
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Fed Governor Lael Brainard has coined another term for it - "opportunistic reflation" - that captures the spirit of some of the more complicated systems debated this year without the same risk, complexity or strict policy commitment.
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Again, we do think that it is a very undervalued group and it will benefit from … more certainty with China, the reflation trade and also manufacturing booming in other parts, not just China, as well.
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Fed Governor Lael Brainard has coined another term for it - "opportunistic reflation" - that captures the spirit of some of the more complicated systems debated this year without the same risk, complexity or strict policy commitment.
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The dollar hit a two-week high against the yen as investors focused again on the U.S. reflation trade which dominated the aftermath of Donald Trump's election as President in November, but has stalled this year.
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The so-called "reflation trade," which has lifted U.S. and UK stock markets to record highs, began in earnest last quarter, as bond yields rose on bets that more spending on infrastructure would spur economic growth.
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Lael Brainard, a Fed governor, has suggested that the central bank could embrace "opportunistic" reflation: allowing temporary price increases from tariffs or other sources to go unopposed, proving that the Fed is serious about its target.
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Meanwhile, a Deutsche Bank report published Wednesday showed skepticism over the prospect of reflation given a number of factors, perhaps most notably, that analysts at the bank believe global growth is set to weaken further still.
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Bets that Trump's planned tax cuts, infrastructure spending and other pro-business measures would push up growth and inflation had been behind a reflation trade that propelled the dollar to 21-year highs earlier this year.
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"The main lesson to be drawn from comparing crises ... is that great financial shocks in the end beget not secular stagnation but secular reflation," writes Jonathan Wilmot, head of macroeconomic research at Credit Suisse Asset Management.
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The dollar weakened to a five-week low versus the yen and other currencies, hit by a loss of confidence in the U.S. reflation trade a day after a news conference by President-elect Donald Trump.
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But the healthcare bill was pulled from the floor of the House of Representatives on Friday because it failed to draw enough support from within Trump's Republican Party - throwing so-called "Trump reflation" bets into reverse.
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El-Erian said there's a hope in the stock market that the liquidity trade hands off to the reflation trade or betting on investments that would benefit from an increase in inflation and stronger economic growth.
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If Trump's proposed policies such as tax cuts and deregulation were to become reality and boost the economy as promised, the reflation trade may take over as the biggest driver of the market, El-Erian said.
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Nonetheless, Goldman Sachs warned investors against buying into this rally in commodities as current market views on "reflation, realignment and re-levering have driven a premature surge in commodity prices that we believe is not sustainable. "
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"An important part of the rally in European banks is related to global reflation and its impact on interest rates and yields," Gaurav Saroliya, director of global investment strategy at Oxford Economics, told CNBC via email.
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The fact so few expect a sudden rebound in those rock-bottom yields shows investors aren't yet convinced that global reflation and an acceleration in growth is at hand, leaving prospects for stock markets very uncertain.
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"Global reflation is emerging as the core theme for 2018, particularly as we see a continued synchronised global recovery," said Andrew Swan, Head of Asian and Emerging Markets Equities at BlackRock in a note to clients.
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Bets that Trump's planned tax cuts, infrastructure spending and other pro-business measures would push up growth and inflation had been behind a reflation trade that propelled the dollar to 14-year highs earlier this year.
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The economic policies likely implemented by President-elect Donald Trump should boost areas of the market most sensitive to reflation, lower regulation and a strong dollar, according to JPMorgan, which on Wednesday released its 2017 playbook.
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"Data and market behaviour are consistent with our global reflation theme," strategists at Morgan Stanley, led by Hans Redeker, said in a note, pointing to strong Chinese factory data, corporate earnings and surging South Korean exports.
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Several aspects of that global reflation trade have already unwound — inflation expectations have fallen, the dollar has given back its post-Trump gains against major currencies, and commodities — led by oil — are on the back foot.
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Other signs of global reflation include a rebound in inflation expectations from mid-2016 lows, a bottoming out in core inflation and wages, and a synchronized pick-up in economic activity indicators and corporate earnings estimates.
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Adding to the boost for Hong Kong stocks, foreign funds, which reduced exposure to Asia late last year as the U.S. dollar strengthened, are now returning, drawn both by expectations of global reflation and China's steadier economy.
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European stocks should also benefit from the reflation trade — the boost U.S. markets are seen getting from lower taxes and new government spending on infrastructure — which has been driving U.S. stocks since President Donald Trump was elected.
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Bond prices might also have been pressured by a speech from influential Fed Governor Lael Brainard who said the central bank could encourage "opportunistic reflation" by allowing inflation to run above its 2% target for some years.
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"Trump-based reflation pricing remains the major driver in the U.S. stock markets, and thirsty investors are waiting for more details on Trump's corporate tax cut plans," said Ipek Ozkardeskaya, senior market analyst at London Capital Group.
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The equity allocation among the bank's private clients ticked lower and remained below its all-time high, while ETF flows showed investors shifted money back into deflation assets this month, seeking diversification away from the reflation trade.
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"The market is showing greater reluctance to push on with reflation-type trades without more details of proposed fiscal spending plans and the economic data to back it up," said analysts at ANZ in a research note.
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Huw van Steenis flagged this is one of the key reasons, alongside high expectations for the widely anticipated reflation trade, why U.S. bank chiefs have reflected tangible optimism during the annual meet at the Swiss mountain town.
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" However, "we view the recent rise in gold prices as a market-based signal that central banks are providing more reflation (via lower interest rates and bond yields) than is currently necessary to support the global economy.
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"The industrial commodities are already beginning to roll over, so if they do indeed pull-back on their stimulative efforts, it could have an impact on the 'reflation' trade everybody is talking about right now," he added.
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An ebbing of the reflation trade that was based on U.S. President Donald Trump's tax and spending promises, and a run of negative U.S. economic surprises, have prompted some investors to review the mix of their portfolios.
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"Ultimately, outside of the U.S. there is reflation happening and data is looking strong, so perhaps it's time to just take some dollar longs off the table," said UBS Wealth Management currency strategist Geoffrey Yu in London.
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A "carefully calibrated" package for fiscal stimulus put together in "the right way," combined with a boost to productivity and supplemented by some deregulation policies, would offer a more benign reflation for the U.S. economy, Eskesen said.
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In September, we saw firmer global inflation readings, higher bond yields, higher oil, a turnaround in the dollar, central bankers talking more hawkishly, and -- the cherry on top -- prospects for tax cuts in the U.S. That's reflation.
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LONDON/CAPE TOWN (Reuters) - Mining stocks are outpacing oil-related peers in a "reflation rally" sparked by U.S. President Donald Trump's election and the outperformance will last for at least another year if history is a guide.
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The aim should be to end fiscal austerity, imposed in 13 out of 14 leading advanced economies between 2011 and 2015, and prioritize reflation, full employment and decent jobs, rather than tackling inflation and cutting government debt.
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The JGB market showed little reaction to the government nominating on Monday a reflation-minded economist and an executive from a megabank that has been critical of radical monetary easing to join the BOJ's nine-member board.
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"But there are some good opportunities outside of the U.S." Cote called this shift to growth and reflation as economic drivers the "new world order," citing the long term, stimulating effects of President-elect Trump's proposed tax cuts.
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But for now it seems the bull case rests on "reflation" – a strong patch of the economic cycle, global manufacturing indicators climbing, commodity prices on the rise, and some U.S. policy stimulus as a kicker to these trends.
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Any such measures could trigger a "reflation" trade similar to the one many investors put on in the United States after Donald Trump was elected and expectations rose he would introduce inflation-boosting tax cuts and fiscal spending.
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Investors had piled into TIPS as a part of the reflation or "Trumpflation" trade on the notion the U.S. economy would accelerate from a rapid enactment of tax reform, looser regulations and infrastructure spending once Trump took office.
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If the bulk of the Trump reflation trade is built on the premise that "massive" tax reform is a done deal, then investors would be wise to take some risk off the table until the goods are delivered.
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In another sign of the reflation trade, breakeven rates - the gap between yields on five-year U.S. debt and a matching tenor in inflation-protected securities - was at two-month highs, indicating markets are expecting inflation to accelerate.
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And while there is no doubt the election of Donald Trump as U.S. President has acted as an accelerator, there is more to this explosive price action than as yet vaguely-defined promises of infrastructure spending and reflation.
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Indeed, for all of the talk of "reflation" trades based on now-fading expectations for sweeping U.S. tax cuts and deregulation, the global picture for consumer price inflation hardly looks much stronger than it did a year ago.
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Two hallmarks of the "Trump trade" were rising interest rates and a strong dollar as expectations for tax cuts and infrastructure spending under the new president caused traders to bet on reflation after a long period of stagnant growth.
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The intellectual battle is between those who believe that the "reflation trade" which preceded, but was much bolstered by, the election of Donald Trump, has still plenty of momentum behind it, and those who believe there is trouble ahead.
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LONDON (Reuters) - Global investors poured money into stocks, emerging markets and corporate debt in the week to Wednesday, as they continued to chase the Trump-induced reflation trade, data from Bank of America Merrill Lynch (BAML) showed on Friday.
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But in line with the enthusiasm for reflation trades, almost $5 billion moved into riskier high-yield bonds - the most in nine months - while inflation-linked securities, TIPs, received $300 million for their 25th week of inflow out of 27.
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But in line with the enthusiasm for reflation trades, almost $5 billion moved into riskier high-yield bonds — the most in nine months — while inflation-linked securities, TIPs, received $300 million for their 25th week of inflow out of 27.
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"The world believes all of a sudden in 'Trumpflation' and there's nothing to stop them - there's a religious belief in it," Bloom told CNBC's Squawk Box on Tuesday, referring to the anticipated reflation of the economy under President-elect Donald Trump.
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The reflation trade - bets on stocks that benefit from a pickup in growth and inflation such as banks and machinery makers - are still pinned to growth in the United States, the world's largest economy and a driver for global growth.
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But China's reflation cycle in producer prices has probably peaked, and will trend down further, which could drag on China's economic growth in the second half of the year, said Betty Wang, senior China economist for ANZ in Hong Kong.
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The Nikkei soared to a near 20.4-21/2552.80-month high of 2400,20.4 early in January at the peak of the "Trump trade," when the yen slumped against the dollar on bets of large fiscal stimulus and reflation measures under Trump.
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That puts the European broker at odds with BAML who upgraded their stance on resources shares to "overweight" on the view that the global reflation trade has more room to run and recent weakness was, in fact, an opportunity for investors.
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The MSCI All-Country World was up 1.5 percent, surpassing its prior peak set last month before growing risks of a Brexit-like shock in the French election and doubts about the Trump administration's policies interrupted the so-called reflation trade.
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A popular long-term government bond fun, the iShares 20+ Year Treasury ETF (TLT), rose on Tuesday for its first winning session since November 4th as traders bet the Donald Trump post-election reflation trade may be taking a pause.
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Goldman says ride the 'reflation' trade on Trump's victory by selling bonds, buying gold Goldman Sachs told investors to sell government bonds and buy gold as a hedge due to the prospect of future inflation from Donald Trump's economic agenda. 4.
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" Goldman's commodity analysts noted that while last year commodity prices were driven lower by deflation, divergence and deleveraging, current market views on "reflation, realignment and re-levering have driven a premature surge in commodity prices that we believe is not sustainable.
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Analysts have said the 'Trump trades' related to tax reform and infrastructure have been priced out of specific stocks and sectors, but it's harder to determine how much the broader idea of a reflation trade is still boosting the overall market.
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PARIS (Reuters) - JP Morgan Cazenove equity strategists on Monday backed favoring the German stock market over the French one, partly due to risks around the French presidential election and on prospects that Germany would benefit more from global economic reflation.
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The market is also hurt by growing worries that China's economic recovery, and thus the "reflation trade", is ending, despite data showing the economy grew 6.9 percent in the first quarter, better than expected and the highest since July-September 2015.
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"We continue to recommend Small-caps as a 'catch-all trade' for its high cyclical, reflation and tax policy exposures, as well as lower sensitivity to ongoing trade risk," Dubravko Lakos-Bujas, J. P. Morgan's equity strategist, wrote in the note.
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"Much of Trump "reflation" trade has been unwound and in order for the S&P to move beyond 2,400 we need to see something on the policy front, without that any movement beyond 2,400 will be difficult to sustain," Lovell added.
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The recent postelection surge toward 20,000 has been driven by what investors are calling a reflation trade, or a bet that the economy under President Trump will benefit from proposed tax cuts and a move toward more aggressive government spending.
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The forces driving the inverse tech-bank action involve investors' expectations either for accelerating U.S. growth and rise in interest rates — the so-called reflation trade — or more slow-growth/low-rate action that reflects deflationary pressures and accommodative central bankers.
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"After backsliding for all of the last week, the Trump-reflation trades are suddenly back on again, all stemming from the President's promise of a 'phenomenal' tax plan to be released within 2-3 weeks," said strategists at Macquarie in a Friday note.
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The dollar sank to a five-week low below 114 yen on Thursday and was on course for its worst week since November, hit by a loss of confidence in the U.S. reflation trade which has dominated markets since Donald Trump's election.
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TOKYO (Reuters) - Japan's government nominated a reflation-minded economist and an executive from a megabank which has been critical of radical monetary easing to join the central bank's nine-member board, in a choice seen as maintaining the status quo on monetary policy.
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"The reflation trade continues to work in earnest, this time Trump has taken a back seat and OPEC and Russia have taken the initiative and lit the fuse under the oil price," wrote Chris Weston, chief market strategist at IG in Melbourne.
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"The underlying bigger story in the last 24 hours is that Trump has put the reflation trade back on the front foot by talking about a tremendous tax program," said Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York.
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"So there's lots of good news, interest rates are going to stay low forever, we are going to have reflation, economic prosperity, but one of those things might not hold true then you have a 10 to 15 percent correction, " Armstrong said.
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"The sharp rise in the prices index plays into the global 'reflation' theme with investors pointing to rising input prices in China and elsewhere as signaling a potential return to higher inflation rates," said Andrew Hollenhorst, an economist at Citigroup in New York.
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"Gold's failure to break convincingly beyond key psychological and technical levels for now is likely acting as a challenge to sentiment, especially considering how reflation hopes and U.S. fiscal optimism recently came under some pressure," she said in a UBS note published Monday.
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"The geopolitics around Libya and Venezuela, alongside the possible reflation of risk appetite on positive U.S.-China trade talks may well pull the market out of its morning doldrums," Harry Tchilinguirian, global oil strategist at BNP Paribas, told the Reuters Global Oil Forum.
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Energy up 93.7 percent Financials up 15.7 percent Materials up 24.0 percent Technology up 12.3 percent Industrials up 11.7 percent Source: Thomson Reuters Another reason earnings are holding: The global reflation trade is real as earnings are improving in Europe as well.
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"That is hurting the dollar because it's triggering people to pare back their reflation bets on the U.S." The uncertainty over Trump's policies and the Fed's next move pushed U.S. Treasury prices higher by raising the safe-asset appeal of U.S. debt.
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"It strikes me as tricky to intervene in pursuit of an imprecise benefit; if one tries too hard to use low rates to get reflation, you might end up, not for the first time, with excess leverage and frothy valuations," Barkin said.
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Lael Brainard, a Fed governor, recently suggested that the central bank could seize on what she calls "opportunistic reflation" to prove to investors and consumers that it is serious about getting price gains back to — and even, for a time, above — 2 percent.
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LONDON/NEW YORK, June 16 (Reuters) - Global equities have recovered rapidly after tumbling this month as technology firms sold off, suggesting investors remain confident about the last of the Trump reflation trades but are taking a more discerning approach to stock-picking.
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"While a less stable government might ordinarily lessen support for that currency, the market is also mindful about whether this could potentially call into question the longevity of the Abenomics reflation agenda," analysts from the National Australia Bank wrote in a Tuesday report.
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Everyone on Wall Street (Stanley Druckenmiller, JPMorgan, Goldman Sachs … the list goes on and on) is talking about the possibility of reflation under President Trump if his tax reform, deregulation, fiscal spending and protectionist promises are turned into policy by a Republican-led Congress.
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While year-to-date Nasdaq gains of more than 2269 percent have outperformed the wider market, an ebbing of the Trump reflation trade and a slide in U.S. economic surprises deep into negative territory have prompted some investors to review the mix of their portfolios.
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"The current and ongoing breakdown in the U.S. dollar is representative, driving some short-term and nascent deleveraging of legacy 'reflation' trades, with DXY through the psychological 100 level," said Charlie McElligott, managing director and head of U.S. cross-asset strategy at RBC Capital Markets.
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"There are a lot of uncertainties regarding the Trump reflation trade after the failure last week to overhaul Obamacare and uncertainty in Europe with French elections coming up and the official start today of Brexit negotiations," said Carsten Fritsch, analyst at Commerzbank in Frankfurt.
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" CHARLIE MCELLIGOTT, MANAGING DIRECTOR AND HEAD OF US CROSS-ASSET STRATEGY AT RBC CAPITAL MARKETS: "The current and ongoing breakdown in the U.S. dollar is representative, driving some short-term and nascent deleveraging of legacy 'reflation' trades, with DXY through the psychological 100 level.
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"By committing to achieve inflation outcomes that average 2 percent over time, the Committee would make clear in advance that it would accommodate rather than offset modest upward pressures to inflation in what could be described as a process of opportunistic reflation," Brainard said.
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With the U.S. economy humming along at around a 2 percent growth in gross domestic product (GDP) and with productivity virtually flatlining over the past eight years, a Trump reflation could reinvigorate the broader global economy, which still catches a cold when America sneezes.
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Higher consumer prices — which are up 2.5 percent year over year, the highest in almost 5 years — indicates that the so-called "reflation trade" is very much in place, a trade that is lifting prices on everything from commodities to finished goods, and lifting profits as well.
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"For the moment, the reflation narrative seems strong and any evidence that the Trump plan is not working may not be available until 21," said Russ Mould, Investment Director at AJ Bell, who said it was unwise to bet against the momentum of the market in 217.
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The dollar index put in its worst weekly performance in more than two months last week as investors reconsidered the whole "reflation" trade - that Trump's promises of debt-funded fiscal spending and lower taxes would stoke inflation and drive the Federal Reserve to raise interest rates faster.
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The "reflation," or "Trumpflation," trade that drove financial markets after Donald Trump's surprise U.S. presidential election victory last November made a comeback on Wednesday as the unveiling of Trump's long-promised tax overhaul revived bets that markets would benefit from both faster economic growth and inflation.
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Additionally, she noted that the Singapore dollar NEER was "bearing the brunt" of markets unwinding the Trump reflation trade; that trade had pushed the U.S. dollar higher before market concerns about U.S. President Donald Trump's apparent inability to push his agenda through Congress erased the greenback's gains.
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The cryptic message behind this plunge is that the post-crisis period — or market "regime" — of stall-speed growth has ended and has segued into a new regime characterized by the reflation of growth, pricing, confidence, business investment, profits, interest rates, tax revenues, and the stock market.
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"The risk remains that the larger reflation trade will unwind with the market likely to reprice sharply in the medium-term if Trump and Congress fail to pass anything meaningful in the next few days," BMO Capital interest rates strategist Aaron Kohli wrote in a research note.
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The start of 2017 on currency markets has been dominated by disappointment with U.S. President Donald Trump's early fiscal and tax policies, turning back a reflation trade on the dollar that had bet on swift moves to encourage repatriation of capital to the United States and boost spending.
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JPY= The start of 2017 on currency markets has been dominated by disappointment with U.S. President Donald Trump's early fiscal and tax policies, turning back a reflation trade on the dollar that had bet on swift moves to encourage repatriation of capital to the United States and boost spending.
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"Even though the policy expectations of President-elect Trump may have sparked hopes of 'reflation' in the U.S. economy, the current sell-off in Treasuries is overdone and underestimates the negative impact his trade policies might have on global trade and growth," said Stefan Koopman, market economist at Rabobank.
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"The big upward revision to November and a 2.9 percent increase in average hourly wages are going to be enough to let markets keep their faith in the Trump reflation trade and the U.S. Federal Reserve plans further interest rate increases," said Russ Mould, investment director at AJ Bell.
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"Given the strong relation between raw materials PPI and import prices (available later this month), the dip in raw materials PPI indicates the reflation trade is at least stalling, if not outright dying for Asia (and the world)," Vaninder Singh, Asia economist at NatWest Markets, wrote in a note.
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At these levels, Johnson gives retail a "neutral" rating because he and his firm see better returns in basic materials, energy and the technology sectors, "as the reflation trade has been a little bit stronger right now — but there are some good-looking stocks inside of retail, to be fair."
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Well, let's put it all together…the sector isn't just contending with technology disruption, but the interest rate outlook is changing thanks to Trump reflation lifting yields, which has huge ramifications for the valuation of insurance investments and the pace of economic growth drives demand for insurance products and pricing.
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While any immediate fears over a rise in populism and protectionist policies in Europe have so far been overshadowed by a scramble to get in on the 'reflation' trade, European equities saw $1.64 billion of outflows in the week ending Wednesday, according to data from Bank of America Merrill Lynch.
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As he explained in his most recent investors newsletter: In our January letter to investors, we shared our view that 2017 would be a year characterized by reflation globally, an end to central bank easing, and a US economy juiced up by the Trump administration's increased fiscal spending and tax reform.
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NEW YORK (Reuters) - The U.S. dollar hit its lowest level in five weeks against a basket of currencies on Thursday and was on course for its worst week since November, hit by a loss of confidence in the U.S. reflation trade a day after a news conference by U.S. President-elect Donald Trump.
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The so-called reflation trade that had sent the dollar to a 14-year high last month was based on Trump's campaign promises of increased fiscal spending, lower taxes, and deregulation, all of which are inflationary and would likely drive the Federal Reserve to raise interest rates faster than its normal pace.
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"The global reflation trade continues to be associated with a weaker greenback, which in turn, has amplified the market's sensitivity to any posturing by the European Central Bank and the Bank of Japan to end their ultra-loose monetary policies," DBS Group Research strategists Eugene Leow and Philip Wee said in a note.
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"Markets are pricing that the reflation trade is going to work, they're pricing the Trump trade into reality and we see a lot of headwinds coming up for that," he said, adding that he expected the pressures to start hitting equities in the second half of the year rather than in the coming months.
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But reflecting on the past 48 hours - and the euphoria in financial markets around the "Trump Trade" on an expected ramp up in infrastructure spending, tax cuts and deregulation of the banking sector - I cannot help but wonder whether this reflation trade is exactly what the doctor ordered for the continually ailing European economy.
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"There is upside potential but we have demographics, we have productivity problems, so I suspect we shouldn't get carried away about an extraordinary recovery but instead focus on finally having come out of this deflationary era and seeing some degree of recovery and reflation which should be positive particularly again here in Europe," he asserted.
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" Speaking in Washington, Fed Governor Lael Brainard floated a similar approach, telling members of the National Tax Association that if prices rise, because of higher import costs, for example, the Fed could take advantage of the situation by encouraging an "opportunistic reflation," and "communicate that a mild overshooting of inflation is consistent with our goal.
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"The Trump reflation story came in with a lot of hype but actually when he came in we're seeing a much more dislocated agenda and the outlook for some of the more bold fiscal-focused plans seems to be much more complex than expected," said Peter Rosenstreich, head of market strategy at Swissquote Bank.
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" Speaking in Washington, Fed Governor Lael Brainard floated a similar approach, telling members of the National Tax Association that if prices rise, because of higher import costs, for example, the Fed could take advantage of the situation by encouraging an "opportunistic reflation," and "communicate that a mild overshooting of inflation is consistent with our goal.
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DH: What we mean by 'reflation' is not any huge improvement globally, but we do think that base effects in the second part of the year will start to push higher, and we have the view that Brent will be above $50 a barrel in the second half of the year, and above $60 a barrel next year.
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"This is more of a stabilization (than a change in direction), because the moves have been quite large, but equally we've already seen that plenty has been priced in, in terms of this reflation story from the U.S. So the bar for further dollar upside is higher at this point," said ING's chief EMEA currency strategist, Petr Krpata.
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But there are other, more direct relevant excuses for this little spasm of selling: Investor sentiment had reached a rolling boil, switchbacks in global currencies pressured the "reflation" trade, a slight shortfall in ADP jobs numbers helped put a bid in Treasuries, and perhaps the mechanical flow of fresh cash into stocks at the start of the year has been put to work.
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They may keep that lower rate in place even if the risks to the economy from the virus pass in order to test just how weak U.S. inflation has become and to encourage what some policymakers have termed "opportunistic reflation" - a chance set of events that might help the Fed hit its long-missed 2% target for the pace of annual price increases.
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"We have been cautious on TIPS breakevens, especially front-end, for a few weeks now as we believed that once we cleared CPI base-effects from oil and general reflation theme fades as it largely has in bond market that (breakeven rates) would reprice and get dragged lower by the rally," said George Goncalves, head of U.S. rates at Nomura Securities International in New York.
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Goldman Sachs economics research, June 2017The rocky road to reflation, Goldman Sachs economics research, May 2017Productivity paradox v2.0: the price of free goods, Goldman Sachs economics research, July 2019The Amazon effect in perspective, Goldman Sachs economics research, September 2017Economic research note: global disinflation shock to linger, though not like 2015-903 JPMorgan Chase, July 2019Some simple tests of the globalization and inflation hypothesis, by Jane Ihrig, Steven B. Kamin, Deborah Lindner, and Jaime Marquez, Federal Reserve International Finance Discussion Papers, April 2007The dog that didn't bark: has inflation been muzzled it was it just sleeping?
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Furthermore, the elevated risk of a correction is not so much due to politics — as is widely believed — as growth dynamics, according to Peter Oppenheimer, speaking to CNBC Tuesday "We think the trigger is probably not going to be so much politics … But more really the fundamental peaking of growth momentum which has been so supportive for the reflation trade in recent months, at a time when U.S. rates are starting to increase again, coupled with the very high valuations that we already have," he explained before noting that this would not, however, signify the beginning of a complete reversal in shareholders' fortunes.
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Global: up 28 percent U.S. up 2.4 percent Euro area: up 1.9 percent China: up 6.6 percent India: up 7.2 percent Japan: up 1.2 percent Source: OECD These stronger economic numbers are showing up in the U.S. stock market, as sectors associated with growth outperformed the in September: Energy up 9.8 percent Banks up 63 percent Materials up 3.3 percent Industrials up 3.6 percent S&P 500 up 1.5 percent That reflation trade is expected to continue into the fourth quarter, with double-digit earnings growth expected in industrials and materials, and energy expected to continue to rally as well.
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