“Bigly”: Reflation Is Back As Dollar Rises, Global Stocks Rally, Oil Eyes EIA Data

Apparently, reports of the reflation meme’s demise were greatly exaggerated.

It wasn’t too long ago when traders were beginning to wonder if the Trump trade was dying on the vine.

One super awesome, extra bigly, “phenomenal” tax plan promise and one hawkish Janet Yellen later, and reflation is alive and kicking. Here’s SocGen’s morning take:

Janet Yellen warned against the perils of the Fed dithering which, in the light of the last few years, is a bit rich. She also pointed out the Fed can’t see much of a relationship between wage growth and CPI inflation. If the Phillips reflects the relationship between wage growth and unemployment, then it’s in decent shape — the inverse correlation between the two is alive and well. From the 1960s onwards however, economists started using the Phillips Curve to describe a relationship between unemployment and inflation, and that relationship is far weaker. Which has allowed the Fed to dither. If ‘the curve’ is the Phillips Curve, then the Fed isn’t behind it because it’s not really a curve at all. Whether keeping rates too low for too long into an economic cycle is dangerous, is a completely different question. Meanwhile, markets are pricing a 32% chance of a March hike now, versus a 30% chance two days ago, and the odds of a rate hike by May have moved above 50%.

The VIX is now plumbing last week’s post-phenomenal tax plan, 10 handle lows.

And so, with the year’s consensus trades (long USD, short USTs) back – and back “big league”- global stocks had the green light to go…well… to go green.

The Nikkei was up sharply on the session on the back of a weaker yen and a stronger dollar. Toshiba continued to tumble in the wake of what we can definitively call a “nuclear” debacle (figuratively and literally).

LOL better late than never I guess…. pic.twitter.com/UxweBpCBj2

— Heisenberg Report (@heisenbergrpt) February 15, 2017

In China, the PBoC injected CNY393.5b in liquidity via MLF ops on Wednesday. The central bank also strengthened the yuan fix by the most in three weeks.

Recall that on Tuesday we learned credit growth in China is alive and well (despite a slowdown in RMB loans), suggesting that the ongoing tightening via repo rates may not be sufficient to offset the credit extension juggernaut Beijing has helped build over the years. Remember, things can go south in a hurry following a debt boom period, which is why you see this ongoing tug-of-war between tightening to rein in financial risk and keeping the credit spigots open to ensure GDP growth remains buoyant.

In Europe, stocks are higher pretty much across the board, with banks leading the way. Credit Agricole is up something like 4% following earnings.

Here’s a full rundown of overseas markets: