“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%.

hike

reflation

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).

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.

boom

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:

  • Nikkei up 1% to 19,437.98
  • Topix up 1% to 1,553.69
  • Hang Seng Index up 1.2% to 23,994.87
  • Shanghai Composite down 0.2% to 3,212.99
  • Sensex down 0.6% to 28,166.37
  • Australia S&P/ASX 200 up 0.9% to 5,809.07
  • Kospi up 0.5% to 2,083.86
  • STOXX Europe 600 up 0.4% to 371.54
  • German 10Y yield rose 0.6 bps to 0.372%
  • Euro down 0.2% to 1.0554 per US$
  • Brent Futures down 0.5% to $55.67/bbl
  • Italian 10Y yield rose 0.8 bps to 2.233%
  • Spanish 10Y yield fell 1.0 bps to 1.657%

Meanwhile, it’s different week, same old story for crude. Tuesday’s API data again looked decidedly supply-ish (to employ one of my favorite quips) leaving traders to wonder what Wednesday’s EIA numbers will look like.

  • API Said to Report U.S. Crude Supplies Rose 9.94M Bbl Last Week
  • Cushing -1.27m
  • Gasoline +717k
  • Distillates +1.5m

crude

US futs are mixed and as far as data, watch the CPI print today. It’s one of this week’s most important numbers.

  • 7am: MBA Mortgage Applications, prior 2.3%
  • 8:30am: Empire Manufacturing, est. 7, prior 6.5
  • 8:30am: US CPI MoM, est. 0.3%, prior 0.3%
  • 8:30am: US CPI Ex Food and Energy MoM, est. 0.2%, prior 0.2%
  • 8:30am: US CPI YoY, est. 2.4%, prior 2.1%
  • 8:30am: US CPI Ex Food and Energy YoY, est. 2.1%, prior 2.2%
  • 8:30am: US CPI Core Index SA, prior 249.9
  • 8:30am: US CPI Index NSA, est. 242.5, prior 241.4
  • 8:30am: Real Avg Weekly Earnings YoY, prior 0.23%
  • 8:30am: Real Avg Hourly Earning YoY, prior 0.8%
  • 8:30am: Retail Sales Advance MoM, est. 0.1%, prior 0.6%
  • 8:30am: Retail Sales Ex Auto MoM, est. 0.4%, prior 0.2%
  • 8:30am: Retail Sales Ex Auto and Gas, est. 0.3%, prior 0.0%
  • 8:30am: Retail Sales Control Group, est. 0.3%, prior 0.2%
  • 9:15am: Industrial Production MoM, est. 0.0%, prior 0.8%
  • 9:15am: Capacity Utilization, est. 75.4%, prior 75.5%
  • 9:15am: Manufacturing (SIC) Production, est. 0.2%, prior 0.2%
  • 10am: NAHB Housing Market Index, est. 67, prior 67
  • 10am: Business Inventories, est. 0.4%, prior 0.7%
  • Mortgage Delinquencies, prior 4.52%
  • MBA Mortgage Foreclosures, prior 1.55%
  • 4pm: Net Long-term TIC Flows, prior $30.8b
  • 4pm: Total Net TIC Flows, prior $23.7b
  • 10am: Fed Chair Yellen Delivers Semi-Annual Testimony to House Panel
  • 1pm: Fed’s Harker Speaks in Philadelphia
  • 1:10pm: Fed’s Rosengren to Address NY Assoc for Business Economics
  • 7:15pm: Fed’s Dudley Speaks in New York

Happy trading.

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