Right, so a persistent theme in the incoming commentary/trader chatter over the past couple of weeks (and today especially) is the idea that with yields and the dollar waylaid by Hurricane Donald and the policy gridlock his ham-handed approach to being President has exacerbated (if not caused), things can’t possibly get any worse.
That is, surely we’ve seen the near-term bottom in yields and surely the greenback can’t just keep falling. After all, the U.S. won’t default in any real sense and at this point, any progress on tax reform would represent an improvement from our current predicament.
And while we’re sympathetic to that, it’s not playing out in reality and geopolitical jitters tied to Kim and his DIY H-bomb kits aren’t helping matters.
Of course all of the above only reinforces the notion that the Fed will be loathe to pull the rug out by leaning overtly hawkish and that, in turn, only reinforces the deflationary mood.
So in a tribute to this burgeoning (and worsening) dynamic, we present the following simple story count chart from BofAML’s Barnaby Martin which shows that “deflation” has once again surpassed “reflation” in terms of what’s trending…
Via BofAML
Yet, manic buying of credit now — almost 6yrs after the rally began — reflects, we think, a recent shift by investors in their outlook for rates. It’s as if the market is starting to give up on the hopes of robust inflation down the line, and embrace a much “lower for longer” central bank rate cycle.
Interestingly, chart 1 shows that at the start of the year “reflation” began to surpass “deflation” as the big trending topic. But in April the reflation story began to lose steam (as Trump trades faltered). Such has been the reversal that last month, “deflation” once again surpassed “reflation” as the trending story.
Or, summed up: Albert Edwards was right.
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