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Reflation trades are suppressed as the Fed restructures markets

The “reflation trade” that has dominated the financial markets since the coronavirus vaccine was released last year was chosen after the Federal Reserve unexpectedly changed its approach to inflation.

Commodity prices have plummeted as US state-owned companies have risen sharply after Fed officials this week reacted to unexpected inflation to push forward their sentiments. start raising interest rates. The dollar was going to be the best week since last September last Friday.

The Fed’s reshuffle reflects a sharp decline in investors who have rushed this year to buy securities that could benefit from rapid economic growth, betting that the combination of more recent economic and financial and global economic outcomes released at the end of Covid-19 could cause prices to rise.

The program of pivot from central bank officials doubting the amount of inflation that the Fed is willing to tolerate. The central bank also said it would begin negotiations soon to pay $ 120bn a month.

“If at any time the Fed encounters a rise in prices and comes up and puts it down, why should a stockbroker worry about a long-term rise in inflation?” says Michael Pond, chief of research on inflation at Barclays. “When money is deeply affected by inflation, the market needs to be more volatile.”

The U.S. stock market crashed Friday morning, the S&P 500 down by 1%, although precious metals have risen slightly since yesterday’s losses and yields have not changed much.

The descent followed comments from James Bullard, President of the St Louis Fed, about the prospect of further interest rates earlier than the estimates suggest. In an interview with CNBC he predicted a move to the end of 2022 in the face of rising prices.

The US dollar rose again on Friday, with the dollar index weighing more against 1.9% a week.

Krishna Guha, vice-chairman of Evercore ISI, said Thursday’s violent protests came as some business people were forced to stop advertising in the markets when they protested.

Manufacturing equipment, which many retailers see as a barrier against rising prices, has struggled to sell this week. The Bloomberg Commodity Index has fallen more than 4.5% so far this week, and is heading for the worst week since the epidemic began.

Copper, used for everything from refrigerators to wind turbines, was down about 8% a week while timber, which had a staggering meeting behind the growing US housing market, fell by about 15%.

The goods are also burdened by the strong US dollar, which makes green goods more expensive for those who have money. The steel agreed with China’s idea of ​​exporting some of its steel products to help raise prices.

“Recent dollar strengths have led to the sale of machinery in the coming markets and manufacturing. . . however, our foreign exchange advisers see the impact of the Fed meeting as an overstatement, “said Jeff Currie, chief research officer at Goldman Sachs.” He goes on to predict US weakening growth, due to inflation and global economic growth. all over the world. “

The so-called US precious prices – which are often low-cost, impartial companies interested in economic growth – fell another 1.3% on Thursday to add to the decline they experienced on Wednesday, the day the Fed announced. The list of MSCI global stocks had already fallen 1.2% on Thursday.

The Russell 2000 index for US small companies fell 1% on Friday – the biggest change in more than a month – while the price of gold fell to $ 1,773 for two months on Thursday, slightly higher than on Friday.

Some products have benefited, however. The demise of the Federal Reserve’s ability to allow inflation out of hand helped spark a conference in the US Treasury Past and other securities that benefit from disinflationary challenges, such as closely related organizations, US dollar and many modern weapons.

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US economic yields for the 30-year period have fallen sharply since February, and were up 2.06% on Friday, down 2.21% before the Fed meeting. Yields fall as prices rise.

The changing nature of the world’s largest markets is a sign that women are beginning to question the Fed’s commitment to its new pricing policy, according to Guha. As of last year, the US central bank has said it will allow inflation to exceed 2% which is aimed at curbing the economy.

Since the start of the Fed’s meeting on Wednesday, however, inflation prospects have been accelerating. A 10-year explosion in the US, an estimate expected for the next decade, fell 2.25% on Friday, down 2.39%.

Despite the move by the Post-Fed, some businesses are maintaining trust with the restorative business. Mark Dowding, chief financial officer at BlueBay Asset Management, says the Fed’s idea of ​​buying what it will eventually use will weigh heavily on compulsory prices and force it to harvest more, adding that the central bank has responded more strongly than two months’ expectations on his orders.

“Strategies for raising inflation will not change, as will economic growth,” he said. “This has been frustrating, but it has become one of the times we act like the money we have to stick to our guns.”


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