Why China Is About To Bring The Global Reflation Rally To A Halt
Previously we reported that iron ore prices – having almost doubled in the past year and launching a global reflationary wave – are on the verge of tumbling as the world becomes increasingly aware that China has a “13,000 Eiffel Tower” record inventory problem.
And while we previously discussed the immediate adverse implications for iron ore bulls, the conseqences for the global economy could be far more material.
Conveniently, in a note this morning, BMO’s Mark Steel looked at the same issue, focusing on the big picture implications.
“Iron has already broken below its 50d MA, the BMO analyst writes, and has already broken below trade support, and it is now poised at the bottom of the channel, so, yes, here is another potential “pre-breakdown” view – Exhibit 1.”
He then notes that “that kinda looks a lot like inflation expectations, which if anything are just a tad ahead, as they have already broken to the downside in the US, and also in Canada, and also in Germany, and also in France, and also in Japan, and also in Mexico. You get the picture, the inflation trade like a fifty-year-old doing the breakdance for the first time. For the reflationists, it’s not a pretty picture – Exhibit 2.
The conclusion is troubling for the global reflation rally:
We don’t want to make up any new theory, about what drives asset prices. Oh wait, yes we do, and indeed did, with the record-setting
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