Home » Posts tagged 'reflation'
Tag Archives: reflation
Forget Draghi, Crude Matters
Forget Draghi, Crude Matters
Despite Mario Draghi’s supposedly misinterpreted comments earlier this week, there are global indications that the best of this round has already been reached. Policymakers are always going to claim things are improving, that much is given. But there is tremendous difference between that and what has occurred, especially if it is indeed rolling over worldwide.
The earliest indicators for China’s economy in June signal that the manufacturing sector may be poised to decelerate, while other challenges loom in the second half of this year.
Small- and medium-sized enterprises showed the lowest level of confidence in 16 months, a gauge of manufacturing drawn from satellite imagery slumped, and conditions in the steel business remained lackluster.
At the center of the story is as always crude oil. There are, of course, direct effects of the ups and downs (more down than up) in the energy market. As the price of it rises there will be more exploration, drilling, production, and transportation required. Some of that has already happened, and accounts for some part of this economic recuperation.
The larger effects are in sentiment, or at least the kind they might measure in PMI’s or surveys. It bears repeating that when the global downturn arrived in early 2015, economists worldwide assured everyone not to worry. They had several plausible reasons for taking that position, flawed as they were. Overall, however, especially from a US perspective the big contrary indicator was WTI.
Dismissing it as a mere “supply glut”, actual economic agents especially in industry would have known better. Even if these important marginal changes weren’t completely understood, it didn’t take any special knowledge or complex series of regressions to link the crash in oil to reduced demand for goods globally. In that way, oil became the best real-time indicator for economic demand and its overall direction no matter what Janet Yellen would say.
…click on the above link to read the rest of the article…
Why China Is About To Bring The Global Reflation Rally To A Halt
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
…click on the above link to read the rest of the article…
