Bloomberg.- Rumors of the reflation trade’s demise seem to have been at least a little exaggerated, as investors shifted to equities from bonds.
Global stocks continued a rally before data this week provides detail on the strength of U.S. consumer prices, and ahead of speeches from a range of Federal Reserve officials. Treasuries fell after data showed America’s biggest creditors ditching holdings. Iron ore surged and copper climbed, buoying commodity producers.
A rebound in the latter half of last week saw some of this year’s angst recede after a crescendo of speculation that the so-called Trump reflation trade was withering. Stock investors pushed the S&P 500 Index higher for a third week, while Trump’s promise of a “phenomenal” tax plan snapped the longest losing streak for the Bloomberg Dollar Spot Index since 2010.
“We see equities as better positioned in 2017,” according to a report jointly-authored by Mihir Worah, chief investment officer for asset allocation at Pacific Investment Management Co. The bond giant’s Total Return Fund trimmed holdings of U.S. government debt to the lowest since September. “Protectionism and a fiscal boost, combined with a U.S. economy operating close to full employment, raise the possibility of higher inflation and larger inflation surprises.”
What’s coming up in the markets:
– Inflation will be back on the radar for most investors this week, with CPI numbers from the U.K. due Tuesday and data from the U.S. coming on Wednesday.
– Fed Chair Janet Yellen faces Congress for two days of testimony this week and the dollar could rally if she suggests a March increase is still in the cards, Bloomberg strategists said.
Here are the main market moves on Monday:
– The MSCI All-Country World Index climbed 0.3 percent as of 7:24 a.m. in New York, to the highest level since May 2015.
– The Stoxx Europe 600 added 0.6 percent, heading for a fifth straight gain for the longest winning streak of the year. Commodities producers rose the most, adding to Friday’s rally.
– S&P 500 Index futures added 0.2 percent.
– The Bloomberg Dollar Index gained less than 0.1 percent after last week’s 0.7 percent advance.
– The yen slid the most among major currencies, weakening 0.4 percent to 113.71 per dollar, after its biggest weekly decline since mid-December. The euro was little changed at $1.0638.
– The yield on 10-year Treasury notes added three basis points to 2.44 percent.
– European government bonds were mixed after the European Commission boosted its outlook for euro-area inflation. The rate will average 1.7 percent in 2017, 0.3 points higher than previously forecast, but still below the European Central Bank’s goal, the commission said. The yield on 10-year German benchmarks increased two basis points to 0.34 percent.
– Iron ore gained 4.9 percent. The raw material used to make steel is trading at the highest in more than two years, climbing 16 percent over the past five sessions.
– Copper added 0.7 percent, extending Friday’s jump that was the largest since 2013 on the London Metal Exchange.
– Crude slipped 0.4 percent to $53.67 in New York, after rallying 3.2 percent over the previous three sessions.
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