U “reflection trade”Which has dominated the financial markets since the emergence of coronavirus vaccines last year was hit after the Federal Reserve unexpectedly signaled a change in its position on inflation.
Investors are quick to buy securities that could benefit from faster inflation, arguing that the combination of an exceptionally easy monetary and fiscal policy and a global economy emerging from its Covid-19 bloc would drive up prices.
However, after inflation data came in unexpectedly strong in recent months, the Fed earlier this week advanced its guidance on when it could begin to raise interest rates, and has signaled that it will soon begin discussing when to refinance its $ 120 billion bond purchases per month.
U unexpected pivot of the central bank it has beaten some of the most popular inflation trades, such as smaller ones, gold and commodity prices, and stimulated other assets that are languishing lately.
“Surprise shifted further from the Fed for risk management reasons Wednesday hit financial markets around the world on Thursday, with violent movements across and into asset markets as investors liquidated hedge funds. ‘inflation and deflation of inflation,’ said Krishna Guha, vice president of Evercore ISI.
Guha said the liquidation of exploited hedging trades made it difficult to draw firm conclusions about the Fed’s changing market views as they could amplify market movements, but noted that investors could begin to question the central bank’s commitment to its more flexible environment. inflation targeting regime.
Natural resources have suffered the biggest blow since the relaxation of inflationary trades. Bloomberg’s commodity price index fell 3.6 percent Thursday, its biggest one-day drop in more than a year, with WTI oil falling 1.5 percent.
So called US values values – often cheaper, unfavorable companies that are more sensitive to the pace of economic growth – have dropped another 1.3 percent Thursday to extend the initial decline they suffered Wednesday, the day of the announcement. Fed. The MSCI index of world stocks was already down 1.2 percent Thursday.
The Russell 2000 index of the smallest U.S. companies fell 1.1 percent – the largest investment in more than a month – while the price of a troy ounce of gold fell to a two-month low of $ 1,773. Thursday, before slightly slowing down on Friday.
Other assets have benefited, however. The fading odds that the Federal Reserve will let inflation get out of hand have helped spark a long-term rally in U.S. Treasuries and other securities benefiting from deflationary pressures, such as highly valued corporate bonds, u US Dollar and very large technological stocks.
Matthew Hornbach, head of Morgan Stanley’s global macro strategy, said the Fed also ran the risk of unleashing another “taper tantrum” along the lines of the market turmoil it caused when, in May 2013, indicated that it was initiating the post-financial settlement stimulus crisis.
“The risk of Taper Tantrum is increased,” Hornbach wrote in a note. “The falconry change in… Appropriate policy assessments raises legitimate questions about the timing and pace of the decline, and the pace of growth afterwards.”