With everyone suddenly back on the deflation (or un-reflation, or disinflation) bandwagon, is it possible that the crowd will once again be caught wrongfooted? According to RCB’s Charlie McElligott the answer, not surprisingly, is yes and in his latest market note, the cross-asset strategist says ignore the noise coming out of the Fed and focus on China instead. He explains why below:
SUMMARY:
I Further build the case for a tactical factor-reversal trade (1-3 month scope), where on account of a number of ‘higher rates’ macro catalysts and quant seasonality trends, I see scope for ‘Value’ and ‘Size’ to reverse their recent underperformance relative to ‘Anti-Beta,’ ‘Growth’ and ‘Momentum.’
The latest data-point strengthening my view on the trade is the positive impact that the past few weeks of PBoC liquidity injections are likely to have on the industrial metals complex, which in turn will further feed through to ‘inflation expectations’ as a POSITIVE driver, capable of arresting the recent breakdown there. This in turn would act as a catalyst for higher rates which can ultimately inflect popular ‘slow-flation’ trade positioning.
This post was published at Zero Hedge on Jun 23, 2017.
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