Daily Note – Deflation? Reflation?

gm360Summary:

QE- Deflation or reflation?

United Kingdom: Deflation for April

United States: Housing Starts rebound strongly

Eurozone: CPI in line with expectations

 

 

Good morning,

The dollar, the U.S. bond market and the European stock market have all recently become infected with a highly contagious disease. The source of this nasty fever appears to be coming from none other than the sleepy old German bond market. The ever-levitating Bund began its post-QE crash from 0 to 80bps about 2 weeks ago and it brought down with it nearly all the other popular European QE-driven trades. It was not just the global currency and equity markets which were hit. There was plenty of pain doled out in off-piste runs such as swap spread, yield curve spread and volatility markets.

But, as we have argued for the last few weeks in these commentaries, the long Bund trade was always the weakest expression of the European QE trade (just like the long UST trade was the weakest expression of the US QE trade). When QE begins people get excited about front running central bank purchases. So they buy up everything they believe the central bank might buy.

 

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Global Macro-Daily Note 20th May 2015

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