- It appears as though the peak in U.S. financial market liquidity coupled with a stall in the global economy reopening due to the surge of COVID-19 cases is putting an end to the reflation trade and with it comes rising risk to the financial markets.
- There is no telling when this temporary liquidity drain will end nor when COVID-induced lockdowns will reverse, but when they do it is likely to have the opposite of its current impact.
- Something is amiss in the markets where fundamentals and market prices aren't lining up, which appears to have begun in just the last 4-8 weeks. A case in point are energy stocks and oil prices.
- There are growing concerns about how the economy will fare once unemployment and pandemic assistance checks stop, but we do not share those concerns.
- Reversing the liquidity drain in the U.S. financial system should add cash back into the banking system and lead to a rise in interest rates and breathe life back into the reflation trade.
For further details see:
The Reflation Trade Under Fire