Are commodity markets signaling a revival of the reflation trade?
Tony Sycamore June 24, 2021 1:31 AM
Following a surge in volatility post the FOMC meeting, calm has returned and there is even evidence that some markets are having second thoughts about the reflation trade, that appeared down and out earlier this week.
If commodity markets are the poster child for the reflation trade, then it was interesting to note that of the seven commodity markets I follow closely, all seven finished in positive territory overnight.
Leading the overnight move higher, copper finished at $4.3165 (+2.04%). Iron ore wasn’t to be outdone, finishing at $216.60, (+1.80%). While crude oil traded above $74.00 for the first time since October 2018, before settling back near $73.00.
Theoretically higher commodity prices will feed into inflation and heighten inflation expectations. Higher inflation expectations form the basis of the reflation trade.
When last week's FOMC meeting warned of an earlier start to tapering and rate hikes it sent inflation expectations tumbling lower - taking with it commodity prices and the rest of the reflation trade complex.
After tumbling over -16% from its May highs, technical evidence has emerged of basing in copper this week from ahead of the uptrend support at $4.000 coming from the March 2020, $1.9725 low.
Providing copper can remain above this uptrend support and then reclaim the resistance from the cluster of lows in the $4.4500 area ,it would indicate the revival of the reflation trade is complete. It would also indicate a retest, and break of the $4.88 high from May is underway.
Source Tradingview. The figures stated areas of the 24th of June 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.