Are commodity markets signaling a revival of the reflation trade

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.

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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.

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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.

Are commodity markets signaling a revival of the reflation trade

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

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