All About the Benjamins

Well the market melt up continues. Between the employment data, the return of M&A (Kradbury to be (?) and the DTE/FTE UK tie up) and China maintaining its monetary and fiscal policies, it’s a feel good day for equities.

Not so for the dollar though, it has taken a serious dirtnap today as, not only is the risk trade back on, but China is talking about looking for alternatives to US bonds due to inflation worries, and the UN are in on the dollar hater play too, calling for a new global currency. It is not; it turns out, all about the Benjamins.

Now with all this going on and with gold trading through $1000, it looks like the reflation trade is back on again in earnest. But if it was, surely bonds would have sold off more, no? They’ve actually been pretty well bid so far today. If inflation’s on its way, rates have got to be going up again soon for sure? And the Fed funds futures will reflect this right? Well, looking at them, and there’s not much change there either, showing a 3.8% chance of a hike to 50bps by the year end… now while this is up from the 1.6% on Friday, its actually down from 5.3% at the start of the month, 26.2% at the start of August and 42% at the start of June, you get the picture (see attached). Anyway, it all makes me sceptical as to the veracity of the reflation trade argument and I’d be wary of the jumping on into the resources names, currencies and commodities as a result.