- Forget the 1930s. Inflation is different this time.
- Real rates are finally coming off in the US
- More and more pundits see inflation ticking higher
- A summer of European growth – and hell afterwards
- ECB's balance sheet as % of GDP little changed despite QE
- The credit cycle has clearly peaked
It'll be a sweet summer but a hellish autumn in Europe. Photo: iStock
The overall position:
Our major allocation shift is working on fixed income, but commodities and gold still need the all clear regarding a Fed hike….
Here's a reminder of the main points of my major strategy change as detailed in an article on May 18:
The headlines for the next 6-7 months say:
- US, German and EU core government bonds will be 100 bps higher by and in Q4 before making its final new low in H1 2016. US 10-year yield will trade above 3.0% and bunds above 1.25%
- Energy: WTI crude will hit US $70-80/barrel, setting up excellent energy returns.
- US dollar will weaken to EUR1.18/1.20 before retest of lows and then start multi-year weakness.
- Gold will be the best performer in commodity-led rally. We see 1425/35 by year-end.
We need to stop talking about deflation and using 1930s comparison about a Fed hike:
Real rates are finally coming off in the US: Positive Gold and negative US$?
Wow – inflation expectations are rising and rising fast….
European “cost advantage” is disappearing fast and furiously – enjoy the summer of growth – afterwards, you can expect: zero growth, zero reform and higher inflation “expectations”…..
Excuse me? Didn’t the European Central Bank start quantitative easing. In a world of madness it's hard even to see change in the ECB balance sheet. Japan is just not real, indeed, nothing is!
This is a poorly constructed chart… but clearly… the credit cycle has peaked……
Compare this to the commodity cycle:
And, just to remind you… when the Fed hikes it’s a margin call. There is no basis in the bank's mandate to do so, but its need to normalise policy will have data support over the summer as the CESI (Citigroup Economic Surprise Index) will mean revert.