Saxo Warns Reflation Trade Ends In Q2 With “Healthy Correction”
by Tyler Durden
ZeroHedge.com
Apr 11, 2017
The reflation trade that started before Donald Trump’s victory in the US presidential elections accelerated in Q1 as global economic data improved and surprised against expectations. Global equities are up 6.5% in dollar terms with markets such as Hong Kong, emerging markets, and Brazil the clear outperformers.
In its Q2 2017 Outlook report, Saxo Bank warns that the reflation trade will end in Q2 with a healthy correction in global equities.
The biggest perception-versus-reality gap remains this risk of recession. While the market at large sees less than a 10% chance of recession, we at Saxo –together with our friends at South Africa’s Nedbank – see more than a 60% chance.
No, we are not “predicting a recession”, but our economic model does indicate a significant slowdown as the large credit impulse from China and Europe in the early part of 2016 has not reversed to negative, which should make the market conservative and risk averse (and certainly long US fixed income).
Along with Q2, spring is now upon us, so we will enjoy both the season and the “fake” economic spring we see now as a slowdown is coming. In this slowdown, Europe will do better than the US, EUR will do better than USD, and Asia will be under pressure to reform its way away from debt as the main driver of growth.
This leaves us with no option but to warn that Q2 and Q3 might be very different to the Trump-mania and unrealistic valuations we see right now.
The Rest…HERE
