Despite “Mega-Relief-Rally”, RBC Warns Beware “The Reflation Trap”

Monday, April 24, 2017
By Paul Martin

by Tyler Durden
Apr 24, 2017

The most widely-expected “base-case” outcome of the first round of the French election occurred… and yet, as RBC’s head of cross-aset strategy Charlie McElligott notes, >risk-markets have still screamed-higher in comedic relief rally fashion.


McElligott write, this sounds obvious, but two points:

1) the hedging-flows into the event-risk now come off (i.e. Japanese owners of OATs punting on their EURJPY downside hedges, thus EURJPY +2.7% on day as an example) and

2) we now see general investors ‘unshackled’ and able to add exposure to the region in what has rapidly become the world’s favorite risk-region.

But, now is where it gets interesting though, as the ‘risk-ON’ / ‘bond bear’ catalysts by-and-large are again being priced back into the market, with little thought of downside. This is where expectations are again ripe for an overshoot.

So taking a step back from Euro-phoria for a hot-second…I wanted to touch on a concept that Mark and I have been discussing / working-on – this idea of a tactical “US reflation trap.”

The Rest…HERE

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