The reflation trade seems to be waning as an influence today. US equities are rallying strongly after the durable goods orders, taking in stride the dip in new home sales. Traders no longer seem content to buy and sell “risk”…now they seem to be more focused on country specifics.
There are probably two reasons for this. First is the nagging suspicion that the global recovery story has been overplayed and that demand remains very slack on a world-wide scale.The worst is over but recovery is far from assured is the prevailing conventional wisdom.
Second was a stark reminder from the ECB that they are in the stimulus game just as much or more than the Fed. They added over $600 bln to their balance sheet today alone, taking it close to $3 trln, or about 50% larger than the Fed’s. It is hard to buy the euro willy-nilly under those circumstances.
Stocks are firm but the dollar is mixed with large cross trades going thorugh the market. EUR/GBP is heavily offered as attempts by BOE’s King to talk down the pound seem to have failed. Again.
