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Investors Latch Onto Reflation Trade as Bonds Fall: Markets Wrap

Bonds fell and the euro edged higher as
investors look to Mario Draghi to address quickening inflation
that make his stimulative policies look increasingly out of
sync.
Yields climbed in Europe, playing catch-up with a selloff
in Treasuries yesterday after U.S. Federal Reserve chair Janet
Yellen said the American economy is strong enough to warrant
higher interest rates — bringing the European Central Bank’s
quantitative easing into sharper relief as policymakers led by
Draghi meet today. Stocks fell, led by real estate after an
indicator of U.K. house prices fell for the first time in five
months in December. Oil resumed gains after the biggest drop in
more than a week.
The day before Donald Trump is sworn in, and with inflation
accelerating across the developed world, the focus is shifting
to politicians to take up the mantle of stimulus as central
bankers scale back support they have doled out since the
financial crisis almost a decade ago.
Draghi may highlight inflation which doubled in the
eurozone last quarter — to quell criticism quantitative easing
hasn’t done enough to spark growth, according to Tommaso
Mancuso, head of multi-assets at Hermes Investment Management in
London. At the same time, he’s unlikely to say QE has run its
course.
 “We think the ECB will acknowledge there’s a pickup in
inflation though they’ll probably warn us a base effect is at
play here and they will want to see more data points before
seeking a policy change,” said Mancuso, whose firm oversees 28.6
billion pounds ($33.1 billion). “Europe is at least a year
behind the U.S., but what’s happening in the U.S. is probably
going to happen in Europe at some point.”


 Varchev Traders


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