Reflation enthusiasts are warming up to reports showing that inflation expectations have risen to an eight-year high, according to Bloomberg. Coupled with economic recovery and more stimulus prospects, enthusiasm is building around revival of trades that follow growth and prices.
Reports showing rising home prices and consumer prices have all rekindled hopes of growth in stocks linked to inflation.
Investors also look forward to President Joe Biden’s larger social-spending package set for Congress on Wednesday and Fed’s commitment to allow inflationary pressures to continue.
The surge in materials costs is motivating companies to pass costs to consumers raising concerns in Fed’s assurances that a jump in inflation will only be short-lived.
Some analysts are skeptical whether inflationary pressures are transitory, given the supply chain delays and potential destruction of production capacity due to lockdowns.
The 10-year break-even rate that shows where investors expect annual inflation rate in the next decade surpassed 2.4% on Tuesday, the highest on record since April 2013.
Markets react ahead of the Fed statement. SPY is down 0.0048%, QQQ is down 0.17%, EURUSD is down 0.13%
