Reflation trades – including commodities – have been facing a crisis of confidence recently over doubts about whether global growth has peaked and the possible impact of the delta variant on activity and growth.
The biggest indication of reflation trade is the US bond market. The 10-year US bond yield had sold off last week to as low as 1.15 percent raising doubts as to whether the reflation theme is in a firm retreat, but the 10-year has bounced back, as of July 26, close to around 1.28-1.29 mark.
Consider this – at 1.28 percent – it is exactly equidistant from the pre-vaccine breakthrough level of 0.82 percent. This is before the Pfizer vaccine announcement was made in late 2020 and the point is the March 2021 reflation high at 1.74 percent.
Therefore, the point is that – we seem to be at crossroads. Is reflation going to pick up again or will be in retreat?
We do not have the answer yet.
Watch the accompanying video of CNBC-TV18’s Prashant Nair to know whether we are getting out of this down phase and are commodities set to pick up the pace again.