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Inflation response

This week will provide a set of data points to assess wether inflation is a global phenomenon or more local. Japan, China, Brazil, Germany, France, Spain and U.S. will print their respective CPIs (PPI for China) with different expectations and circumstances. As for the U.S., besides the implications for rate cuts, there are more dicrect ones when it comes to investing: as can be seen in the table below, over the last 18 months, for every inflation print, wether there was a positive or negative surprise, both the long Treasury bond and the S&P500 moved in unison, eliminating any potential diversification benefit. It would appear as if depending on the print, the money floodgates were opened or closed, without looking at the asset class characteristics. Or perhaps investors have realized that at this valuations, Equity markets are a long duration asset, and hence correlated to the long bond. In any event, this diversification lever is compromised.

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Source: Rick Rieder.

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