After Trump was elected president of the United States, the "reinflation trading" continued to heat up. Under the combined effects of rising commodity prices, consolidation of economic recovery, and Trump government policy prospects, global inflation expectations have risen significantly since the second half of last year. In this context, funds continue to flow into large-scale commodities and related sector stocks. A "re-inflation trading" logic of a virtuous circle has formed.

After Trump officially took office as the president of the United States and announced that he will issue reform measures such as the tax reform plan, he will further promote re-inflation expectations in the financial market. However, after Trump's push for the new medical reform bill was frustrated, this boom showed signs of cooling, and safe-haven re-emergence became the main tone of the global market. Assets such as gold were favored by funds.

"Re-inflation trading" cools down

In recent months, inflation levels in major global economies have rebounded significantly. According to the latest data, the PCE price index, which is the most concerned inflation index of the Fed, increased by 1.9% in January, the largest increase in four years, close to the target level of 2%. It also became a key factor for the Fed to raise interest rates in March. In the euro zone, the inflation rate rose to 1.8% in January, maintaining the upward trend since May last year, and the largest increase since February 2013, which is also close to the ECB's target level.

Analysts pointed out that the rise in global inflation is largely affected by rising commodity prices. When inflation heats up, it in turn makes optimistic investors invest more money in commodities and related stocks, creating a virtuous circle between them. However, this "re-inflation trading" boom has cooled down recently. In fact, this upsurge is inseparable from the policy prospects of the Trump administration. Last week, Trump's push for the new health care reform bill caused investors to start worrying about this trading logic, and the risk aversion was obviously warming up.

Jameel Ahmad, vice president of market research at FXTM, said that the results of Trump's medical reform legislation were inconsistent with market expectations, and more importantly, the market began to feel uneasy about Trump's push for other campaign promises. If Trump encounters such opposition as the medical reform when submitting other proposals to Congress, then investors can't help but doubt Trump's possible situation in advancing tax reforms and other elections. Since Trump's victory, the significant premium in the financial market reflects his embarrassment of fulfilling his promise, but it may now be a turning point.

Trading logic or change

Risk aversion has begun to spread as investors may face further obstacles as Trump advances other commitments. In the last two trading days, the US dollar fell against all major currencies. The price of gold has rebounded from the three-month high above $1,250 for the first time since the end of February. The yen has once again been favored when the market is facing uncertainty. Emerging market currencies also benefited from the weak dollar.

Jameel Ahmad said that if the dollar really fell sharply, emerging market currencies will rebound significantly. As we all know, these markets are most affected by Trump's new initiatives. Malaysian ringgit, won, rupiah, renminbi and other currencies are expected to benefit from the stagnation of the dollar's gains. The US dollar index has closed below the 100-psychological level, which was previously seen as a very important barrier. In recent months, technical traders have often borrowed from the dollar to pick up the bargain. Now they have to think twice before buying the dollar. And then. The weak dollar has boosted the gold market. Investors are now concerned about whether risk aversion will continue to heat up. The further decline in the stock market provides the basis for the gold price to continue to rebound. As gold was driven by continued buying, the new week's crude oil market resumed its weakening momentum.

Insiders pointed out that the next financial market trading logic will change, how the "re-inflation trading" will evolve, and undoubtedly still have a lot to do with the Trump policy prospects. Trump has hinted that he will advance the next phase of work, which is tax cuts, which is a more important key driver behind the sharp rise in financial markets. The market has digested a lot of tax reforms and fiscal stimulus plans, because investors think that Trump’s election is good for the US economy, but few people think that replacing Obama’s medical insurance case will become so complicated that Congress should pass tax reform and fiscal stimulus. Other aspects are not expected to be smooth, as these measures will increase the debt burden of the United States.