Around this time last year as we left 2017 and entered into 2018, there was widespread optimism. Whether it was the record low volatility readings, synchronized surge in the PMIs, easy money, widespread positive economic surprise and earnings upgrades, it was (in hindsight) an air of both complacency and euphoria. And as we enter 2019, basically it’s all gone wrong… with many of these flipping in the opposite direction.
This week’s chart came from a report where we made some initial reflections on 2018 vs. 2017 from a macro/risk sentiment point of view.
The chart of the week hones in on one particular aspect – the reflation trade.
The chart shows the average standardized (z-score of speculative futures positioning – which itself is standardized by open interest) speculative futures positioning across crude oil, copper, aggregated US equity futures, and the inverse of treasuries and US dollar positioning. Basically all the trades that are consistent with the whole reflation theme.
This reflation trade positioning indicator surged at the turn of the year and finally peaked in late April this year, and has since plunged as traders give up on the reflation trade. Indeed, aside from the trade issues, there are broad based indications of a global softening in growth momentum, and it’s only natural that this would negatively impact on sentiment here.