Reflation elation facing deflation

The global economic rebound looks as intact today as it did a week ago, in fact it looks stronger than it did given the rebound in the US labor market. What we’ve seen is a correction from irrational levels of exuberance, as the Maestro used to say. Stocks and commodities have fallen along with currencies again this morning while US yields continue to March higher. Emphasis on foreign funding of the US deficits is easing as central banks continue their purchases while focus shifts to yields rising for the “right” reasons. Prospects for renewed economic growth suggest the Fed will not have to add to its QE policies and will let the one’s in place roll off as they mature. Supply will remain a concern, but recent data suggest foreign demand remains intact, at a reduced price. All this argues for contionued retrenchment in currencies which often overshoot. The trick is to find the new “normal”. How about 1.34/1. 44 for the summer?

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