Rising commodities prices and corporate-bond buying offer a whiff of optimism in financial markets. Investors call it the reflation trade, a bet that the world’s leaders will succeed in staving off depression and deflation, according to a story in the Wall Street Journal.
The U.S. stock market shows no hint of it, but there are incipient signs of optimism in financial markets, according to a story in the Wall Street Journal.
Written by E.S. Browning, the story says some commodities are showing price gains, as are stocks in commodity-exporting countries such as Brazil. Some investors have been buying corporate bonds again as strong companies start issuing new debt, although prices and yields aren’t nearly back to normal.
Some investors see inflation rising again later this year.
Copper futures are up 5% so far this year and have gained 17% from the low hit last year, the story says. Tin futures are up 7% in 2009. Brazil’s main stock index has risen 5% this year and South Korea is up 3%.
Even so, the Hong Kong stock market is off 8% this year. Crude oil and corn futures are off 7%, and some markets, including the U.S. stock market, have given back most of their big upswings from late last year.
Many investors still fear the recent rebound could be just another blip, before markets fall to new lows.
Few are jumping in with both feet, but optimists are gradually boosting their holdings of stocks, corporate bonds, commodities and other risky assets. They say lasting recoveries sometimes happen this way, with choppy gains here and there.
The gains reflect a hope that global growth will recover later this year, with developing countries such as China and Brazil rebounding sooner than the U.S., Europe and Japan.
WSJ Online subscribers may read the full story here.