The Reflation Trade Unwind

The Reflation Trade Unwind - z defla

The “reflation-trade,” “global growth is back” crowd is getting smoked again as everything levered to inflation expectations underperforms.

The Energy (XLE), Materials (XLB), and Industrials (XLI) sectors are down -9%, -8%, and -3% in July vs. a flat S&P 500 as widening risk ranges and heightened volatility premiums manifest in commodities markets. These markets may look oversold, but given the awful Q1 Q/Q SAAR GDP print, Q2 may look like a notable acceleration on Thursday for the Q/Q SAAR navel-gazers.

If rate hike expectations are pulled forward, strap your seatbelts and look out below (again) in the short-term for commodities and their related sectors.

The Reflation Trade Unwind - Z 07.27.15 chart