We touched on inflation in yesterdays Afternoon Report and I thought this morning would be an opportune time to add a few points to this critical topic:
- MM believes reflation is the path ahead into 2022 but we don’t believe aggressive rate rises will occur anytime soon, both central banks and governments have flagged their willingness to let inflation gather momentum before they start hiking.
- Commodity prices have already bolted with the likes of lumber surging around +800% since the COVID outbreak but we should be mindful this is arguably largely built into today’s market prices.
- Importantly stockpiling is evident on many levels with Australian tradies now often quoting jobs minus materials as their price / availability changes almost weekly.
- However after periods of stock piling markets usually return to a degree of normality and in the case of lumber we envisage a period of consolidation between 1200 and 1700.
Hence as we feel commodity prices are due for a “rest” stocks who are priced for an inflationary / price rising environment may encounter a period of profit taking – MM is a keen buyer of a pullback in resources stocks, remember both BHP Group (BHP) and RIO Tinto (RIO) retraced over 10% in May plus we shouldn’t forget they are a cyclical sector. Also MM is targeting a decent bounce in the $US which is usually associated with a decline in commodities with last night being a perfect example – the $US bounced +0.6% leading to silver and copper both falling almost 3%.
MM remains bullish reflation medium-term through 2021 / 22
