Inflation or deflation?

Reuters recently conducted a poll of 161 economists asking just this question. Will we see inflation due to trade friction and shifting supply chains or is it going to be deflation due to weaker demand? The results of the Reuters survey were as follows with only 27% of economists seeing the prospect of inflation in a post-viral global economy.

Poll

The consensus view was that over 70% of more than 160 economists see the biggest threat to a post COVID-19 world as being deflation and lower prices. If this proves to be the case this is only going to further increase the problem for central banks who have struggled with low inflation for years now. Taking a look at developed markets expectations for inflation below serves to demonstrate the point. Low inflation expectations appear to be here to stay for some time:

USA

Inflation is always expected but never seems to arrive. To coin a phrase from the author C.S Lewis, ‘it’s always winter, but never Christmas’. Will central banks keep targeting inflation levels or will a new target have to emerge? It is tricky to know how to solve the inflation problem, as inflation was expected to come after QE, but never did. Or rather it did come, but in an unexpected form by inflating stock, property and luxury goods prices.

 

Precious metal safe havens

If inflation does come the place of haven is into gold and silver. More and more investors are flooding into the precious metal during uncertain times. Gold ETF's are rising at record levels and here is a piece with some of my comments to CNBC last week on gold prices. Silver is also offering a nice technical entry point on a break of a bull pennant. Inflation, or just the fear of it, maybe enough to push silver higher in the coming weeks. See the chart below.

XAGUSD

 


 

Learn more about HYCM

 

High Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis


Latest Forex Analysis

Editors’ Picks

AUD/USD: Bears trying to sneak in below 0.6950 but bulls give a healthy fight

AUD/USD kick-starts the week with a gap-down, seesaws around 0.6930 afterward. A surge in the virus cases, hospitalizations in the US, escalating Sino-American tension question market sentiment. 

AUD/USD News

USD/JPY slightly offered in the open, eyes on coronavirus headlines

The yen has picked up a start of the week bid across the board, moving up against the US dollar by 5 pips to a low of 107.42 from high of 107.47, falling further away from the end of week 107.50s. 

USD/JPY News

What you need to know for the open: Summer lull or a COVID-19 tidal wave of panic-vol?

AUD/USD is the currency pair in focus for this week. Coronavirus developments vs economic recovery are on every trader's playbook. Key data for the week will kick in with US jobs updates, ISM Manufacturing and the RBA meeting. 

Read more

Gold: Buyers can ignore soft weekly open below $1,775

Gold prices offered a downside gap near $1,774 to kick-start with the week on a back foot. Pandemic fears, geopolitical tensions keep safe-haven buyers strong amid global policymakers’ fight against economic suppression.

Gold News

S&P 500: Futures struggle to refresh two-week top

S&P 500 Futures prints mild loss of 0.10% while declining to 3,126 during the initial hour of Tokyo session on Friday. In doing so, the risk barometer fails to extend the previous four-day winning streak.

Read more

Forex Majors

Cryptocurrencies

Signatures