Recently, the latest Non-Farm Payrolls (NFP) report from the USA showed a strong performance, easing market concerns about the economy.hard landingAt the same time, with the strong performance of the labor market, the rebound in oil prices, and other factors driving it, the market is refocusing on inflation expectations.

Under this expectation, Citigroup analyst Dirk Willer believes that risk assets and the US dollar will benefit, while longer-duration bond assets may come under pressure:

Market concerns about an economic hard landing have been replaced by inflation expectations, mainly thanks to a robust job market, rising oil prices, and other factors. A inflationary market environment is favorable for risk assets and the US dollar, but unfavorable for long-term bonds.

Furthermore, as the US presidential election approaches, political factors are gradually becoming key variables affecting the market:

It's time for election trading - given the possibility of continued tight polls, it is expected that the market will start hedging against risks.

Forget about a hard landing, trade inflation again

Willer mentioned in the report that the recent non-farm payroll report (NFP) showed a strong performance, dispelling market concerns about a hard landing of the USA economy. The market is once again expecting a soft landing and inflation.

Willer added that Citigroup economists have always been closely monitoring the risk of a hard landing caused by the weak job market, but the latest data shows that apart from the job market, other economic indicators in the United States have already started to improve early this year. This shift is driving the market to reassess the economic outlook and investment strategies.

Moreover, factors supporting the expectations of reflation are not only from the job market - the sharp rebound in oil prices has also lifted reflation expectations. In addition, Willer believes that China's proactive fiscal policy has also played a supportive role.

Turning to asset prices, in the context of reflation, risk assets are generally performing well. Willer wrote:

According to our research, if the market continues to trade reflation, it is expected that the performance of US stocks and credit markets will be excellent in the next three months, especially basic metals and other bulk commodities will also benefit.

Duration assets, especially US bonds, will perform poorly, while the US dollar will continue to strengthen.

In terms of industries, the technology, industrial, and financial sectors are expected to lead the market.

Beware of Trump.

With the approaching US election, the market focus is shifting from macroeconomic data to political situations. The Willer team predicts that investors will reduce positions that may be damaged by a Trump victory and may purchase some hedging tools against this outcome.

Furthermore, Willer suggests investors to choose a trading strategy for the general election that is consistent with the macro trend.

We favor a trading strategy for the general election that is consistent with the macro trend... Due to the highly uncertain election results, we recommend avoiding trades that contradict the current macro trend.

Editor/Rocky