EDITORS NOTE


The accompanying sharp swing of the pendulum in terms of market positioning, and the ostensibly overcrowded nature of this reflation trade also implies a large ‘gap risk’, if the consensus again proves to be wrong.


For all of the outpourings of emotion about the 2016 political ‘shocks’, the fact remains that fund flows highlight a secular swing to very unemotional algo driven passive funds; the question is what might halt or even reverse this trend. What differing challenges does the inflation revival pose for the Fed, ECB and Bank of England in terms of formulating and implementing monetary policy? Can equity markets rally when the Fed is tightening monetary policy?


Reflation and the


‘outlier new normal’ Welcome to the latest edition of The Ghost in the Machine, which is loosely themed around the ostensible return of inflation, and the upending of many popular assumptions about what is ‘normal’ and what are outlier events and phenomena.


Erich Remarque’s novel ‘The Black Obelisk’ was set during the era of hyperinflation in Germany, and offers a reminder of why German officials are so obsessed with inflation risks. While a return to that era or indeed the hyperinflation that plagued Latin America in the 1980s is not a prospect, they serve as a reminder of the potential damage from an escalation of ‘currency wars’. It is quite remarkable how dramatically the market consensus has swung from fear of a deflationary spiral at the start of 2016 to the ‘reflation trade’ in the wake of the US election.


In the commodity space, we ask what will become of the LME in 2017? Will the state of limbo, even decline that has prevailed in the past two years be reversed, or has the world already moved on? Does the exchange need to pay more attention to the views of its members? Will 2017 be a sweet or sour year for Sugar. How well correlated are the prices of European grains and oilseeds to fluctuations in the EUR/USD exchange rate? Finally we consider how China’s moves to combat pollution will have considerable implications for the demand for a broad spectrum of commodities.


THE GHOST IN THE MACHINE


EDITORS IN CHIEF Andy Ash


E: andy.ash@admisi.com Marc Ostwald


E: marc.ostwald@admisi.com Paul Mylchreest


E: paul.mylchreest@admisi.com Stephen Lewis


E: stephen.lewis@admisi.com


PRODUCTION & CIRCULATION David Rose


CREATIVE DESIGN Simrat Kaur Sounthe


CONTRIBUTORS Alan Bush Andy Ash


Eddie Tofpik


Edward Fremlin-Key George Eddell Howard Jenkins Paul Mylchreest Stephen Lewis Steve Freed


EXTERNAL CONTRIBUTORS Mark Bowman


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