Morning Notes — Reflation Theme

Global growth concerns emerged about a month ago when UK delta variant case counts started to rise.  But UK case counts have declined significantly over the last six days with similar trends  in Australia.  If the UK and Australia situation continues to improve, US markets will begin unwinding global growth concerns and may begin repricing for reflation.  There’s some indication the process has already begun, but a full return to the reflation theme probably depends on further improvement in US labor market conditions.  Child care challenges are among the most often cited reasons why US job growth has been slightly disappointing.  US schools are scheduled to reopen in about 30 days with most planning for a complete return of in-person learning.  Keep an eye out for headlines suggesting any change in plans.  Given extremely low US hospitalization rates for vaccinated people, it’s far more likely that local governments stay with measures to drive vaccination adoption instead.  We stay focused on the prospect for the reflation theme to reemerge in the weeks ahead.  Before we take action, we’ll need to see more steepening in the US Treasury yield curve. More soon…