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‘Why the global reflation trade might be over’

A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web

The legions of Canadians hoping the Bank of Canada would raise interest rates to curb housing price appreciation were dealt an unwelcome surprise Wednesday after governor Stephen Poloz noted there wasn't much the bank could do. Mr. Poloz noted that even a series of interest rate increases to three or four per cent wouldn't discourage speculators with the ironclad belief that Toronto real estate prices would rise 20 per cent next year.

Mr. Poloz also noted that in Toronto, home prices were not supported by fundamentals,

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"'There's no fundamental story that we could tell to justify that kind of inflation rate in housing prices, and so it's that gap between what fundamentals could manage to explain and what's actually happening which suggests that there is a growing role for speculation,' Poloz said."

"Toronto Home-Price Gains Aren't Sustainable, Poloz Warns - Bloomberg

"Higher rates likely won't moderate rising household debt: CIBC's Tal" - BNN

"Poloz maintains interest rates won't solve Toronto's housing mess" - Report on Business

"@LJKawa Poloz: interest rate of either 3 or 4% isn't going to change someone's mind on buying if folks think prices will rise 20% next year" - Twitter

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Metals prices took a major beating Wednesday with copper prices lower by 2.5 per cent and iron ore prices plummeting 6 per cent in Chinese markets. The weakness in these economically sensitive sectors gives support to the theory that the global reflation trade is fading quickly,

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"The softening in China's inflation momentum suggests the best days of the global reflation rally might be behind us. China has been the central growth driver for the world economy, even though the U.S. became the "flag-bearer of the reflation trade" in the fourth quarter, UBS AG strategists Bhanu Baweja and Manik Narain said...now the Chinese impetus is fading ... as the policy priority there shifts to containing leverage. "The growth impulse from China isn't likely to collapse, but we may have seen the best of it," the strategists wrote. "

"Here's Why the Global Reflation Trade Might Be Over" - Bloomberg

"Iron ore sinks as China glut unnerves traders" - Financial Times

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I don't normally pay a lot of attention to CEOs attempting to dispense wisdom but after Warren Buffett called Jeff Bezos "the best business person I've ever seen," I will make exceptions for Mr. Bezos,

"Jeff, what does Day 2 look like?"

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"That's a question I just got at our most recent all-hands meeting. I've been reminding people that it's Day 1 for a couple of decades ... I spend time thinking about this topic.. Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1...

There are many ways to center a business. You can be competitor focused, you can be product focused, you can be technology focused, you can be business model focused, and there are more... There are many advantages to a customer-centric approach, but here's the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don't yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf. "

Amazon CEO letter to shareholders - Amazon

"Bezos Says Artificial Intelligence to Fuel Amazon's Success" - Bloomberg

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The International Energy Agency has released a report containing great news for energy investors - the global oil glut that has depressed commodity prices since mid-2014 is almost over,

"It can be argued confidently that the market is already very close to balance, and as more data becomes available this will become clearer. We have an interesting second half to come."

"OMR: Halftime" - International Energy Agency

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Tweet of the Day: ""It's time we remind folks that prices of houses can go down as well as up" " - Twitter

Diversion: "Curious Case of Billion-Dollar Lithium Mine Sold for a Song" - Bloomberg

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More

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