Investors are still backing the reflation trade despite a slowdown in the global economy

Phil Walter/Getty ImagesReflation still on track, according to futures traders.

After such a promising 2017, the global economy appears to have hit a soft patch in 2018.

Data has weakened in many parts of the world, both in advanced and developing nations, bringing into question whether the synchronised global economic upswing has already reached its crescendo.

As seen in the chart below from Topdown Charts, economic data has consistently surprised to the downside this year with the proportion of nations recording net data surprises to the upside falling back towards levels not seen since the global financial crisis.

Topdown Charts

While recent undershoots are partially explained by lofty expectations earlier this year following a strong end to 2017, it also demonstrates the broad loss of momentum seen in the global economy this year.

Put bluntly, the data is still reasonable but it’s not as strong as many were expecting.

While that has contributed to the modest lift in financial market volatility seen in recent months, and kept some growth-linked asset prices under pressure, as seen in the second and final chart from Topdown Charts, the slowdown hasn’t been enough to dent optimism among some futures and options traders about the outlook for the global economy.

Topdown Charts

It shows current speculative positioning in crude oil, copper, stock indices, the US dollar and US treasuries compared to historic norms.

Topdown Charts calls this its “reflation trade positioning indicator”, essentially a measure on whether traders still see stronger economic growth and inflation in the future based on their collective investment decisions today.

At present, and despite recent wobbles, futures traders don’t appear to be concerned about the outlook for the global economy as we approach the second half the year.

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