Trade War Could Cause Inflation Shock, Says BMO's Davis

The video discusses the performance of TIPS compared to treasuries, highlighting that TIPS are expected to outperform in both rallies and sell-offs. It explores four market narratives: inflation, growth, risk off, and fiscal, and their impact on bond yields. The discussion also covers fiscal policy's influence on tax cuts and the uncertainties involved. Strategies for reacting to market changes are outlined, emphasizing the importance of recognizing when a narrative has ended. The potential for inflation and growth shocks is examined, with a focus on how COVID-19 has conditioned consumers to accept price hikes and the role of quantitative easing in shifting from growth to inflation shocks.

Which of the following narratives is considered bullish for bond yields?

• Risk off

• Fiscal

• None of the above

• Inflation

What is the main reason the market struggles to focus on multiple narratives simultaneously?

• Influence of external factors

• Market's inherent focus on one narrative at a time

• Complexity of economic indicators

• Lack of information

What is the suggested approach to dealing with fiscal uncertainties?

• Expect nothing and plan for everything

• Ignore market fluctuations

• Focus solely on tax cuts

• Rely on historical data

How might consumer behavior post-COVID influence inflationary pressures?

• Consumers are conditioned to accept price hikes faster

• Consumers will save more money

• Consumers will demand more discounts

• Consumers are less likely to accept price hikes

What could potentially change a growth shock into an inflation shock?

• Decrease in consumer spending

• Increase in interest rates

• Money printing and QE

• Implementation of tariffs