Markets are suddenly exuberant. Are they right to be?

WITH THE inflation crisis well into its second year, a few words have cemented their place in the lexicon of investors. There were the subsequently much-derided predictions of a “transitory” problem. There were also the accurate forecasts of interest-rate “front-loading” by central banks and, more recently, grumbling about the belatedly “expeditious” manner in which America’s Federal Reserve has approached tightening. Attention now is on the concept of the “head fake”: the notion that a rosy batch of data suggestive of receding inflation can fuel a burst of optimism in markets, only for the dreary reality of persistent price pressures to reassert itself.

At the tail end of last week, beleaguered asset prices soared, buoyed by America’s latest inflation numbers. Stocks rallied around the world. The NASDAQ, America’s tech-heavy benchmark, climbed by nearly 10% on November 10th and 11th, its strongest two-day rally in more than a decade. Beaten-down currencies…

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