The reflation narrative has become the overwhelming consensus view for 2021. This implies a weaker dollar, higher bond yields, and outperformance from emerging markets and commodities.
Whilst the potential for inflation has been on the rise recently, we still feel it’s unlikely that we’ll see any undesired increase in price levels at least for the next year.
Extreme fiscal spending financed by unconventional measures (such as Modern Monetary Theory) is in vogue and a key proposition for the post-Covid world.
Given the recent $20 trillion of stimulus sponsored by governments and Central Banks all over the world to keep the global economy afloat amidst the COVID pandemic, we asked ourselves who and especially how are we going to pay for this spending regime.
Many global data points appear to be carving out a V-shaped recovery. This is deeply misleading, merely reflecting the depth of the economic decline, rather than the success of the rebound. Leaders are already preparing to add yet more stimulus.
We can expect to see some level of inflationary bottlenecks, especially in heavy industries which are easily switched off but take time to switch back on.
