A surging dollar could have significant implications for reflation, emerging markets, and volatility.
Tapering is not yet an issue, growth is timidly coming back and oil is near 7 years high.
Commodity prices and CPI subcomponents continue to flag an increased risk of inflation.
Positioning in the market has become less extreme, especially ahead of what has historically been a lower return period for the stock market.
We find the increased focus on corporate taxes to be a fair and necessary discussion to have, especially given the number of loopholes that corporates are currently benefiting from.
The reflation trade is still alive, gold miners may provide an outsized opportunity, and the low carbon emission economy is becoming an important long-term economic driver of prices.
Short-term vs long-term inflation expectations are telling two different stories about the fundamental strength of the economy.
Asset price performance has been quite solid across the board and the Yield Curve has continued its steepening, with rates in the long end getting closer to 2%.
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.
US Tech, Gold, and Bitcoin did very well, whilst the US Dollar and Crude Oil were the big losers of the year.
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.