Highlights:

• Slow vaccination in Europe is a headwind, but a strong cyclical upswing and inflation spikes will still dominate markets into summer.
• The inflation spike will be transitory, but uncertainty has increased. Fiscal discipline is weaker, and central banks want to run the economy hot and exit the under-inflation regime.
• This implies upward pressure on bond yields eventually, but – for now -Central Banks want and have the means to contain the rise in yields. We then expect risky assets to show resilience (Value better than Growth).
• We keep an overweight in Equities and Credit, and an underweight in Govies. Yield curves are skewed towards further tapering. We cut our Emerging Markets equity overweight on the impact of China tapering, rising yields and slow vaccination.

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