- Get ready for the summer boom. 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. Or so it is assumed. In truth, inflation uncertainty has increased. A new fiscal age has arrived, and central banks want to run the economy hot and exit the under-inflation regime.
- The new policy paradigm is an attack against secular stagnation forces. This implies upward pressure on bond yields eventually, but for now central banks want to keep them low. We think they have both the teeth and the tools to keep the rise in yields orderly and 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 steepening (forwards too flat). We cut our EM equity overweight on China tapering, rising yields and slow vaccination.