February Global Macro Monthly & Investment Strategy - Vaccine and stimulus: too much of a good thing?

Key points

• The virus is fading from a year-end resurgence in most areas of the globe. Vaccine rollout is also underway. Economies will ease COVID-related restrictions at different paces depending on circumstances. This will govern the speed of economic rebound.
• Additionally, the US appears set to unleash a powerful fiscal stimulus. This will boost economic activity this year and next, we forecast to 6.2% and 4.5%. It also looks set to close the US output gap by the end of this year, bringing closer a sustainable rise in inflation.
• Financial markets are reacting to this shifting outlook: government bond yields are rising in the US, but also elsewhere. This is leading to a pause in risk markets, although we remain positive in outlook at this stage.
• Unchecked, the rise in yields may be a problem in areas where growth is not recovering as quickly. Notably the Euro area, but also in some emerging markets.