These cookies are necessary for the proper functioning of the website and are used for audience measurement purposes, to improve the user experience and to enable you to share website content on social networks.
The setting of cookies that are not strictly necessary for the functioning of this website requires your prior consent.
We save your choice for 6 months.
You can change your mind at any time and in particular withdraw your consent or object to the processing of your personal data by clicking on "CUSTOMIZE & PARAMETER COOKIES".
You can set your preferences for each type of cookie used by ODDO BHF and its partners for this website by clicking on "Accept" or "Refuse".
Cookies necessary for the functioning of the website
These cookies are necessary for the functioning of the website and include the session cookies that enable us to recognize you from one page to another when you navigate on the website.
Cookies for audience measurement
These cookies enable us to adapt this website to your requests by measuring the number of visits, the number of pages viewed as well as data relating to your browsing on the website.
Improving the user experience
These cookies allow our website to remember your choices in order to provide you with customised features.
Social network cookies
These cookies allow you to share content from our website via social networks.
March, 23rd 2021
Global CIO Private Wealth
Global CIO Asset Managment
The U.S. economy currently experiences a “sugar rush”. Despite scientific skepticism, there is a widespread belief that eating sweets leads to short-lived hyperactivity. A phenomenon often referred to as Sugar Rush. Several economists have used this expression lately to describe the economic situation in the United States where some short-lived hyperactivity is expected in the coming months. The main drivers to this hyperactivity are the USD 1.9 trillion Biden stimulus program and the forced savings during the Covid-19 crisis (USD 1.85 trillion) which are going to flow back in the economy when it reopens. Economic growth in Europe will also accelerate, but at a slower pace as the more successful vaccination policy in the U.S. allows a faster reopening of the economy there than in Europe. Recently, the FED has increased its projections and now believes that the U.S. real GDP will grow by 6.5% in 2021 (December 2020 projection: 4.2%), by 3.3% in 2022 and by 2.2% in 2023.
Our clients ask us how inflation will develop under this scenario. We believe that inflation in the U.S will increase sharply in 2021 but will then fall in 2022 and beyond (see Exhibit 1). Don’t forget, it is a short-lived Sugar Rush. As a result of higher inflation, the yield curve is steepening. We increased our yield expectations for 10-year interest rates in the U.S. from 1.8% to 2.0% at the end of 2021.
The risks to these forecasts are clearly on the upside as the ECB and the FED have both announced in March 2021 that they will continue their expansionary monetary policies. The ECB has declared on March 11 to conduct asset purchases at a significant higher pace, and the FED stated on March 17, that it will continue to increase its holdings of securities by USD 120 billion per month despite an improved growth outlook and falling unemployment rates. The consensus among (most) politicians is that it is better to do too much than too little, a lesson learned after the global financial crisis in 2008. Larry Summers expects that the economy possibly overheats due to expansionary monetary and fiscal policies and that inflation could increase to levels not seen in a generation. While this is not our main forecast, the risk to real GDP growth, inflation and interest rates is clearly on the upside and not the downside.
The implications of these forecasts to our investment strategy are as follows:
¹) The duration risk describes the risk of price losses on bonds due to interest rate rises.
²) Source: Refinitiv Datastream, as of 15.03.2021; 1y. forward contracts: forward contracts with a one-year term (example: 3Y1Y = forward contract starting in three years with a term of one year
This document has been prepared by ODDO BHF for information purposes only. It does not create any obligations on the part of ODDO BHF. The opinions expressed in this document correspond to the market expectations of ODDO BHF at the time of publication. They may change according to market conditions and ODDO BHF cannot be held contractually responsible for them. Before investing in any asset class, it is strongly recommended that potential investors make detailed enquiries about the risks to which these asset classes are exposed, in particular the risk of capital loss.