As vaccines are rolled out at an increasing pace, activity rebounds, and the light at the end of the COVID-19 crisis tunnel becomes brighter, thoughts have turned to the shape and speed of the recovery. Recently, discussions have focused on the risk of rapidly rising inflation.
Market fears that overaggressive fiscal policies could stoke a return of too high inflation have pushed bond yields higher and led central banks to clarify their (for now, dovish) reaction functions.
In some ways, these discussions harken back to the days when the central bank's job was seen as taking away the punch bowl before the party got started (see appendix for details). In our view, these discussions confuse the risk of reflation fueled by a solid recovery, which is broadly positive, with the risk of a disorderly rise in inflation and yields, which is broadly negative.
These fears are most pronounced in the U.S. but could spread as the recovery gains traction. Our bottom line is that orderly reflation is, on balance, a healthy development for macro and credit outcomes. This narrative implies that moderate demand and wage pressures have reemerged after a lost decade and that the interest rate structure has the potential to return to more normal levels.
Economic Outlook Europe Q2 2021: The Path To A Strong Restart
The eurozone economy is less sensitive to social-distancing restrictions than a year ago.Read the Full Article
Economic Outlook U.S. Q2 2021: Let The Good Times Roll
Although a blanket of snow covered much of the U.S. this winter, the country's economy has warmed.Read the Full Article
Emerging Asia's Recovery Can Withstand A Reflation Trade
If markets price a policy mistake and U.S. real yields surge higher, risks of a "taper tantrum" rise, with India and Philippines most exposed.Read the Full Article
U.K. Recovery: Delayed But Stronger
The U.K.'s third national lockdown will limit GDP growth in 2021 to 4.3%, after which S&P Global Ratings forecasts an acceleration to 6.8% in 2022.Read the Full Article
China Finally Retires Its "Growth Above All" Policy
China announced a growth target for 2021 of "above 6%" and omitted a target in its five-year plan.Read the Full Article
S&P Global Ratings' estimates global debt to have hit a record $201 trillion by end-2020, equivalent to 267% of GDP. But a near-term debt crisis is unlikely given the continuing recovery of the global economy.
Global Borrowing Will Stay High to Spur Economic Recovery
S&P Global Ratings' estimates sovereign borrowing will reach $12.6 trillion in 2021--20% lower than the historical surge in 2020 but still 50% higher than the pre-COVID-19 multiyear average.
The additional financial cost to governments to support their economies through the pandemic will likely reach $10.9 trillion in 2020 and 2021 (over 13% of global 2020 GDP). This will bring the total stock of commercial debt to a record of $67.5 trillion (75% of global GDP) by year-end.
Unprecedented monetary stimulus has enabled advanced and several emerging market economies to borrow more, while still maintaining relatively stable interest burdens.Read the Full Article
The recent surge in the benchmark U.S. Treasury 10-year bond yield has bolstered the pandemic-battered U.S. dollar, but whether the greenback's momentum will continue depends on yields keeping a rapid pace of gains and if shorter-term bond yields begin to move.
- The 10-year yield surged to 1.54% on Feb. 25, up 61 basis points since the start of the year and the highest yield since Feb. 2020.
- The benchmark yield continued to climb into this week and closed at 1.59% on March 8, its highest settlement since Feb. 14, 2020.
- The Dollar Index, which measures the U.S. currency against a basket of six peers, has risen with bonds, climbing 2% from 90.17 on Feb. 23 to 91.98 on March 5, its highest settlement since November. The index was trading near 92.40 on March 8.
- Last year, all nine developed-market peers gained on the dollar, led by the Swedish krona, which gained over 12%.
- Since the rally in bond yields on Feb. 25, the U.S. dollar has gained ground on all nine of its G10 peers, including a more than 4.1% jump on the New Zealand dollar.
- The U.S. dollar has gained an average of more than 2.8% on its G10 peers since Feb. 25.
As many nations near the anniversary of social restrictions aimed at slowing the spread of COVID-19, hopes for economic recovery have been closely tied to the rollout of a growing number of approved vaccines.
But a reliance on regions pulling out of the pandemic together, as well as countries' varying vaccination efforts, means estimates for when this recovery will occur range from as early as the second quarter to the end of the year.
COVID-19 Ignited Year of Risk, Rewards for Pharma Leaders
COVID-19 set in motion a wave of innovation and collaboration that has transformed the pharmaceutical industry, executives said as they reflected on the pandemic's first year.
While the global death toll from the virus has tragically reached 2.6 million, "liberation is on the horizon," Pfizer Inc. CEO Albert Bourla said in a March 11 open letter to mark one year since the World Health Organization declaring a pandemic.Read the Full Article
U.S. Herd Immunity by Midyear Is Possible with Additional Vaccine Approvals
The U.S. is running behind S&P Global Ratings' prior estimates of vaccination rates against COVID-19 to reach 230 million, or about 70% of the total U.S. population, by midyear.
The situation remains highly dynamic, and a number of key positive developments are necessary to reach the midyear target, such as new vaccine approvals, increased production, and improved distribution.Read the Full Article
EU Could Meet 70% Vaccination Target by Late July If Production Steps Up
EU governments are counting on speedy vaccination of their populations against COVID-19 so that they can scale back restrictions that are impeding their economies and return to a sustainable growth path.
S&P Global Ratings estimates that for the EU to meet its current timeline for vaccinating 70% of its adult population by summer 2021 the delivery of vaccine doses needs to accelerate.Read the Full Article
Energy and Commodities
The International Energy Agency published its latest medium-term oil market outlook on March. 17 containing closely-watched forecasts for oil supply and demand fundamentals to 2026.
The IEA is more upbeat on the oil demand recovery due to progress in rolling out COVID-19 vaccine programs, a raft of fiscal stimulus packages, and signs of strong industrial activity in China.
After collapsing by 8.7 million b/d in 2020, the IEA estimates demand growth will rebound by 13.1 million b/d to 104.1 million b/d by 2026.Global oil demand, including biofuels, will recover to reach 103.2 million b/d in 2025, up from 91 million b/d in 2020 and almost 100 million b/d in 2019.
Commodities Bull Market Set to Run but Faces Risk of Near-Term Correction: Saxo's Hansen
Key commodities such as oil and copper remain on track for a multi-year bull market due to tightening fundamentals but could be set for a near-term correction after investors "jumped the gun" over the anticipated demand rebound as the world emerges from the COIVD-19 pandemic.Read the Full Article
Bunker Fuel Market Vexed by Many Hurdles Even After COVID-19 Recovery
Despite volatility in some commodity markets, marine fuel prices are already rising, tracking in part gains in crude oil prices.Read the Full Article
In 2020, the world learned a hard lesson: Despite best-laid plans, research doesn’t know what is immediately around the corner. In 2021, that lesson reinforces our view that a long-term, sustainable approach centered around strong environmental, social and governance (ESG) principles is more important than ever.
In response to demand and regulatory drivers, the quality and quantity of ESG data will continue improving. Meanwhile, in the U.S., the new Biden administration will reinvigorate ESG policies and climate urgency.
With this growing global urgency around climate, conversations about energy transition will become increasingly nuanced and the nature of transition conversations will shift from climate mitigation to climate resilience.
While threats to nature and biodiversity will take centerstage in ‘E’ discussions, social issues will gain traction with investors and in global policy discussions.
The 2021 U.S. Renewable Energy Outlook
After successfully navigating the COVID-19 pandemic, the renewables industry has a bright outlook for 2021 and beyond as several drivers favor continued aggressive development of wind, solar and battery storage.Read the Full Article
Finding A Path To Carbon Neutrality Via The Capital Markets
Over the past few years, it has become clear that issuer and investor appetite for financing climate response and other environmental objectives is strong and accelerating.Read the Full Article
Large Growth In Green, Social, Sustainable Labels ss Municipal Market Embraces ESG
Low interest rates, increasing market embrace of ESG concepts, and the coronavirus pandemic drove robust sustainable debt issuance growth in the municipal markets during 2020.Read the Full Article
The ESG Pulse: 2021 Lookahead
Social credit factors have also become more important as a result of the pandemic, and for the year ahead.Read the Full Article