Due to a public holiday in Germany tomorrow, we are publishing the Macro & Markets today.
- Macro: We have revised upward our global GDP growth forecast for 2021 to 5.8%, mainly reflecting additional fiscal support in the US. We expect US GDP to expand by 6.3% this year (previously 4.8%), while we confirm our eurozone growth forecast of 3.5%. We think that global inflation will rise significantly in the spring, but the rise is unlikely to be particularly large or persistent. This should allow major central banks to remain accommodative. Fed tapering is likely to start in 1Q22, with a first rate hike likely occurring at end-2023. In the eurozone, the PEPP is likely to be extended beyond March 2022, although such a decision might prove controversial.
- FI: We have revised our 10Y UST yield forecasts to 2% at end 2021 (from 1.5%) and 2.5% at end 2022 (from 2%). We have raised our call for 2Y UST yield only moderately and we continue to expect a further steepening of the 2/10 UST spread. We expect very limited spillover from the rise in UST yields to Bunds. We see the 10Y Bund yield at -0.2% at the end of 2021 (previously -0.3%) and at 0% by the end of 2022 (previously -0.1%). We expect the T-Bund spread to continue to widen, with the 10Y spread reaching 220bp at end 2021 and 250bp at end 2022.
- FX: The EUR-USD fall is not over yet, but the bar for more USD strength is now high, as most positive news for the USD has already been priced in. The Fed is in no rush to normalize policy, and the eurozone economy is set to improve in 2H21. We have cut our targets, but still see EUR-USD up to 1.22 by 4Q21 and to 1.25 by 4Q22.
- Equities: We are increasing our Euro STOXX 50 index target for 2021 to 4,100 index points (DAX to 16,000). The high share of cyclical stocks in Europe is expected to have an increasingly positive effect.
- Credit: We leave our European credit spread forecasts unchanged and expect credit risk premiums to tighten across markets, supported by low yields, the firm bid expected from the ECB and lower new bond supply. Our preference is for hybrids and high-yield non-financials.