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UniCredit Macro & Markets Weekly - Eurozone economy at an inflection point

  • Macro: We are revising upward our eurozone GDP growth forecast for 2021 to 4% (from 3.5%) and are lowering it slightly for 2022 to 4.3%. The eurozone is currently at an inflection point. US inflation in yoy terms is likely to surge to 3.6% due to large base effects (due on Wednesday), while retail sales probably continued to rise, albeit less strongly than in the previous month (due on Friday).
  • FI: The ongoing decline in global economic-policy uncertainty, along with improvement in cyclical business-sentiment readings, underpin rising yields. While central-bank policies have prevented the real-rate component from accelerating, it appears to be a matter of time until mid-points of the old 2015-18 ranges are reached.
  • FX: FX majors remain somewhat stuck and US CPI inflation and retail sales are also unlikely to provide much more directionality to the currency market. Indeed, price action so far suggests that any tentative USD rebound is likely to remain limited and brief, with EUR-USD expected to further hold the 1.20 baseline.
  • Equities: The tug-of-war between a fear of missing out and profit taking seems set to continue. Trading within a broad sideways range with the risk of temporary setbacks is highly likely the coming months.
  • Credit: We expect the Italian component of the iBoxx corporate index to continue to trade close to current levels relative to the sovereign. However, later in the year, Italian corporates could outperform the sovereign amid challenges facing the government.

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