Q2 2021 Macro View for the Global Economy
The first quarter of the trading year ends tomorrow, and traders already think of what happens in the next three months, trying to identify the main trends. The macroeconomic picture looks mixed, with many conflicting signs that make it difficult to adjust the portfolio accordingly.
Monetary Policy
On the monetary policy front, the second quarter is not supposed to bring anything new from the major central banks in the world. The Fed recently signaled it would keep its rates close to zero until mid-2024, the ECB vouched to do the same, while the RBA remains aggressive in its efforts to control the yield curve.
As such, expect the accommodative measures to remain in place in developed economies, helping to boost the recovery and equities prices.
Commodities
Oil is already traded ahead of itself, reaching and exceeding many investment banks’ target for the end of the year. The bullish trend continues as the price of oil found an inflection point at the $60 level, and buyers are willing to step in on every dip. OPEC+ keeps to its supply strategy, the price of oil should firm further, and one should not discount a move above $70 as early as the second quarter of the year.
Equities
The global cyclical rebound has sent the stock market indices at the highs. In the United States, the Dow Jones is at all-time highs, and the Nasdaq100 recovered most of its losses from the end of February. European equities are well anchored, while the United Kingdom stock market is viewed by many as the most interesting for the period ahead.
Fixed Income
The rise in the long-term yields in the United States has led to a stronger dollar. The yields should continue to trend higher together with the economic recovery, and that should bode well for the dollar. However, many investment banks still believe in the reflation theme (i.e., lower dollar).
Currencies
Deutsche Bank sees the EURUSD at 1.25 in the second quarter of the year and 1.30 by the end of it, while the USDJPY should correct back to 105. If that is the case, investors should prepare from a divergence of the dollar from the strength in the yields. Unless that correlation breaks, the EURUSD will have a hard time getting back at the highs.
