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CROSS ASSET WEEKLY
15.01.2021

Our new macro and market forecasts including a new US-fiscal package

Summary
Cross asset weekly pic
December seems to be a long time ago considering what has happened since first we presented our forecasts for this year and next. COVID vaccinations have started in many countries, but a more contagious virus variant is spreading out. A last minute Brexit-deal was achieved and the ECB announced a number of expansive policy measures. The US-Senate flipped from a Republican to a Democratic majority enabling President-elect Biden to propose a new USD 1.9 trillion fiscal stimulus. Meanwhile, the current US President continues to break long established norms and got impeached for inciting an insurrection.
The economic consequences from this package of news are clear: In Q1 very weak growth in some countries and a double-dip recession in others, but stronger growth in the US and globally better chances for a solid rebound from Q2 onwards once the most vulnerable parts of the population have had the chance to become vaccinated. As a result, we have increased our GDP forecast for the US to 6.0% for this year – assuming that the Biden proposal partly makes it through Congress but have lowered it for the UK and the euro area. We have also lowered our USD forecast and slightly increased our equity index targets. In the fixed income space, we continue to forecast moderately higher yields, along with steeper yield curves, most pronounced in the Dollar markets. While we expect the primary driver to be higher inflation expectations, some moderate upward pressure on real yields could develop later in the year, mainly in the US. Finally, we also looked at the medium-term perspectives of China and conclude that its asset markets should continue to outperform in the coming years.

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