Market Views

GLOBAL CREDIT BULLETS | Monday, 18th January 2021

US Stimulus – The American Rescue Plan.
President-elect Biden unveiled his $1.9tn (8.6 % GDP) ‘Phase V’ stimulus package on Thursday. The plan mainly entails bigger stimulus checks, aid for the unemployed, additional support for small businesses and local governments and increased funding for healthcare. We view this as an emergency package rather than as long-term investments, with many measures from Congress’ historic $3 trillion coronavirus relief bill being augmented. Timing remains the key question, with passage to be expected any time between mid-February and March. This week we’ll see both the Biden/Harris presidency inauguration and Yellen’s first speech as Treasury secretary.

FED – No early exit.
Jerome Powell reiterated the FED’s dovish stance last Thursday, clearly stating that ‘now is not the time to be talking about exit’ from the current mix of accommodative policies. Powell added that temporary inflation increases will be tolerated and that neither interest rates will rise, nor asset purchases will be tapered any time soon. Therefore, we assign a low probability to a taper tantrum in 2021 but do believe rates have further room to widen this year, albeit gradually, amid Biden’s stimulus plans.

German Politics – Road to the Elections.
Germany’s ruling CDU has elected Armin Laschet, the centrist candidate and Merkel’s preferred successor, as their new party leader and thereby once again chose “continuity” over venture. CDU’s challenge into September will be twofold: to overcome the internal rift between the pro-Merkel establishment and the conservative wing, without losing more voters to right-wing AFD, and to sharpen the profile ahead of a potential coalition with the increasingly-popular Greens. Thereby, CDU/CSU’s candidate for chancellor is yet to be determined, as CSU-leader Markus Söder currently enjoys greater popularity than Laschet. Federal state elections on March 14th will provide first feedback in two states, in which the Greens already form part of the governments.

Italian Politics – Reshuffling without elections.
Conte’s ruling coalition has been threatened following the withdrawal of Renzi’s party from the cabinet. We believe Conte now faces two scenarios; face a parliamentary confidence vote or resign. Either way, we believe a fresh election is unlikely, thereby our base case is that there will be a reshuffling of the current coalition without elections. We expect there to be only limited volatility due to the associated environment of uncertainty for at least a week, with the greatest risk of high volatility connected to our least probable snap election outcome.

To read more on our latest views, please see our Silver Bullet | The New Bond Vigilantes or visit our Insights section.

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