30th March 2021

The relationship between economics, politics and financial markets is symbiotic, with substantive shifts in one often giving rise to large changes in the others. The pandemic, and the global response to it, has resulted in significant economic disruption, altered the leanings of the political establishment, and led many to question whether we are on the cusp of breaking a 40-year trend of declining inflation. The global bond market has certainly taken notice with the US yield curve (2s10s) steepening some 100 basis points since the surprise Democrat win in the Georgia Senate Runoff on the 5th of January. With the consensus view that this has essentially paved the way for unfettered fiscal spending, spectacular forecasts for growth and inflation continue to flourish as increasingly investors have eschewed the bond market on concerns over economic over-heating. However, as we discuss, the global economy has structural headwinds to growth and inflation which, as things stand, cannot easily be overcome.

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