The English version of coronavirus has brought the UK and threatens to spread to other countries, where the mutations have already appeared. Again, as argued last month, i times of the short-term statistics are lagging behind compared to the count of infections, and even the December data do not take into account the acceleration of the pandemic in the second half of the month and up to today. In the quarter that has just ended, the change in GDP it will come back to being negative in Europe, while it will still be positive in America. But during the quarter things got worse in those parts as well, placing amortgage on the first quarter of 2021.
In Asia things are certainly better than in the West. However, even there one notices one outbreak growth: in Japan, in South Korea, in Hong Kong, in Thailand… The China not affected, and this year the growth forecast by the Fund (+8,2%) will account, again, for about a third of global GDP growth.
On both sides of the Atlantic the 'fatigue from restrictions' (it is possible to hold your breath for 20 seconds, but not for 20 minutes…). A tiredness that could be countered by vaccinations, whose times and ways will be slow and cumbersome, given the difficulties in logistics and administration.
The beginning of the year is a time for scenarios and philosophies, and in this light there is some comforting news. It makes its way, in economic policies, the notion that public budgets must continue to support the economy and avoid premature returns to austerity (as happened in 1937 in America, and, more recently, and on several occasions, in Japan; and as happened everywhere after the Great Recession of 2008-9).
It is not only a question of economic policy, but also of economics as a science. Simply put, with secularly low interest rates, the deficit budget need not worry and they can continue to be secularly high.
Thus, the modus operandi of economic policies changes, which see a stronger role than budgetary policies, while at Central banks is assigned the task of keeping rates low and, gently and occasionally, financing public deficits with money creation. All this, pace of right-thinking people who bite their nails thinking about ever-rising public debts.
Inflation continues to cause no concern, except for the fact that would like it higher. In fact, at the level of producer prices tensions are noted. There is a general reason: the goods economy – as we have already said – has held up better (or less badly) than the services economy, and this explains the rise in those prices. And there is a particular reason: among the secondary effects of the restrictions there are also the transport difficulties, which generate unavailability of the goods with consequent price pressures. At the level of raw materials – oil and non-oil – the increases are evident, but they are also due, and in large part, to the hunger of the biggest absorber of raw materials: la China.
Of course, the gearbox has also played its part. The price of Petroleum, for example, has increased by 30% in dollars from June 2020 to today, but only of 18% in euros, thanks to the appreciation (see below) of the single currency. For non-oil raw materials, the percentages are, respectively, 28% (in dollars) and 16,7% (in euros). All of this could put pressure on margins of businesses, but it is unlikely that it will spill over into consumer prices, given the weakness in demand and wages.
I long rates are on a slight rise, more marked for the United States, where sui T Bond have crossed the wall (so to speak) of 1%. For the Waist e btp increased by a few basis points, but that 'little' was less for BTPs, so that spread it's down from last month to 110 or so.
I btp they continue to compensate those who had bought them when they yielded more than the low fruits of this beginning of the year. We are on a yield just above 0,50%, the most crushed ever. The well-thinking already mentioned, anxious by public debt at 160% of GDP or higher, do not live in the market, which crouches under mom ECB (intellectually comforted also by the new economic policy philosophies mentioned above).
For the real rates, these, at the beginning of the year, positioned themselves, with a rare commonality of intent, just below zero, for T-Bonds, Bunds and BTPs. Varying on the previous jeremiads Lancet, who complained how, in theannus horribilis 2020, should have been much lower, it is fair to note that in a 2021 which will see the rebound in economic activity (fingers crossed is a must), a real rate close to zero helps the recovery.
For the you change, continues the descent of dollar, already foreshadowed in the past. We are, against euro, at around 1,23 (still near zero on long-term real rate differential), while it yuan makes another leap in appreciation, to 6,46. Mostly yuan the better performance of the economy continues to weigh, as well as the fact that, despite Trump's pinpricks and assorted sanctions, the capital continues to flow towards the Chinese giant. Another consideration is in order, regarding the dollar: if the currency is the business card of a nation, this card, given what happened in America with the elections and the tragic assaults on Congress, it looks very rumpled today. And then the hole in the external accounts is destined to widen and will have to be financed.
If the 2021 has two faces, the positive one - the exit from the pandemic thanks to vaccinations - is the one they look at with affection i stock markets, which, as usual, ignore the other side (the damage to the economy from restrictions). A graph that compared infections and deaths in the world with the world stock exchange index would see a macabre harmony between the three variables. But the bags look to production and profits, not to hospitals and cemeteries. All we have to do is believe the markets and (crossing our fingers for the second time) hope they are right. Together with the low real rates mentioned above, the low cost of equity capital linked to the happiness of the Bags makes the monetary conditions favorable to recovery.
