Revisiting some of their calls for the first half of 2021, the strategists say their main convictions still hold true: there has been a fiscal and monetary policy mix to support recovery, rebound is accelerating, while inflation is muted--even if it’s something to keep an eye on. The team also sees Joe Biden’s US presidency as one that will bolster the agenda on global climate.

“Our clients are still very enthusiastic about the markets. They’re still expecting above average opinions going forward,” explained Nicolas Deblauwe, country head for Benelux and France, during Wednesday’s webinar.

Despite the headwinds, Deblauwe added: “Inflation is starting to worry some clients: is it structural? Is it temporary?”

Inflation “mainly transitory”

As global market strategist Vincent Juvyns showcased, most of the macroeconomic trends and themes addressed by the company at the start of 2020 were on point--with one big exception.“We believed that US exceptionalism as seen on the economic, market and currency front[s] would fade, and we haven’t really seen it... clearly we had more questions around the dollar,” he explained.

While global growth forecast has recently been adjusted to 5.6%--a rate not seen for half a century--JP Morgan Asset Management sees “a massive revival of economic recovery”, this being a booming time for both manufacturing and services in the Eurozone and US, while consumer spending should remain supported.

On the inflation side, however, prices are rising both in services and manufacturing. “The main reason at the moment for the surge of inflation is the logistical issue we’re facing...not only in industry, but also in the service sector.”

Overall, Juvyns expects inflation to be “mainly transitory”, adding that questions had been raised when at the start of this year US inflation reached 4%. While peak inflation is expected in Q2 or Q3 of this year, by next year they predict below 2% for Europe, below 3% for the US.

While plenty of long-term factors are still weighing on inflation--globalisation, less membership in unions and the acceleration of online penetration of retail sales among them--over the short-term, “the inflation issue needs to be monitored, but I have the impression that the central banks are on top of it,” Juvyns explained, with emerging markets already tightening, plus the Fed expected to taper by late 2021 or early 2022.

Impact on portfolio

Even as Biden proposed an unprecedented $6trn budget plan in May, Juvyns reminded participants of the fruits of the Juncker Plan, adding that next month’s deployment of the EU Recovery Fund, while “less ambitious, comes on top of what member states and the EU Commission are doing... going forward, this change of fiscal paradigm is Europe is clearly something which supports growth.” The change of stance in this area had JP Asset Management increase its growth forecast slightly for Europe over at least the next decade.

With the US’ rejoining of the Paris climate agreement, and climate change expected to factor heavily into this week’s G7, the asset management company anticipates reaching net zero will lead to global increases in carbon prices and that reducing carbon intensity of a portfolio should lead to better risk-adjusted returns over the longer term.

For fixed income markets, Juvyns says there are still opportunities, as they expect a steeper yield curve as interest rates creep up, and propose optimising with lowest possible duration, highest possible income. Equity markets, while a bit more cautious in emerging markets, are optimistic, although at some point rising interest rates could impact them--historically, they stay positive if interest rates remain lower, the strategist added.