The second quarter of 2021 is projected to be the polar opposite of the same quarter in 2020 when the global economy experienced its worst performance in modern times
That’s the view of George Lagarias, chief economist at Mazars, as he outlines three things to watch in the second quarter of 2021
- The second quarter of 2021 is projected to be the polar opposite of the same quarter in 2020 when the global economy experienced its worst performance in modern times.
- Equity markets reached new highs as G7 economies gear up to exit lockdowns and unemployment figures in the US come out much better than expected, allowing companies a chance to ‘earn’ their current valuations.
- Bond markets have stopped the free-fall as the Fed is focusing less on the shorter term recovery data and more on the longer term repercussions of an uneven and unbalanced recovery.
“The second quarter of 2021 is projected to be the polar opposite of the same quarter in 2020 when the global economy experienced its worst performance in modern times. Global output is improving markedly. The UK is reaching critical herd immunity levels while the US and Europe are now ramping up Covid-19 vaccinations allowing G7 economies to confidently begin reopening in the next few weeks. Employment data are consistently good, especially in the US, suggesting that post-stimulus unemployment rates may well be manageable. Weaker than average confidence amongst consumers and businesses leaves room for further improvement. Meanwhile, the US Federal Reserve remains sceptical of the nature of the recovery, as it feels the global economy will remain out of sync for some time, leaving a lot of slack for the economy and thus long inflation pressures muted.
“It is no surprise then that last week saw global equity prices soar to new highs, while the bond yield rally seems to have stopped for now, with the US 10-year Treasury Bond unable to break the 1.75% mark for almost a month.
“Both equities and bonds rising is not just due to the help of the Federal Reserve but also because of the different time horizons of their investors. This stage of the recovery, the initial rebound, is good for equities which rally on the good economic news as analysts can place more faith in companies generating the income to justify their current valuations. Longer term economic weakness would affect the bond market more, as fixed income traders really care about the willingness of the central banks to keep their fingers on the scale, against a backdrop of an uneven and unbalanced recovery throughout the year.”
