![]() A dynamic of this kind has been playing out in commodity markets: a revival in industrial demand (notably from China) for copper and iron ore has bumped up against supply constraints and led to a run-up in prices.Ī temporary bout of inflation seems plausible. With enough bottlenecks, a surge in spending could drive up inflation. Meanwhile recession has also taken out supply capacity: a lot of small firms (and some large ones) have gone under. Lockdowns and fiscal transfers have left rich-world consumers with extra savings and a lot of pent-up demand-fuel for a post-pandemic spending spree. Yet another risk, and one that keeps some market bulls awake at night, is resurgent inflation. In Europe the boost from the €750bn ($920bn) recovery fund should start to be felt from the middle of the year. ![]() The loss of the Republican majority in the Senate may open the door to further fiscal easing. In America the $900bn fiscal package passed after Christmas will add two percentage points to GDP growth in 2021, reckon economists at JPMorgan Chase, a bank. So far, though, there is little sign of this. A natural concern is that stimulus might be withdrawn abruptly, as it was after 2010. What if policymakers change tack? Continued fiscal support requires political action and agreement, which cannot always be relied upon. Indeed, 2018 began with much talk of a market melt-up, but ended with heavy stockmarket losses.Ī lot of the current optimism rests on the idea that policy will continue to support the economy. Paradoxically, positive sentiment is often seen as a reason to be wary, and that investors have got ahead of themselves. A large majority think the world economy is in the “early-cycle” phase (ie, that there is a long runway of growth ahead). The last time fund mangers were this optimistic about the scope for stockmarket gains was January 2018, according to a monthly survey by Bank of America done in December.
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