The return of inflation could be the market driver of 2021 and somehow weigh on the recovery plans of Europe and the United States, with the latter possibly more exposed to a price increase compared to the Old Continent.
The rise in 10-year US Treasury yields – believed to be a key indicator of inflationary expectations by traders – last week shows that markets believe that prices for goods and services are set to rise much more sharply than before. ‘1.4% last year. Which could force the Federal Reserve to raise interest rates sooner than it intends to do under its current guidance, despite denials from US central bankers.
However, sovereign bond yields increased not only in the United States, but also in Europe, with French 10-year government bonds turning positive last Thursday, for the first time in several months, while the German 10-year Bund of reference has also risen, although it remains negative. Increases were also recorded for Italian BTPs.
The return of inflation could be the market driver of 2021
According to the figures, European inflation data for January showed a price jump of 0.9% from minus 0.3% in December, due to the increase in commodity costs that spilled over into services and industrial goods. If the inflationary trend were to continue in the following months, the ECB it may therefore need to review its guidance and anticipate the rise in interest rates, with effects on eurozone sovereign bond yields and consequently also on equity markets.
Certainly an inflationary perspective, which can create some difficulties for the newly elected president of the United States Joe Biden struggling with its maxi plan to stimulate the economy and the governments of the Eurozone most in difficulty, such as Italy and Spain, which are eagerly awaiting the arrival of the funds from the Next Generation fund (for our country it is about 209 billions of euros) to boost growth and employment, which however require a moderate inflation rate.
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