Inflation expectations

The big issue of markets in the coming weeks will be inflation and their consequences for global interest rates.This marks a strong contrast to the underlying deflationary conditions that have prevailed over our economies in recent years.

Inflation has been at its highest levels for several decades, about 7% in the US.UU.and 5% in the Eurozone.At the moment, markets remain a bit convinced that this will not last, since long -term inflation expectations have not increased much: they are around 2.75% in the US.UU.and 2.50% in the Eurozone.

In addition, investors have fully integrated the message of the Federal Reserve and their plans to raise basic interest rates quite quickly.Thus, they see that the type of federal funds will reach around 2% at the end of this cycle, that is, at the end of 2023.By then, 10 -year interest rates should be placed around 2.5%, since performance curves naturally tend to flatten towards the end of a cycle.Therefore, the yields of the American bonds have only stretched moderately, at least for the moment, although the tension has intensified since the beginning of the year.

There are currently two schools of thought about the issue of inflation.The first is agreed and argues that it is only a temporary situation.It is the central hypothesis adopted by central banks and is based on the fact that the latest statistics refer to temporary situations created by bottlenecks that were formed when economies began to open again.

In the same way, it is unlikely that the base effects are durable: for example, the prices of used cars and housing have skyrocketed in recent months, but they are the type of goods that consumers do not buy every year.So prices should be calm once the euphoria created by the reopening of economies has faded.The same goes for energy prices: oil prices have duplicated with more than the bottom of 2020, and they will not double each year.

Meanwhile, it should also be noted that if prices rise too fast, they can drag the demand down and then prices will also end up going back.So, in a way, inflation tends to "self -absorb".Supporters of this school of thought believe that the underlying deflationary forces continue to exist: the structural increase in debt levels, digitalization and robotization of world economies, the aging of the population...

But this central scenario is increasingly questioned, and the idea that inflation will last is increasingly widespread.

First, inflation begins to have an impact on wages, especially in the United States.This is what is known as the price/salary spiral.Salaries have risen 4.7% in a year in the US.UU.and about 15.0% in certain segments of the service economy, while unemployment has returned to 3.9% (which is close to its level prior to the crisis of 3.6%).This shortage of labor has been aggravated by a combination of factors: the deeply emotional character of this crisis has led some to rethink the search for meaning of their lives, to the point that they have not returned to the labor market or whatwill do in current circumstances.

There are those who have taken advantage of the situation to retire a little earlier, with the substantial help of pension funds, which are paying to the maximum.But this antitrabajo movement, which took off at the beginning of the 2010 with the protests of Occupy Wall Street, has gained strength, especially among young people during closing.This movement can also be found in China these days, again among young people, which is called the tendency to go to bed ".

Second, the energy transition is generating costs.The decarbonization of the economy means that the existing energy production capacity must be dismantled and replaced by another, but without increasing the amount of energy produced: this will therefore be a cost that will have to be paid, especiallyBecause this transition could cause an increase in the prices of the metals necessary to develop these new energies.

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Finally, relocation is a problem.This crisis has shown us how vulnerable supply chains can be if they are too scattered, especially in critical sectors such as health and agriculture, but also in the technology industry.Delocalization is a trend that could increase even more due to the "new cold war" between the United States and China.Thus, Western companies could try to depend less on China.Above all, the carbon footprint of the products we consume will become an important consumption problem and the solution will be to demociate production, which will probably raise prices.

Thus, inflation is not a black and white issue.We are of the opinion that the world has changed and that inflation could be structurally higher in the coming years, with a cruise speed that would exceed 2% objectives set by US and European central banks.Therefore, an inflation scenario of ~ 3% seems plausible, and would also make the reduction of the relationship between public debt and GDP throughout time..

In the midst of all uncertainty, we believe that markets could become more volatile, especially at the long end of the performance curve;This would impact on the variable income markets and a fall between 7% and approximately 10% would create opportunities to invest again.

Interest rates

Central banks: a matter of speed and scale

The market now foresees four increases in interest rates by the Fed in 2022.This is more than expected, but has not uploaded the expectations of final interest rates, since they are still well below the final type of the Fed at the moment (2.5%).Until this occurs, 10 -year interest rate will not shoot.However, we believe that expectations will be further adjusted, pushing the yields of the bonds just above 2%.In addition, the uncertainty surrounding the moment and the magnitude of the Fed's efforts to reduce its balance along 2022 suggests that the premium in the deadline will increase.

In Europe, German interest rates are expected to be positive again in the first half of this year.They will be driven, among other things, by American types.The ECB is slowing down its debt purchases more quickly than European treasures are reducing their net issuance programs (in about -120.000 million euros compared to 2021).This means that markets will have to absorb about 300.000 million euros more of sovereign debt this year than in 2021.We believe that this will help maintain the yields of German bonds in positive long -term territory, with the aim of reaching 0.25%/0.50% at some time 2022.

Investment grade credit differentials (difference between types) have been a bit pressured so far this year due to interest rates.Although the yields of the Grace Investment BondInvestors a very attractive entry point in this kind of assets.

Differentials of high performance bonds have been a little more resistant during the first two weeks of this year, but the market is cautious.We maintain our positive position on this kind of assets and observe that companies are financially solid: their credit ratios have improved, liquidity is abundant after historically high emission volumes in 2021, and the perspectives are good.However, this kind of assets is likely to be affected by the volatility of the market resulting from the regime change made by the central banks, which creates attractive entry points for investors.

Variable rent

Taking positions in a volatile context

The evolution of Variable Income Markets in 2021 can be described as exceptional.The year 2022, meanwhile, has begun more turbulently, although the indices continue to be around their historical maximums both in the United States and in Europe.If our central scenario is confirmed, we will see a slight increase in short and long -term interest rates, without the variable income markets being less attractive than those of fixed income.

With a worldwide economic growth forecast between 4.5% and 5.0%, the benefits of US and European companies should increase 8% and 7% this year, respectively.We know that the benefits are closely correlated with world economic growth, which will mean support.Of course, our central scenario does not take into account a sudden resurgence of the Covid virus pandemic, which would affect economic growth and, therefore, the increase in benefits.The other risk is the persistence of inflation, which would erode margins if companies fail to impact the highest production costs on their sales prices.

Precisely the issue of inflation has been decisive for the results of the sector so far this year.We were not used to seeing how performance differences of more than 25% in the two -week space between banking, automobile and oil values accumulated, on the one hand, and the values of the "growth" industries, such as luxury and luxuryTechnology, on the other.But this has a simple logical reason: if interest rates will rise a little more than expected, the sectors that are valued mainly discounting their future benefits will be penalized, in contrast to the banking sector, for example, or the sectorenergy, which is benefiting from the strong rise in oil prices (among other factors).There are no reasons for this rotation to be invested soon.

At the beginning of December we had improved our recommendation at a level, due to the consolidation of the market caused by the appearance of the OMICRON variant.Now we resume a neutral recommendation after the rebound observed in the last 6 weeks, since we hope that the stock market profits throughout the year are in line with the growth of the benefits (there is no reason for the capitalization multiples of the capitalization of the capitalization of themarket increase in the middle of the rise in interest rates).It is likely that stock yields are much more modest than last year and are in a single digit.They should be attractive compared to those offered by bond markets, but there is no doubt that the next volatility outbreak will create entry points below the current levels.

Central scenario ofi am

The monetary hardening in line with the increase in inflation rates is creating periods of volatility in the markets.Until inflation rates do not abruptly retreat, the speed and magnitude of the measures taken by the central banks will continue to feed the concern for the risk asset market.

We see that expectations of interest and purchase rates of assets will continue to adjust up to increase until inflation decreases.

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Therefore, we foresee that interest rates will continue to rise and that the variable income markets will be adjusted accordingly with respect to the general levels of the indices, as well as to the individual investment styles.Once the profits of the last six weeks have been made, we foresee that this period of uncertainty will create better entry points to return to the Variable Income Markets.


Assets classes

Bond markets could become more volatile, since there is more and more uncertainty about whether inflation is really temporary and if the USA.UU.They will begin to harden their monetary policy.

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Variable income is expected not to move in any concrete direction in the coming weeks.


There is little room for credit spreads to be reduced at this time.The local currency bonds of emerging markets in 2021 were punished hard for the increase in inflation in many countries, promoting interest raising and dragging the downward currencies.Investors could be interested again in bonds in the coming weeks

Variable rent

The benefits of companies will continue to grow this year.This will provide solid support, to the point that the variable income will continue to be attractive in the medium term, so investors should reinforce their positions in the case that falls occur.European Variable Income could get better results this year.

Variable rent por estilos

Values that are sensitive to interest rates can achieve higher performance.They are usually more represented in the category of "Value".The "dividend" values, meanwhile, also seem attractive, since we do not see that markets obtain great profits in the coming months.

Foreign exchange

Investors seem to have taken into account the rise in interest rates in the United States.This impulse seems to be decreasing.We do not expect the euro/dollar exchange rate to fluctuate a lot.The appreciation of the appreciation of the Chinese Yuan should also slow down this year.

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