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The calculus of the curve

  • Yield curves steepened further, against an increasing likelihood of a large US fiscal stimulus, falling COVID infection rates and signs of recovering growth. 
  • Higher real rates suggest upgrades in medium-term growth prospects for the US and beyond, as other core yield curves are moving in the same direction. 
  • Uncertainty about whether higher inflation is only transitory could bring higher volatility, but for now, the global reflation theme remains alive. 
  • In the United States, retail sales surged on the heels of federal transfer payments. We have raised our official forecast for real GDP growth in Q1 to 3.5% from 2.5% previously. 
  • In the Euro area, the PMI services/manufacturing divergence continued in February, consistent with upside risks to our -1.5% GDP forecast in Q1. 
  • In the UK, the PM will announce the roadmap to lifting lockdown measures in England next week, which is likely to be gradual and data-dependent. 
  • In Japan, we expect GDP to contract in Q1, then reaccelerate with the vaccine rollout. Big changes in the COVID-19 backdrop could bring swings in the outlook and response. 
  • In China, we assessed the performance of services in four major sectors: retail, real estate, recreation and transport and found evidence for resilient recovery momentum. 
  • In EEMEA, a significant revenue over-run and funding over-shoot in South Africa point to a smaller 2020 deficit and potentially a lower funding requirement. Yet debt remains high. 
  • In Latin America, Brazilian lawmakers could vote on the extension of emergency aid as early as next week, even if details on fiscal costs and offsetting spending cuts remain unclear.

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