A just-published report examined the key current narratives, and highlighted where MRB has a significantly different view, particularly in terms of the economic and inflation outlooks.
The current consensus among investors and central banks is that this year’s spike in growth and inflation will peter out with the world returning to something better characterized by the secular stagnation narrative. Our research shows that the current boom in global growth will indeed moderate over the next year, but not by as much as investors and central banks expect. Underlying economic activity will settle into a much faster run rate than the 2010s. Solid demand and diminishing slack, rather than supply woes, will be the cyclical drivers of inflation in the next year and beyond.
The bond market is betting on a return to the environment of the 2010s, although some bond bulls are becoming nervous that they are too sanguine about the outlook. Meanwhile, risk-taking has been subsidized by negative real interest rates, causing equity, credit and commodity markets to front-run improving fundamentals, setting the stage for a volatile next 6-12 months. Stay tuned.