With a little over two trading weeks until the end of the first quarter, it is the perfect time to have a look at the macroeconomic perspective. When compared to the end of 2020, many things changed – for the better. 

It all comes down to the fight against the pandemic. The world made impressive steps toward ending the health crisis, despite a long road still remaining ahead. The success of the vaccination efforts led to hospitalizations falling down quickly in the countries that managed to inoculate the jab to a big proportion of their populations.

As such, the macroeconomic dynamics changed rapidly. Only this week, the OECD already upgraded the global growth outlook by 1%, on the back of increased vaccination efforts – and positive results. Challenges ahead still exist, but now the world is not so desperate anymore.

What to expect from the main asset classes for the rest of the year?

FX

At the end of February, Jerome Powell, the Fed’s Chair, led markets to believe that the Fed plans no tapering of its asset-buying anytime soon. Yet, the markets corrected for the end of the month, mostly due to an increase in the U.S. long-term yields.

That move triggered a higher dollar, but the strong dollar theme was short-lived. The EURUSD bounced from 1.1840, AUDUSD from 0.7620, while GBPUSD remained well bid as well. The new fiscal stimulus from the United States puts further pressure on the dollar moving forward.

Equities

Emerging markets equities should be the main beneficiary of the reflation trade. A lower dollar is beneficial for emerging markets that issued most of their debt in the world’s reserve currency.

Also, U.S. stock markets remain flamboyant, as more stimulus comes even though the economy shows signs of recovery.

Commodities

As the world wakes up from the pandemic, so does the economic activity. Oil-producing countries, seen their revenues declined significantly during the pandemic, are in no rush of raising the output to meet the higher demand. Just the opposite, as we saw at last week’s OPEC meeting, Saudi Arabia announced an extension of the production cuts by one month.

The imbalance between supply and demand triggered the best start of the year for oil in decades. Currently trading above $65, crude oil price remains bid on dips.

Global Growth

Italy has a new Prime Minister – none other than the former ECB President, Mario Draghi. His nomination led to a positive reaction in the European spreads, something welcomed by the ECB and financial markets.

On the other side of the Atlantic, the Biden administration moves with the speed of light both in reversing Trump’s policies and in providing economic stimulus. As such, we should not be surprised to see global growth upgraded even more, should financial conditions remain stable in the months ahead.