The Restoration

The focus in the week ahead is squarely on the United States. The ECB, the BOJ, the Bank of Canada, and Norway's Norges Bank met last week. No fresh initiatives were taken, but if there is to be a takeaway, it is that the vaccine appears to have made policymakers, like many of us, more confident about the medium-term outlook, even though more pain and grief are likely first on the agenda.

Investors see continued open-spigot monetary policy and more fiscal stimulus (e.g., US, EU Recovery Fund). Coupled with the vaccine's rollout, it will generate a critical mass of more robust economic growth as the year progresses. The reflation trade has helped lift commodity prices and emerging markets.

The MSCI Emerging Markets Equity Index rose by about 2.5% last week, its fourth consecutive weekly increase. In fact, going back to the end of September, the benchmark has fallen in only two of the past 17 weeks, during which time it has risen by almost 30% to new record highs. Since the eve of the election, the CRB Index has risen by nearly a quarter.

From a high level, it increasingly appears the populist moment has passed. The elites in many high-income countries were challenged, beginning with the Great Financial Crisis. We saw it in terms of Karl Polyani's second movement, a popular pushback after a broad liberalization. That broad liberalization we can trace to Reagan-Thatcher. 

The AfD in Germany had more nationalist than populist roots, but it is the Green Party that has moved into the vacuum created by the blurring of the Social Democratic Party and the Christian Democratic Union after years of coalition governments. Ironically, there is speculation about the possibility of a CDU-Green coalition on the federal level, which up to now has been tried only on the state-level, as a possible outcome of the September election.

The Five Star Movement in Italy, for example, is now part of the governing coalition. It appears vulnerable to losing seats in the next parliament, where both chambers will be around a third smaller.

Podemos in Spain serves as the junior partner in the Spanish government. It has lost its earlier momentum and slipped into fourth place. Co-opting opposition and absorbing their thunder are time-tested techniques. In Greece, the New Democracy, one of the two main traditional parties, has returned to power and enjoys an outright parliamentary majority.

Even though Trump was defeated on the national level, his party picked up seats in the House of Representatives, several statehouses, and a governorship. Trump himself drew more than two million more votes last year compared to 2016. However, since the election, particularly the events leading up to and including the attack in the Capitol on Jan. 6, it seems clearer that the Democrats have recaptured the mantle of leadership and returned to power. 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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