Q2 Global Research Economic Outlook - Forecasting economic growth, inflation and the impact on emerging markets
At a Glance
The desk believes that improving global growth prospects are tempered by inflationary risks and uneven vaccine distribution, particularly impacting emerging markets. Per the full note from Standard Chartered, the potential for inflation to become entrenched could lead to higher rates, which would disproportionately affect these markets. Our consensus target for the currency pair reflects a cautious optimism amid these challenges, with a focus on how fiscal policies evolve in response to inflationary pressures.
Full Analysis
What the desk is arguing
The desk posits that while global growth is on an upward trajectory, the disparities in vaccine rollouts across economies create a complex landscape for emerging markets. Per the full note from Standard Chartered, the looming threat of inflation, coupled with rising fiscal debt, poses significant risks that could lead to increased rates and volatility in these regions.
Supporting this view, recent data indicates that inflation rates are already climbing in several developed economies, prompting speculation about central bank responses. For instance, if inflation expectations rise beyond current forecasts, we could see a shift in monetary policy that would impact emerging market currencies more severely than their developed counterparts.
Where it sits in our coverage
Our consensus target for the currency pair is 1.075, with a range of 1.04 to 1.12. Notable targets from other firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns closely with jpmorgan, which shares a similar outlook on the potential for inflation to disrupt emerging markets, while bofa presents a more cautious stance, placing their target at the lower end of the spectrum.
How other firms see it
Firms like jpmorgan and goldman are aligned with the desk's view, emphasizing the risks posed by inflation and the uneven recovery across regions. In contrast, bofa and citi maintain a more bearish outlook, focusing on the potential for slower growth in emerging markets due to fiscal constraints.
Key indicators to watch include the USD/TRY trajectory, which may reflect broader trends in emerging market currencies, and the ECB's policy stance, as it could influence investor sentiment toward risk assets.
What the calendar says
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From the original
Prospects for global growth are improving but the unevenness of the vaccine rollout is creating divergences across different economies and sectors. In addition, rising fiscal debt and the possibility of inflation are looming in developed and emerging markets. If inflation becomes
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The desk believes that the global economic recovery, while bolstered by policy support and vaccine distribution, remains uneven and presents both opportunities and risks for FX traders. Per the full note from Standard Chartered, the unevenness of recovery could lead to differentiated monetary policy responses across major economies, impacting currency valuations. Current positioning suggests a cautious approach as investors weigh these factors against potential inflationary pressures and central bank actions. As we look ahead, the upcoming economic data releases will be crucial in shaping market expectations.