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Bank J. Safra Sarasin’s Economic and Financial Market Outlook – Risk assets to benefit from low real yields

  • The global economic recovery should continue to unfold, despite a pick-up in Covid-19 infection rates as people learn to live with the restrictions associated with the pandemic.
  • Forceful, timely and well-targeted monetary and fiscal stimuli have been crucial in preventing a deeper and longer-lasting recession.
  • The new Fed-strategy is a game changer for monetary policy. It will anchor policy rates at very low levels in advanced economies, like the euro area and Switzerland, as central banks will want to prevent an unwelcome upward pressure on their exchange rates.
  • The higher US-inflation target and the enormous policy stimuli should increase inflation expectations over time and depress real yields.
  • Low real yields should support higher equity valuations, which should also benefit from solid macro momentum, positive earnings revisions and abundant liquidity.
  • Gold prices should benefit too from this environment. As gold doesn’t pay any interest rates, gold prices tend to rise when real bond yields fall.