The Senate’s passing of a $1 trillion infrastructure package with the support of 19 Republican senators, including Senate Minority Leader Mitch McConnell, shows the Biden Administration still has momentum behind its government spending objectives.

Not only in China, but also in the US and even the EU, governments are concerned about the ubiquitous power of Big Tech. The influence of their platforms on elections, the security of vast amounts of consumer data and the exploitation of workers are increasingly putting these companies under the spotlight of authorities. In the US, congressional hearings have been held and antitrust lawsuits filed, so far without far-reaching consequences. In China, on the other hand, the government is tightening the reins and the political system allows for quicker action.

The state and its politicians have a strong interest in not losing the lucrative monopoly on money creation. Spontaneously created cryptocurrencies threaten the central banks’ monopoly on money creation. Thus, Bitcoin & co. can be seen as “enemies of the state, and of the central banks”.

After months of lockdown and limited business opportunities, independent asset managers in Switzerland are experiencing an enormous upswing. New client money is flowing in, and the stock market is doing the rest, as the latest AVI index shows.

We expect the global economy to grow around 5.0% in 2021.
Ultra-expansionary monetary policy had little or no inflationary effect during the periods of lockdown because of the collapse in the velocity of money circulation that was induced by those lockdowns.
Now, with the reopening of the economy, consumers can again spend on services like travel and hotels. This will tend to increase the velocity of money circulation, increasing the risks of inflation.
The Fed has adjusted its expectations for inflation and started to discuss “tapering”. The Federal Open Market Committee now projects the first rate hike in the next interest rate cycle as early as 2023 (instead of 2024 previously).
Stock markets are experiencing abrupt shifts in sentiment but remain resilient.
The September FOMC monetary policy meeting and the indication that the Fed will begin tapering bond purchases later this year had only a marginal impact on the US dollar yield curve.
Precious metals prices have corrected sharply as real yields have picked up. More details on our assessments in the new Aquila Viewpoint.

New virus variants will continue to prevent a complete opening of the global economy. Europe’s vaccination gap to the US has narrowed considerably. Inflation risks are high. A scaling back of highly stimulative monetary policies is not yet in sight. The recovery of the US labor market is slower than “the consensus” expected. Although more than 7 million jobs have been lost since the start of the pandemic, US wage inflation looks set to rise. The coming rise in consumer price inflation will be less transitory than central banks would have us believe.

Vaccination campaigns are being implemented at speed in most Western nations and lockdown measures are being scaled back. There is a risk that the jump in US inflation will not be just temporary. But the US labor market is still too weak for an inflation explosion. The latest US economic figures were disappointing. Central banks, like most other investors, are investing pro-cyclically and have increased their quotas for “investments” in risky instruments. Many central banks intend to hold less US dollars and more “other currencies” in their reserves.

Two-thirds of independent asset managers in Switzerland believe that cryptocurrencies do not belong in a client portfolio. Instead, they focus on equities and were able to significantly increase their assets under management in the first three months of the current year.

The rise in interest rates at the long end of the yield curve has come to a halt for the time being. This probably reflects the view that the Biden Administration’s infrastructure package will be financed primarily through tax increases. If implemented, the Administration’s plans would significantly worsen the international position of the US from a tax competition perspective. The good sentiment indicators in the US are due to booming stock markets. Never before have the real economy and stock markets been as linked as they are today.

Economic lockdowns are being rapidly reduced in the USA due to a significant drop in the number of cases. Europe, with the exception of the UK, has a clear backlog with regard to vaccinations and is again recording rising case numbers, which is why lockdowns tend to be extended or even reintroduced. The fiscal stimulus in the US is much higher than in Europe. More details on our assessments in the new Aquila Viewpoint.

Long-term interest rates have risen sharply in recent weeks. There are 3 reasons for this: 1. due to the strongly rising government deficits, more and more bonds have to be placed with investors 2. the prospect of an end to the quarantine measures and a strong economic upswing reduce the demand for government bonds 3. rising inflation expectations. Due to the enormous debt and highly valued equities and real estate, the rise in interest rates must be slowed down. We expect the FED to take further measures soon.

Large government rescue packages are straining the capacity of bond markets to finance them. Central banks have delivered a gigantic increase in the money supply which has caused a rise in inflation expectations. Nominal interest rates on longer-term bonds have risen more than inflation expectations, leading to higher real interest rates. Given that equity and bond markets are highly valued, investors must monitor developments closely. We expect central banks will soon become even more active in combatting the rise in long-term interest rates.