THE UNICREDIT MACRO & MARKETS WEEKLY - UNICREDIT RESEARCH
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The UniCredit
Macro & Markets
Weekly
Macro Research No. 223
Strategy Research 12 March 2021
Credit Research
“ Fed’s dots to dampen yield rally
”
This week, the ECB sent a strong message that it is about to ramp up PEPP purchases to respond to the recent
unwarranted tightening of financing conditions. US Congress passed the USD 1.9tn coronavirus relief package and it
was signed into law by US President Joe Biden shortly afterwards. The ECB announcement provided a temporary
impulse for eurozone bonds. Bund yields look set to close the week little changed and the 10Y UST yield somewhat
higher. European credit risk premiums – both investment grade and high yield – remained range-bound to slightly
tighter. Equity markets advanced by up to 5%, at times supported by easing pressure from bond yields. EUR-USD
largely mirrored movements in US yields and remained below the 1.20 mark.
– Macro: In Germany, the latest opinion polls signal that the CDU will perform badly in two federal state elections
this Sunday. The FOMC meeting on Wednesday is unlikely to bring any major policy changes. The dot-plot for
2023 will probably not show a strong increase of participants projecting lift-off.
– FI: The message from the ECB statement is likely to prevent long-term yields from rising over the next several
weeks. We expect next week’s FOMC meeting to dampen the rise in US yields.
– FX: The USD stays firm and the FOMC meeting is unlikely to alter this picture. Yet, IMM data do not show a shift
in total USD exposure, which is still short despite spot market swings. The BoJ is set to keep current trading band
on the JGB 10Y yield, while the CBRT will likely hike again due to higher Turkish inflation and the weak TRY.
– Equities: An improving economic outlook is likely to be more supportive of earnings recovery for small-caps and
value stocks, which we expect to keep outperforming large-cap and growth stocks.
– Credit: New bond gross issuance in European credit market has accelerated, driven by US corporates. However,
higher new-issuance premiums and lower bid/cover ratios indicate initial signs of declining appetite for new credit risk.
Editor: Dr. Thomas Strobel, Economist (UniCredit Bank, Munich) Editorial deadline: 12 March 2021 11:30 CET12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
Markets at a glance
Current Total return (%)
Equities Price 1M 3M 6M 12M YTD QTD
MSCI World (USD) 2806 -0.3 7.4 19.5 61.2 4.6 4.6
MSCI EM (USD) 1358 -4.9 8.4 25.3 57.6 5.4 5.4
S&P 500 3939 0.2 7.9 18.8 61.6 5.2 5.2
Nasdaq Composite 13399 -4.9 8.4 23.9 87.6 4.1 4.1
Euro STOXX 50 3823 2.0 6.7 10.2 36.6 5.6 5.6
DAX 14478 3.0 10.4 9.7 58.0 5.5 5.5
MSCI Italy 62.82 3.9 11.2 21.8 61.5 8.7 8.7
Rates (government bonds) Yield (%) 1M 3M 6M 12M YTD QTD
1-3Y US 0.15 -0.1 0.0 0.0 1.0 0.0 0.0
7-10Y US 1.60 -2.5 -4.3 -5.5 -2.7 -4.3 -4.3
1-3Y Germany -0.69 -0.1 -0.4 -0.4 -1.3 -0.2 -0.2
7-10Y Germany -0.31 -0.7 -2.2 -1.1 -3.0 -1.6 -1.6
1-3Y Italy -0.39 -0.1 -0.2 0.5 2.7 -0.1 -0.1
7-10Y Italy 0.63 -0.8 -0.4 3.7 11.0 -0.4 -0.4
Credit OAS (bp) 1M 3M 6M 12M YTD QTD
iBoxx Non-Financials (EUR) 57 -0.6 -1.2 1.2 3.6 -0.8 -0.8
iBoxx Non-Financials Sen (EUR) 50 -0.6 -1.2 1.1 3.3 -0.8 -0.8
iBoxx Non-Financials Sub (EUR) 181 -0.3 0.2 3.8 8.5 0.0 0.0
iBoxx Financials (EUR) 63 -0.4 -0.5 1.4 4.1 -0.4 -0.4
iBoxx Financials Sen (EUR) 51 -0.3 -0.6 1.2 3.4 -0.4 -0.4
iBoxx Financials Sub (EUR) 124 -0.5 -0.1 2.7 7.2 -0.2 -0.2
iBoxx High Yield NFI (EUR) 296 0.0 1.5 5.5 15.3 1.4 1.4
EM hard currency* (USD) 278 -2.4 -2.2 -0.1 8.8 -3.0 -3.0
Current Price change (%)
Commodities Price 1M 3M 6M 12M YTD QTD
Oil (Brent, USD bbl) 69.6 11.1 39.1 74.4 112.6 34.6 34.6
Gold (USD oz) 1,700.2 -6.6 -7.0 -13.1 6.6 -10.2 -10.2
Bloomberg Commodity Index 85.7 1.9 14.4 19.7 29.5 9.8 9.8
Exchange rates Price 1M 3M 6M 12M YTD QTD
EUR-USD 1.19 -1.7 -2.0 0.4 6.5 -2.6 -2.6
EUR-GBP 0.86 2.1 6.4 7.7 3.5 4.6 4.6
EUR-CHF 1.11 -2.6 -3.0 -3.0 -4.7 -2.5 -2.5
EUR-JPY 130.0 -2.1 -2.7 -3.5 -9.3 -2.9 -2.9
EUR-NOK 10.11 1.4 4.9 6.0 12.5 3.8 3.8
EUR-SEK 10.15 -0.8 0.6 2.6 6.9 -1.0 -1.0
EUR TWI 100.5 -0.4 -1.4 -1.6 2.5 -1.6 -1.6
EUR-PLN 4.59 -2.1 -3.3 -3.2 -4.6 -0.5 -0.5
EUR-HUF 366 -2.1 -3.5 -2.5 -7.8 -1.0 -1.0
EUR-CZK 26.2 -1.9 0.5 1.6 -0.1 0.1 0.1
EUR-RON 4.89 -0.2 -0.3 -0.6 -1.2 -0.3 -0.3
EUR-TRY 9.06 -6.0 5.9 -1.7 -22.1 0.3 0.3
EUR-RUB 87.7 1.8 2.3 1.7 -5.8 3.4 3.4
Returns are shown in domestic currency *Bloomberg Barclays index Source: iBoxx, Bloomberg, UniCredit Research
Prices on 11:00 PM
UniCredit Research page 2 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
Major data releases and economic events of the week ahead
Date Time Country Indicator/Event Period UniCredit Consensus Previous
13 - 19 Mar 2021 (CET) estimates (Bloomberg)
Sun, 14 Mar GE German regional election in Rhineland-Palatinate
GE German regional election in Baden-Württemberg
Mon, 15 Mar EMU Eurozone finance ministers meet
9:30 SW Underlying CPI (% yoy) Feb 1.9 1.8 1.7
9:30 SW Underlying CPI, excl. energy (% yoy) Feb 1.6 1.8
10:00 PL Consumer price index (% yoy) Feb 2.6 2.7
13:30 US NY Fed Empire State manufacturing survey Mar 14.0 12.1
15:45 EMU ECB releases weekly APP and PEPP purchase data
Tue, 16 Mar EU EU finance ministers meet
0:00 JN BOJ Governor Kuroda speaks at FIN/SUM 2021
1:30 AU RBA Minutes of March policy meeting
10:00 SW Riksbank's Ingves and Ohlsson in Open Hearing
11:00 GE ZEW Survey - current situation (index) Mar -61.0 -62.0 -67.2
11:00 GE ZEW Survey - expectations (index) Mar 72.0 75.0 71.2
13:30 US Import prices (% mom) Feb 1.1 1.4
13:30 US Retail sales (% mom) Feb 0.0 -0.3 5.3
14:15 US Capacity utilization (%) Feb 75.4 75.5
14:15 US Industrial production (% mom) Feb -0.3 0.6 0.9
15:00 US NAHB Housing Market Index Mar 84.0 84.0
15:00 US Business inventories (% mom) Jan 0.3 0.6
17:00 RU Industrial production (% yoy) Feb -2.1 -2.5
Wed, 17 Mar NE Dutch elections
0:30 AU RBA's Kent gives speech online
13:30 CA Consumer price index (% yoy) Feb 1.0
13:30 US Housing starts (thousands) Feb 1570 1580
13:30 US Building permits (thousands) Feb 1723 1886
19:00 US Federal funds target rate (upper bound, %) Mar 0.25 0.25 0.25
19:30 US Fed chair Powell holds press conf. fol. FOMC meeting
22:45 NZ Real GDP (% qoq) 4Q 0.1 14.0
Thu, 18 Mar 1:30 AU Employment (net change in thousands mom sa) Feb 30 29
1:30 AU Unemployment rate (% sa) Feb 6.3 6.4
8:00 SZ Imports (real, % mom) Feb 1.4
8:00 SZ Exports (real, % mom) Feb 5.7
10:00 NO Norges Bank deposit rate (%) Mar 0.00 0.00 0.00
10:00 PL Industrial production (% yoy) Feb 3.8 0.9
11:30 EMU TLTRO III.7 allotment results
12:00 TR Repo rate (%) Mar 18.00 18.00 17.00
13:00 UK Bank of England repo rate (%) Mar 0.10 0.10 0.10
13:30 US Philadelphia Fed business outlook survey Mar 24.0 23.1
14:00 EMU ECB's Guindos speaks at conference
15:00 US Leading indicators (Conference Board, % mom) Feb 0.3 0.5
19:00 EMU ECB's Schnabel speaks
Fri, 19 Mar 0:00 JN BOJ policy balance rate -0.10 -0.10
0:30 JN Consumer price index (% yoy) Feb -0.4 -0.6
8:00 GE Producer price index (% yoy) Feb 0.9
11:00 UK Consumer confidence (GFK, index) Mar -20.0 -23.0
11:30 RU Bank of Russia key rate (%) Mar 4.25 4.25 4.25
*Asterisked releases are scheduled on or after the date shown; sa = seasonal adjusted, nsa = not seasonally adjusted, wda = working day adjusted,
F = final release
Source: Bloomberg, UniCredit Research
UniCredit Research page 3 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
Macro overview
Fed preview - better outlook, unchanged policy
Daniel Vernazza, PhD ■ Next week’s FOMC meeting is unlikely to bring any major monetary policy changes. The
Chief International Economist
(UniCredit Bank, London) Committee could make a technical adjustment to support short-term rates.
+44 207 826-7805
daniel.vernazza@unicredit.eu ■ FOMC participants’ updated forecasts are likely to reflect the improved economic outlook
on the one hand, and the Fed’s intention to not remove policy accommodation anytime
soon on the other.
No change in policy The FOMC’s 16-17 March meeting is unlikely to bring any major monetary policy changes.
accommodation
We expect the target range for the fed funds rate, the pace and composition of asset
purchases, and forward guidance for rates and asset purchases all to be left unchanged.
Indeed, Fed officials appear happy with the current level of monetary accommodation.
Large upward revision The economic outlook has improved, and this will likely be reflected in FOMC participants’
to growth this year
updated macroeconomic projections (the Summary of Economic Projections [SEP]) as well as
the economic assessment of the post-meeting statement. This week, Congress passed
President Joe Biden’s USD 1.9tn coronavirus relief package, following the USD 900bn package
signed into law at the end of last year, and Mr. Biden will soon unveil his longer-term economic
plan for spending on infrastructure, climate, and health. Back in December (the last SEP), while
FOMC participants had indicated that they expected Congress to pass some additional fiscal
support before the end of last year, the size of the actual and expected stimulus has likely
materially exceeded those earlier expectations. Meanwhile, daily new cases of COVID-19
continue to fall, and are down almost 80% since the 8 January peak. Furthermore, the
vaccination rollout is accelerating, with the seven-day average number of vaccinations now
exceeding two million. The impact of stimulus checks paid in January saw retail sales rise 5.3%
mom, and total personal spending rise 2.4% mom. As restrictions are eased further, the
marginal propensity to consume is likely to rise with it. Private-sector payrolls rose 465k in
February, as restrictions were eased. We expect the FOMC median projection for GDP growth
to be revised up to a little more than 6% yoy in 4Q21 (from 4.2% in December).
Modest rise in inflation The brighter growth outlook, as well as rising commodities prices, will lead to an upward
forecasts
revision to inflation forecasts, but the revision is unlikely to be large or persistent. Fed officials
have made it clear that they see the impact of current supply-chain disruption, positive base
effects in the spring, and higher inflation from pent-up demand for some services later this
year as transient. The huge fiscal stimulus has been interpreted as a one-off that is unlikely to
lead to persistently higher inflation. Meanwhile, the structural disinflationary forces of the last
decade or more are, in the words of Fed Chair Jerome Powell, unlikely to “change on a dime”.
Back in December, the FOMC median projection did not show PCE or core PCE inflation
reaching 2% until 2023.
The “dot plot” is still unlikely to Against the improved economic outlook, the focus will be squarely on the “dot plot” of FOMC
signal a rate hike before 2024
participants’ projections of the fed funds rate. The FOMC’s clear intention is to not remove
policy accommodation too soon, both because the economy is still a long way from the Fed’s
new longer-run goals (employment is 9.5 million below pre-crisis levels and core PCE inflation
is well below 2%, at 1.5%) and for risk-management considerations, given the high
uncertainty surrounding the outlook. The FOMC’s rate guidance is to keep the target range for
the fed funds rate unchanged “until labor market conditions have reached levels consistent
with the Committee’s assessments of maximum employment and inflation has risen to 2
percent and is on track to moderately exceed 2 percent for some time”. And the Fed’s
maximum employment objective is now defined as a “broad-based and inclusive goal”, which
senior Fed officials have said includes looking at the labor market outcomes of different racial
and ethnic groups. Back in December, the dot plot signaled rates on hold through 2023, with
UniCredit Research page 4 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
only 5 of 17 FOMC participants expecting a rise by end-2023. Given the improved outlook, we
would not be surprised if a couple more participants expect an interest rate rise by end-2023,
but we think it’s unlikely that a majority of the now 18-member Committee will do so. This
would signal to market participants, who fear strong growth will force the Fed into an earlier
withdrawal of policy accommodation, that they have gone too far in expecting at least two
25bp rate hikes by the end of 2023.
A possible technical In the run-up to the meeting, there have been two major discussion points regarding the yield
adjustment for short term
rates, little concern about curve. First, at the short end, there is concern that rates are too low, particularly given the
rising longer-term real yields impending flood of cash as the stimulus package is dispersed. The effective fed funds rate, at
0.07%, is slightly below the 0.09% at the end of last year, and below the midpoint of the target
range (0.125%). Other short-term rates are even closer to zero, with SOFR and the 1M T-bill
rate at 0.02%. To fund the stimulus package, the Treasury will likely significantly reduce its
huge cash balance at the Fed, which will put further downward pressure on short-term rates.
To support short-term rates, the Fed could increase the interest rate on excess reserves
(IOER), which currently stands at 10bp, and increase the rate on its overnight reverse repo
facility, currently 0%, by, say, 5bp. If so, these would be purely technical changes and would
not change the accommodative stance of monetary policy. Second, Mr. Powell is likely to be
asked about the rise in longer-term real yields during the press conference. Speaking just
before the blackout period, he said the jump in yields had caught his attention, but that the
Fed looked at broad financial conditions, and he would not be concerned unless the Treasury
market became “disorderly” or rates rose persistently enough that it threatened the economic
recovery. The implication is that, so far, the Fed sees the rise in longer-term real yields as
largely justified by the improved economic outlook.
Our unchanged Fed forecast We expect the Fed to continue buying assets at the current pace (of USD 80bn per month for
Treasuries and USD 40bn per month for MBS) at least through year-end. Tapering of asset
purchases will probably be discussed around September this year, with a formal
announcement in December, and tapering to commence in 1Q22 (Fed officials have said
tapering will be communicated well in advance). By December, the Fed will likely be able to
point to “substantial progress”, including an economy that has recovered its pre-crisis GDP
level, with unemployment falling relatively quickly and inflation moving higher. We envisage
the tapering process taking around a year, with net asset purchases ceasing sometime in
early 2023. Rates will likely remain on hold through 2023, with risks skewed somewhat
towards an earlier hike.
UniCredit Research page 5 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
Major events and data releases of the week
Two German federal state elections (14 March)
■ On Sunday, federal state elections will take place in Baden-Württemberg and Rhineland-Palatine. The latest opinion polls
suggest that the Greens will remain the strongest party in Baden-Württemberg and the SPD will retain its leading position in
Rhineland-Palatinate. While region-specific developments are likely to play an important role, the elections might also have
national implications. After all, they will be the first litmus test for the new CDU party leader Armin Laschet and his chance of
becoming the joint chancellor candidate of the CDU and its Bavarian sister party, the CSU. Recently, the CDU/CSU has been
losing ground significantly in national opinion polls, by up to 6pp, but still remains the strongest party by far, with the support of at
least 30% of the electorate (Greens: 17-20%; SPD: 15-17%). Besides frustration about lockdown measures and the sluggish
progress in vaccination, recent corruption scandals concerning face masks and lobbying have probably also played a role.
■ In Baden-Württemberg, Winfried Kretschmann (Greens) has been the state prime minister for ten years now (in a collation
with the CDU since 2016), and he is very popular with the regional population. If eligible voters in Baden-Württemberg were
able to directly elect their state leader and had a choice between Mr. Kretschmann and his challenger Susanne Eisenmann
(CDU), 65% would vote for Mr. Kretschmann and only 17% for Mrs. Eisenmann according to a recent pre-election poll
released by German broadcaster ARD. It is therefore not surprising that polls give the Greens a clear lead with around 35%
of the vote, followed by the CDU with about 25%. Social Democrats (SPD), the Liberals (FDP) and the Alternative for
Germany (AfD) are all hovering around 10-11% of the vote share.
■ In Rhineland-Palatine, the SPD is the leading ruling party in a coalition with the Greens and the FDP with Malu Dreyer as the
incumbent state prime minister. A recent pre-election poll indicated that about 65% of voters are “satisfied” or “very satisfied”
with the work of the current coalition, which increases the chances that this political coalition will continue. Moreover, similar
to Baden-Württemberg, Mrs. Dreyer is quite popular and would clearly succeed over her challenger Christian Baldauf (CDU)
in a direct election. The polls suggest that the Social Democrats will receive most of the vote, with slightly above 30%,
followed by the CDU (about 29%), the Greens (11-12%) and the FDP (7-9%). Alternative for Germany (AfD) is expected to
receive around 9% of the vote.
■ The worst outcome from the CDU’s point of view would be a confirmation of the incumbent coalition in Rhineland-Palatinate
(i.e. SPD, Greens and FDP) and another such coalition in Baden-Württemberg. There are strong efforts among the Greens in
Baden-Württemberg to replace the CDU as a coalition partner. The SPD and the FDP have already signaled that they would
be in favor of forming such a coalition. However, we do not expect such developments to be an indication for the upcoming
federal elections in September as party-political differences and the distribution of votes at the national level are not likely to
enable such a coalition, despite Mr. Laschet having argued several times that after 16 years of Angela Merkel’s
chancellorship, the other parties would do anything to force the CDU out of the federal government.
■ After the federal state elections, the discussion about the CDU/CSU chancellor candidate will probably intensify. So far, the
CDU/CSU has not yet decided on a joint candidate for chancellorship. While the Bavarian prime minister Markus Söder has
declared that the outcome of both regional elections will have no effect on the internal candidacy for chancellorship, his
supporters might see things differently. Should the CDU experience a significant defeat in both regional elections, opponents
of Mr. Laschet’s candidacy for chancellor might feel emboldened to bring about a clarification in their favor.
BoE preview (18 March)
■ The Bank of England’s Monetary Policy Committee (MPC) will announce its monetary policy decision on Thursday, 18 March,
alongside the MPC minutes of its meeting ending 17 March. We expect the MPC to vote unanimously to maintain the current
monetary policy stance (bank rate at 0.10% and the target stock of asset purchases at GBP 895bn). The meeting is not
associated with a Monetary Policy Report and, hence, there will be no new round of forecasts. The MPC will likely view
recent developments since the February meeting as broadly consistent with their February projections, with output falling
quite sharply in the early part of the year due to the third lockdown, but with a strong recovery in prospect thanks to excellent
progress on vaccination and fiscal policy that is set to be looser than previously assumed, with the Chancellor extending the
furlough and other pandemic support schemes through September. A full assessment of the impact of the Chancellor’s
March Budget will likely have to wait until the next Monetary Policy Report in May.
UniCredit Research page 6 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
Germany
ZEW likely to improve further
Tue, 16 Mar, 11:00 CET UniCredit Consensus Last
ZEW Survey - current situation ZEW Survey - expectations
ZEW Survey - current situation Mar -61.0 -62.0 -67.2
100 100
ZEW Survey - expectations Mar 72.0 75.0 71.2
75 75
50 50
■ The expectations component of the ZEW Survey is likely
to remain high in March, as prospects of a gradual easing
25 25
of restrictive measures before the end of March based on
0 0 incidence values by region might have supported financial
-25 -25 analysts’ outlooks for the economy.
-50 -50 ■ In line with European equites and improved economic
activity, as indicated by high-frequency indicators, the
-75 -75
current-situation component is likely show a more
-100 -100
Feb- 13 Feb- 15 Feb- 17 Feb- 19 Feb- 21
pronounced increase.
US
Retail sales were probably flat after January jump
Tue, 16 Mar, 13:30 CET UniCredit Consensus Last
Retail sales total (% mom) Retail sales total (% yoy, rs)
Retail sales (% mom) Feb 0.0 -0.3 5.3
20 20
15 15
■ Retail sales were likely broadly flat (0.0% mom) in
February after jumping 5.3% mom in January. The
10 10
January rise was driven by stimulus checks sent to
5 5
households earlier in the month.
0 0
-5 -5
■ In February, upward effects on the value of sales likely
came from gasoline prices (+7.1% mom), and restaurants
-10 -10
(OpenTable restaurant bookings rose in February) as
-15 -15
restrictions were eased. A downward effect likely came from
-20 -20
car sales, with unit sales down 5.7% mom in February.
-25 -25
Jan-13 Jan-15 Jan-17 Jan-19 Jan-21 ■ Retail sales will likely jump again in March as the third round
of stimulus checks will likely be sent out later this month.
Industrial production likely hit by bad weather
Tue, 16 Mar, 14:15 CET UniCredit Consensus Last
Industrial production (% mom) Industrial production (% yoy, rs)
8.0 8.0 Industrial production (% mom) Feb -0.3 0.6 0.9
4.0 4.0 ■ We expect industrial production to fall slightly in February,
down 0.3% mom. Inclement weather during the month
0.0 0.0
likely led to a sharp fall in mining output but this was
-4.0 -4.0 probably offset by a jump in utilities production due to a
surge in heating demand.
-8.0 -8.0
■ Manufacturing output likely fell around 0.3% mom in
-12.0 -12.0
February, as indicated by aggregate weekly hours (the
-16.0 -16.0 product of average weekly hours and employment) in the
sector from the employment report. This was composed of
-20.0 -20.0
Jan-13 Jan-15 Jan-17 Jan-19 Jan-21 a 21k rise in manufacturing payrolls offset by a large fall in
average hours worked, likely also driven by the bad
weather.
Source: Bloomberg, UniCredit Research
Daniel Vernazza, PhD, Chief International Economist (UniCredit Bank, London)
Dr. Thomas Strobel, Economist (UniCredit Bank, Munich)
UniCredit Research page 7 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
FI Strategy
ECB successfully kept a lid on rates, US dot-plot for 2023
not expected to catch up with money market forwards
Michael Rottmann ■ The message from the ECB statement to increase PEPP purchases significantly over the
Head of FI Strategy,
FI Strategist next quarter is likely to prevent long-term yields from rising over the next several weeks.
(UniCredit Bank, Munich)
+49 89 378-15121 ■ We expect next week’s FOMC meeting to dampen the rise in US yields as we do believe
michael.rottmann1@unicredit.de the dot-plot for 2023 will not show a strong increase of participants projecting lift-off.
With the pre-pandemic GDP The ECBs most important message was already delivered in the statement where the central
level not expected
to be reached prior to 2Q22 bank committed to significantly increase the purchases under the PEPP in the next quarter.
and a clear commitment to Based on the update of the quarterly staff projections, the real GDP path (Chart 1) is not
preventing a rise in long-term
yields, …
much changed from the December forecast, and a return to a pre-pandemic GDP level is not
expected until 2Q22. In contrast to the US, catch-up to the GDP level projected in December
2019 is not seen over the forecast horizon including 2023, although the mild scenario (+6.4%
in 2021 and +4.5% in 2022) would come close in 2022.
The same holds true for the change in inflation projections. While the forecasts for 2021 for
headline and core inflation were revised upwards (headline +0.5pp and core +0.2pp), the
dynamics for 2022 and 2023 were not changed by more than 0.1pp. Under the new forecasts
for 2023, we calculate headline inflation is more than 3.5pp away from a cumulated 1.9%
increase in inflation since the end of 2019. Measured in terms of core inflation, the gap is
almost 4pp by the end of 2023 while the Fed’s core PCE deflator is only 1pp away from a
constant 2% increase. (Chart 2).
Chart 1 also includes the EUR OIS rates with 2Y, 5Y, 10Y and 30Y maturities on the day of
the December 2019, June 2020 and the current meeting. It shows that the recent increase in
long-dated rates clearly front-run the revision trend in macro projections and explains the
discomfort of the ECB with the recent increase in long-dated Government bond yields and
OIS rates.
… we expect a stabilization Our take is that the relatively slow recovery compared to the US as well as faster PEPP
in 10Y yields at current
to slightly lower levels purchases should help stabilize long-term yields at current to slightly lower levels. The risk for
2H21 is that the GC seems to have decided that reassessment of PEPP flows should
generally take place on a quarterly basis (see ECB review “Moving ahead of the curve”),
limiting the flexibility if sudden spikes in euro area rates should occur.
CHART 1: EVEN WITH THE NEW ECB STAFF PROJECTIONS, CHART 2: … AND INFLATION, WHICH WILL LIKELY KEEP A LID
THERE IS A LONG WAY TO GO FOR GROWTH … ON LONG-TERM RATES
105 1.5 109
ECB Staff Dec
2019 (ls) 108 2% path US inflation
100 1.0
ECB Staff June 107
2020 (ls) SEP core PCE
106
95 0.5 deflator Dec 2020
ECB Staff Mar
105
2021 (ls) 1.9% path EUR
90 0.0 104 inflation
OIS curve Dec 19
(rs) 103
85 -0.5 ECB headline
OIS curve June 102 inflation Mar 2021
2020 (rs)
80 -1.0 101 ECB core inflation
2019 2020 2021 2022 2023 OIS curve current Mar 2021
100
(rs)
2Y 5Y 10Y 30Y 2019 2020 2021 2022 2023
Source: ECB, Bloomberg, UniCredit Research
UniCredit Research page 8 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
FOMC meeting likely to Next week, the FOMC meeting will provide fresh indications as to whether money market
stabilize the yield curve
forwards currently price in a too-aggressive tightening path in 2023. Right now, the 1M USD
OIS forward implies at least two rate hikes until the end of 2023.
With regard to the “summary of economic projections” (SEP), Chart 3 shows the journey of
growth expectations since December 2019 along with the shifts of the yield curve. At the time
of the pre-pandemic growth forecasts in December 2019, the yield curve saw a modest
upward slope, with the 10Y UST yield at 1.79%. During the peak of the COVID-19 crisis in
June 2020, the outlook for a quick recovery of the economy was only modest, with the growth
level barely seen at pre-pandemic levels in the later part of 2022. Along with this outlook, the
yield curve saw a tremendous bull run, with the 10Y yield not far off the prior all-time lows it hit
in March 2020. Along with the US election outcome and positive vaccine news regarding a
high efficacy rate of around 95% for two vaccines just days later, the US curve continuously
bear-steepened as the new FOMC projections from the mid-December meeting saw a chance
for the GDP level to return to its pre-pandemic estimate in 2023. Since then, we saw the blue
wave materialize in early January and an accelerating vaccination pace, which makes herd
immunity likely in autumn this year. As already indicated by Fed chair Jerome Powell, 6% real
growth this year now appears increasingly likely. Under the assumption of a 6% real GDP
growth projection for this year, the GDP level would exceed the pre-pandemic projection
made in December 2019. Under this consideration, today’s 10Y yield at 1.59% compared to
the yield of 1.79% (on the day of the Fed’s December 2019 meeting) no longer looks out of
the question.
Nevertheless, not all is bright and two aspects let us believe that current expectations of up to
at least two rate hikes until the end of 2023 are too ambitious. First, while the core PCE
deflator forecast is very close to 2% for the years 2022 and 2023, it is still lagging behind the
average inflation target of 2%. The cumulated gap between the core PCE forecast according
to the SEP and a constant 2% path is still roughly 1% when measured from the end of 2019
(Chart 2). Second, while the Fed expects the unemployment rate below its NAIRU estimates
in 2023, participation rates may provide a somewhat less optimistic view. Thus, despite the
current enjoyable trend we see in GDP, this leaves the door open for key rate adjustments in
2023, but probably not to an extent currently priced in by money market forwards.
As we doubt that the dot-plot for 2023 (Chart 4) will show many more FOMC members raising
their expectations for the Fed funds target rate, we expect the FOMC meeting will stabilize
yields at the long end not too far off the current levels.
CHART 3: ACCORDING TO THE SEP, GDP WILL RETURN TO ITS CHART 4: DOT-PLOT FOR 2023 UNLIKELY TO SEE MANY FOMC
PRE-PANDEMIC GROWTH PATH SOON PARTICIPANTS SHIFT IN FAVOR OF HIGHER RATES
110 6 3.25
SEP Dec 2019 (ls)
3.00
105 5 2.75
UniCredit Research
SEP June 2020 (ls) 2.50
100 4 Single FOMC
2.25 participants
SEP Dec 2020 (ls) 2.00
95 3 Median FOMC
1.75 participants
UST yield curve 1.50
90 2 Dec 2019 (rs)
1.25
85 1 UST yield curve 1.00 Money market forwards
June 2020 (rs) ('21, '22 and '23 =
0.75 1M USD OIS,
80 0 UST yield curve 0.50 "longer run" = 5Y5Y USD
current (rs) OIS)
2019 2020 2021 2022 2023 0.25
2Y 5Y 10Y 30Y 0.00
2021 2022 2023 Longer run
Source: Fed, Bloomberg, UniCredit Research
UniCredit Research page 9 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
FX Strategy
USD firmness likely to pass Fed test
Roberto Mialich ■ The USD is set to stay firm as long-term yields remain high in the US and the FOMC
FX Strategist
(UniCredit Bank, Milan) meeting is unlikely to alter this tendency for now. Yet, this firmness is not backed by IMM
+392 88 62-0658 statistics, which do not show a strong shift in market positioning in favor of the USD.
roberto.mialich@unicredit.eu
■ Many G10 and EM central banks meet in the coming days. The BoJ is not expected to
widen the current trading range for its 10Y benchmark, and the CBRT is likely to hike the
1W repo rate by another 100bp due to higher inflation and a weaker TRY.
USD still firm across The USD remains firm across the board, as reflected in the US Dollar Index (DXY), which is
the board…
still trading close to 92 (see Chart 1). Long-term yields in the US receding from recent peaks
offered other FX majors only minor relief. EUR-USD is still struggling just above 1.19, even
after the ECB announced faster PEPP purchases in the next quarter, but still within the
current size of the PEPP envelope of EUR 1.85tn.
…but there is still Investors and the Fed have different views right now. Markets are pricing in a scenario in
inconsistency between market
expectations and signals from which the US economy overheats by returning to pre-COVID-19 levels earlier than expected
the Fed amid a structural rise in inflation. This would be consistent with an early start of monetary-
policy normalization through a reduction of asset purchases, even though, an hike in the
federal funds rate is not set to materialize until 2023, based on current market expectations.
On the other hand, the Fed has steadily made it clear that there is no rush in normalizing
monetary policy and that it is ready to tolerate a pickup in inflation before acting so as not to
affect the recovery process and destabilize financial markets. We expect Fed Chair Jerome
Powell to repeat this at his press conference after the FOMC meeting on Wednesday. This is
unlikely to reverse USD strength, likely leaving EUR-USD mostly below 1.20.
Risk appetite can still weaken One of the two views is set to be necessarily adjusted over the coming months – and we still
the USD over time but likely at
a slower pace than we have so think that the Fed is correct in delaying the start of the tapering debate to later this year and
far anticipated by not reducing bond purchases until 1Q22 onwards. Acknowledging this is unlikely to trigger,
in our view, a strong decline in US long-term yields, on evidence that the US economy is
recovering faster than economies in the rest of the world, and in the eurozone, in particular.
The USD has probably gained some intrinsic strength, and this is because widening interest-
rate differentials in the USD’s favor are starting to matter for FX after being much tighter and
less significant throughout 2020 (see Chart 2). This also means, however, that even if they
stabilize, long-term US yields would still offer the USD a shield against any retreat that may
CHART 1: USD’S FORTUNE IS STILL LINKED TO US YIELDS CHART 2: INTEREST RATE DIFFERENTIALS MATTER AGAIN
4.00 105 3.00
UST 10Y nominal US 10Y real DXY (rs) US VS. Switzerland 10Y spread US vs. Japan 10Y spread
3.50
100 US vs. eurozone 10Y spread
3.00 2.50
2.50 95
2.00 2.00
90
1.50
1.00 1.50
85
0.50
0.00 80 1.00
-0.50
75 0.50
-1.00
-1.50 70
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 0.00
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21
Source: Bloomberg, UniCredit Research
UniCredit Research page 10 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
reemerge once bond and equity markets have calmed down. We still expect risk appetite to
resume and to drag the USD back down over the medium term by reducing its appeal as a
safe-haven asset again. Yet, higher yields on the long-end of the US curve are set to offer the
USD a cushion to the downside, making any slide, and thus also the corresponding recovery
of the other G10 and EM currencies, less intense than we imagined at the start of the year.
IMM data do not suggest Indeed, data on non-commercial commitments compiled by the International Monetary Market
a turnaround in investor
sentiment towards the USD (IMM) show that investors remain broadly short USD (see Chart 3). A big turnaround in
investor positioning in favor of the USD has thus not occurred, at least in the week ending on
5 March, despite the heavy activity observed in the spot market. Interest in buying back the
USD rose against some currencies, but total net positioning barely changed. Investors remain
long EUR-USD, although exposure has been cut by nearly 9% in response to the pair’s drop
below 1.20. On the other hand, net long positions on GBP-USD even increased by over 16%
on a weekly basis, explaining the resilience sterling showed this past week by defending the
1.38 level and re-approaching 1.40. IMM data also confirm how much the USD has also
increased pressure on low-yielding currencies, with the big squeeze in short USD-JPY
positions (-32% on the week) that mirrored the abrupt rebound back to over 109 in the spot
market. Net short exposure on USD-CHF, however, rose by over 6%, despite the franc also
being battered by the US-Swiss 10Y spread widening in the USD’s favor (see Chart 3 again).
BoE to remain on hold, Norges Beyond the FOMC, many other central banks meet in the coming days. In the G10, the BoE is
Bank to flag possible rate hikes
and BoJ to keep the current not expected to offer any surprises, with the MPC further cooling down the debate about rising
fluctuation band on 10Y JGBs interest rates and inflation, and focusing even more on the labor market at home. There is talk
in the market that the Norges bank may flag risks of tighter monetary policy later this year
following the lower decline in mainland GDP (at -0.2% mom in January compared to -0.6%
expected) and a still optimistic regional survey for February. The BoJ is set to reiterate what
Governor Haruhiko Kuroda has already stressed, i.e. that the time is not yet ripe for a wider
fluctuation band for 10Y JGBs than the current +/-20bps from zero, which would allow long-
term yields to rise further.
In EM, CBR on hold, In EM, the CBR and the CBRT meetings are scheduled next week. While the CBR is
while CBRT faces difficult
policy dilemma expected to remain on hold at 4.25%, which is set to be the floor of the past easing cycle, the
CBRT’s task appears to be more complicated. This is because the bank is now facing a policy
dilemma between the already high level of the current policy rate of 17% and pressure for
more tightening stemming from the rise in Turkish CPI inflation for February and the recent fall
in the currency against the USD. We expect another 100bp hike to 18%, which would help
steady the exchange rate back around 7.40/7.50. Should the bank remain on hold, an
additional TRY sell-off back towards recent lows of 7.80 can be expected.
CHART 3: NO RUSH TO CUT NET SHORT USD EXPOSURE CHART 4: MARKETS STILL SHORT USD-JPY AND USD-CHF
300 80
IMM - Total USD net long
IMM - EUR-USD net long IMM - USD-JPY net long IMM - USD-CHF net long
IMM - GBP-USD net long 60
200
40
100
20
0
0
-100
-20
-200
-40
-300 -60
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21
Source: Bloomberg, UniCredit Research
UniCredit Research page 11 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
Equity Strategy
The revival of cyclical and value stocks is set to continue
Christian Stocker, CEFA ■ An improving economic outlook is likely to be more supportive of earnings recovery for small-
Lead Equity Sector Strategist
(UniCredit Bank, Munich) caps and value stocks, which we expect to keep outperforming large-cap and growth stocks.
+49 89 378 18603
christian.stocker@unicredit.de ■ Rising US real yields have put some pressure on valuations, particularly in US Technology.
The tug-of-war between increasing bond yields and their potentially negative impact on equity
Cyclical portfolio orientation
remains key markets and valuations on the one hand and improving economic conditions and company
earnings growth on the other hand remain a dominant topic in equity markets. Cyclical or
value stocks, which are dependent on the momentum of economic or company earnings
growth, have strongly benefitted from the current environment, while growth sectors, with their
pricey valuations, have suffered. In the very short term, this can be seen in the positive start
to the month European stocks had as a rotation into cyclical stocks gathered pace, with the
stocks of industrial sectors and financials leading gains, while the technology sector and
defensive sectors, such as Utilities, Health Care and Consumer Staples, have been notable
laggards amid a rise in bond yields. We expect this reflation trade environment to continue,
which means that economic growth rates are likely to accelerate and that there is likely to be
an upside risk to bond yields. This expectation is reflected in our recommendation to
overweight cyclical sectors, such as Automobiles & Parts, Basic Resources, Chemicals and
Industrial Goods & Services, which also have large proportions of value stocks.
CHART 1: STOXX EUROPE SMALL AND LARGE-CAP INDICES CHART 2: 12M FORWARD EPS MSCI EUROPE VALUE
(JULY 2020=100) AND GROWTH INDICES (JULY 2020=100)
130 160
MSCI Europe Value index
July 2020=100 July 2020=100
MSCI Europe Growth index
150
120
140
110
130
100
120
90
110
80
STOXX Europe Small 200 index 100
STOXX Europe Large 200 index
70 90
Jan 20 Apr 20 Jul 20 Oct 20 Jan 21 Apr 21 Jan 20 Apr 20 Jul 20 Oct 20 Jan 21 Apr 21
Source: Bloomberg, UniCredit Research
Small-cap and value stocks During the first half of last year, the performance of large and small-cap stocks was fairly
are set to continue
their outperformance equal. This has significantly changed. European small-cap stocks have rallied strongly in
recent months, recouping all of their pandemic-induced losses, while large-cap stocks have
yet to do so. The STOXX Europe 200 Small index1 has been up by around 28% since the end
of June. This is more than twice the returns posted by its large-cap equivalent (see Chart 1).
Comparable performance has also occurred in the US, where the small and mid-cap Russell
2000 index (+62%) has strongly outperformed the S&P 500 (+26%) over this period. Small-
cap stocks tend to be more economically sensitivity than their large-cap counterparts.
Therefore, they benefit more from improvements in the growth outlook. This is also true in
comparisons of value and growth stocks or sectors. Growth stocks are strongly represented in
1
The STOXX Europe Small index (Large index) is a fixed-component index designed to provide a representation of small (large) cap companies in Europe.
The index is derived from the STOXX Europe 600 index.
UniCredit Research page 12 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
the large-cap universe, particularly in the US, while value stocks traditionally dominate the
small-cap area. Therefore, a profit recovery, which is part of the reflation trade that started in
2H20, is fueling the current rally in small-cap and value stocks as well. Chart 2 shows that
earnings growth among European value stocks has been significantly stronger than that of
European growth stocks since the reflation trade started. We expect this to continue in the
current environment of strengthening global economic growth.
A rise in real yields The rise in US bond yields, particularly the 10Y real yield, has unsettled equity markets and
has put pressure on valuations,
particularly in Technology led to an increase in volatility in recent weeks. This is particularly true in market segments
with pricey valuations, such as the technology sector. Chart 3 shows a comparison of the P/E
ratios of the S&P 500 and the S&P 500 Information Technology index. While the P/E ratios of
both indices were broadly comparable before 2019, the valuation of the S&P 500 Information
Technology index has significantly increased versus the benchmark S&P 500 index. This
strong increase in valuations since 2019 has mainly been supported by a decline in real
yields, but this effect has been waning since February, with real yields increasing to less-
negative values and expensive sectors such as technology being disproportionately affected.
This means that, in an environment marked by further upside risk from 10Y real yields,
outperformance of Technology is unlikely.
CHART 3: P/E RATIOS OF THE S&P 500 AND S&P 500 CHART 4: ISM MANUFACTURING PMI AND RELATIVE
INFORMATION TECHNOLOGY INDEX PERFORMANCE OF S&P 500 REVERSE CAP VS. S&P 500
30 -1.5 70 0.24
P/E ratio S&P 500 Information Technology ISM Manufacturing PMI
P/E ratio S&P 500
Ratio S&P 500 reverse cap index TR / S&P 500 TR (rs)
US 10Y real yield (inverse scale, rs)
27 -1
60 0.21
24 -0.5
21 0 50 0.18
18 0.5
40 0.15
15 1
12 1.5 30 0.12
2016 2017 2018 2019 2020 2021 2008 2011 2014 2017 2020
Source: Bloomberg, UniCredit Research
S&P 500 smaller-cap stocks In the US, the rotation from technology and large-cap stocks into smaller-cap stocks that benefit
are likely to outperform
the index’s large-cap stocks from the reflation trade is reflected in the performance of the S&P 500 reverse cap index (+42%
since end-October, S&P 500 +20%), which is a reverse-capitalization-weighted index of the
same companies that make up the S&P 500. The correlation between the relative performance
of the reverse-cap index versus the S&P 500 index and the ISM Manufacturing PMI is high, as
shown in Chart 4. This means that, as long as the economic outlook continues to brighten, the
rotation from large-cap stocks to smaller-cap stocks (indicated by the outperformance of
smaller-capitalized stocks) should remain intact. However (and this is important to recognize), a
rotation is on its way, but it is unlikely to be accompanied by a selloff of large-cap stocks.
Despite the remarkable development that has occurred in the S&P 500 the last few weeks, the
effect on the index as a whole continues to be unremarkable. Beginning at end-October 2020,
when smaller-capitalized US companies started to outperform their larger peers, the S&P 500
gained 20% and currently trades around its all-time high. The main message is that the overall
equity market is well-supported. However, smaller-capitalized and value stocks have some
performance advantages, and the longstanding outperformance of large-cap technology stocks
in the US might subside for the time being.
UniCredit Research page 13 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
Credit Strategy
Despite recent issuance increase, technical factors remain
supportive for European investment grade credit
Dr. Stefan Kolek ■ New bond issuance is again in the limelight this month, amid US corporates returning to
EEMEA Corporate Credit Strategist
(UniCredit Bank, Munich) the primary market, while the presence of European corporates has declined sharply.
+49 89 378-12495
stefan.kolek@unicredit.de ■ Lower bid/cover ratios and higher new issue premiums, however, signal less appetite for
new credit risk, pointing towards less new issuance going forward, which should add to the
overall supportive technical picture in European corporates.
New bond issuance New bond issuance is again in the limelight in the European corporate credit market. With
has accelerated MTD,
but remains close to EUR 14.4bn of new primary-market issuance MTD, activity in iBoxx Investment Grade Non-
the level seen in the Financials has increased in March (compared to EUR 15.1bn in the whole of February and
same period last year,
while net issuance is negative
EUR 20.6bn in January). However, despite the recent surge, gross YTD issuance is just 3.5%
up on the same period last year. Although we expect an increase in issuance going forward, it
will be moderate compared to last year and we reiterate our full-year net issuance forecast of
EUR 80bn for iBoxx Investment Grade Non-Financials, approximately matching our EUR 8bn-
per-month forecast for net corporate bond purchases by the ECB. So far, ECB purchases
have been slower than our forecast, although the latest ECB meeting paves the way for a
step-up in bond purchases going forward.
The latest increase Half of this month’s investment grade non-financials issuance came from US corporates – the
in new bond issuance
is driven by US corporates highest proportion since May 2017 (see Chart 1) – while only 31% came from European
corporates (with the remaining part coming from Australian issuers). In contrast, in February,
71% of IG NFI issuance came from European issuers. The US issuers are attracted to issue
in euro by the sharper increase in US corporate spreads than in European corporate spreads,
as well as appealing cross-currency swap conditions (Chart 2). Against this backdrop, the
recent US corporate issuance was of long-dated bonds, with average maturity of almost
eleven years, compared to eight years from the European issuers. At the same time, the
dearth of European issuers in the primary market reflects their lower funding needs given the
prefunding wave seen last year. While issuance from US corporates is a risk factor for
European issuance, as they face higher upside risks in funding costs than in Europe, as Chart 1
shows, spikes in the share of US corporates on the primary market for non-financials has not
been sustained in the past.
CHART 1: SHARE OF US INVESTMENT GRADE CHART 2:
NON-FINANCIALS ISSUANCE ON CORRESPONDING US AND EUROPEAN CORPORATE INDICES ASW SPREADS VS.
IBOXX ISSUANCE EUR-USD CROSS CURRENCY SPREAD
EURUSD cross-currency spread
450 0
US IG NFI ASW (ls)
70%
400 iBoxx IG NFI ASW spread (ls)
60% -5
350
50% 300 -10
40% 250
bp
-15
30% 200
20% 150 -20
100
10% -25
50
0%
Apr-16
Jul-16
Oct-16
Apr-17
Oct-17
Jul-17
Apr-18
Oct-18
Jul-18
Apr-19
Jul-19
Oct-19
Apr-20
Oct-20
Jul-20
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
0 -30
May-19
Jul-19
May-20
Nov-19
Jul-20
Nov-20
Mar-19
Sep-19
Jan-20
Mar-20
Sep-20
Jan-21
Source: IHS Markit, ML-BoA, Bloomberg, UniCredit Research
UniCredit Research page 14 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
Signs of weaker demand Besides high corporate deposits – a factor we highlighted in this publication last week – and
for credit risk
the moderate funding needs of European corporates, a number of factors on the demand side
indicate that the appetite for new credit risk in investors’ portfolios is cooling, thus indicating
that activity in the primary market might lose momentum going forward. First, although most
new issues are well oversubscribed, according to our primary market data, one issue in the
primary market saw a bid/cover ratio below 1 for the first time since September 2018. Second,
and related to the first point, the median bid/cover ratio of the new issues has declined to 2.4x
this month from 3.6x in February. This generally reflects less demand on the primary market.
Finally, the median new issue premium has increased MTD to 5bp – the highest level since
last May – from zero in February and -5bp in January (Chart 4).
Bottom line While the above-mentioned factors suggest weaker demand for new issues, the demand
remains solid, with bid/cover ratios mostly exceeding 2x. Moreover, we highlight other
technical factors, such as the latest increase in corporate purchases by the ECB, as well as
the signal from its board meeting this week suggesting that the central bank intends to
increase PEPP purchases, which is likely to include an increase in corporate purchases within
the program in order to respond to the recent unwarranted tightening of financing conditions.
Together with ample liquidity via large redemptions and coupon payments this and next
month, this should provide support to the European investment grade credit market.
Moreover, through ramping up its PEPP government bond purchases, stabilized Bund yields
should reduce the risk of pressure from Bund yields on investment grade corporates that has
led to their underperformance YTD. On balance, we see credit risk premiums moving
sideways to slightly tighter, supported by stabilizing Bund yields in the coming weeks.
CHART 3: CHART 4: BID-COVER-RATIO AND NEW ISSUE PREMIUMS
NET NEW IBOXX IG NFI BOND SUPPLY OF IBOXX NFI IG ISSUERS
2018 2019 2020 2021 Bid-cover ratio (monthly median, rs)
250,000 40 6.0
New issue premia (monthly median, ls)
35
5.0
200,000 30
25
4.0
150,000 20
EUR mn
bp
15 3.0
x
10
100,000
2.0
5
0
50,000 1.0
-5
-10 0.0
0
Oct-20
Apr-20
May-20
Jul-20
Mar-20
Nov-20
Dec-20
Jan-20
Feb-20
Jun-20
Aug-20
Sep-20
Jan-21
Feb-21
Mar-21
Jan
Jun
Jul
Oct
Feb
Mar
May
Aug
Sep
Nov
Dec
Apr
Source: IHS Markit, UniCredit Research
UniCredit Research page 15 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
UniCredit economic forecasts
Real GDP (% yoy) Consumer prices (% yoy) Budget balance (% of GDP)
2020 2021 2022 2020 2021 2022 2020 2021 2022
Industrialized countries
US -3.5 4.8 3.5 1.2 2.1 2.2 -17.0 -15.0 -6.0
Euro Area -6.8 3.5 4.4 0.3 1.4 1.4 -8.6 -6.1 -3.1
Germany -5.0* 3.3* 4.2* 0.5 1.8 1.7 -4.8 -4.5 -2.0
France -8.2 4.5 4.5 0.5 1.0 1.3 -10.3 -6.3 -4.0
Italy -8.9 3.4 4.4 -0.2 0.7 0.7 -9.5 -8.5 -4.8
Spain -11.0 4.4 6.0 -0.3 0.9 1.8 -14.5 -7.4 -3.9
Austria -6.6 2.6 5.7 1.4 2.0 1.9 -10.5 -6.9 -3.5
Greece -8.0 2.5 5.0 -1.2 0.4 0.9 -8.6 -5.6 -3.0
Portugal -7.6 3.0 4.2 0.0 0.6 0.9 -6.3 -5.0 -2.5
UK -9.9 4.6 6.7 0.9 1.5 2.0 -19.0 -8.0 -5.0
Switzerland -3.0 3.2 4.2 -0.7 0.2 0.4 -3.8 -1.6 -0.8
Sweden -3.0 2.5 4.5 0.5 1.6 1.4 -4.0 -2.5 -1.0
Norway ** -3.1 2.5 4.0 1.3 2.5 2.3 -1.5 1.5 3.5
Japan -5.6 2.0 1.8 0.0 0.2 0.7 -12.5 -8.0 -5.0
Developing countries
Central & Eastern Europe
Russia -3.9 2.3 2.2 4.9 3.5 3.5 -5.1 -3.4 -1.8
Poland -3.0 3.5 3.1 3.4 1.6 2.8 -6.0 -4.6 -3.2
Czechia -5.6 1.5 5.4 3.2 2.3 2.5 -6.3 -7.8 -6.0
Hungary -5.6 4.1 4.3 3.4 3.0 3.4 -9.2 -6.0 -2.7
Turkey 1.8 4.5 3.6 14.6 11.0 10.2 -5.6 -5.4 -5.1
Emerging Asia
China 1.9 8.5 5.7 2.9 2.7 2.6 -12.0 -10.5 -10.0
Real GDP (% qoq sa) 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22
US (non-annualized)
Euro Area 12.5 -0.7 -1.3 1.8 2.3 1.0 0.6 1.0 0.9 0.7
Germany 8.5 0.3 -1.5 2.0 2.8 1.0 0.4 0.9 1.0 0.7
France 18.5 -1.4 -1.5 1.5 2.0 0.8 0.8 1.3 1.0 0.7
Italy 15.9 -1.9 -1.6 1.8 2.1 1.3 0.6 0.8 0.7 0.7
Spain 16.4 0.4 -1.5 2.0 2.5 1.5 1.1 1.2 1.2 1.0
Austria 11.8 -2.7 -1.2 2.3 2.3 1.2 1.0 1.3 1.1 1.0
UK 16.1 1.0 -4.0 5.5 3.0 1.5 1.0 1.2 1.0 0.9
Switzerland 7.2 0.3 -1.5 2.0 2.6 1.0 0.4 0.9 1.0 0.1
Sweden 6.4 -0.2 -0.5 1.1 2.0 0.8 0.5 1.6 1.1 0.6
Norway (mainland) 5.0 1.9 -2.0 1.0 1.5 1.0 0.6 1.2 0.8 0.6
Russia 1.5 -1.0 1.3 1.0 0.8 0.7 0.4 0.4 0.4 0.4
Poland (%yoy) -1.5 -3.7 -1.9 6.9 1.8 4.2 3.3 2.7 1.8 3.5
Czechia 6.9 0.6 -3.9 2.1 3.8 1.8 0.7 0.5 0.7 0.6
Hungary 11.4 -0.5 0.4 0.5 4.0 1.5 0.5 0.4 0.3 0.2
Turkey (%yoy) 6.7 5.9 3.3 16.5 1.4 -0.3 2.5 3.6 3.6 4.4
Consumer prices (% yoy)*** 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22
US 1.2 1.2 1.7 2.9 2.1 2.1 2.0 2.2 2.3 2.4
Core rate (ex food & energy) 1.7 1.6 1.4 2.6 2.1 2.2 2.2 2.2 2.2 2.3
Euro Area 0.0 -0.3 1.0 1.3 1.4 1.9 1.2 1.4 1.5 1.6
Core rate (ex food & energy) 0.6 0.2 1.2 0.8 0.8 1.4 0.8 1.0 1.0 1.1
Germany -0.1 -0.3 1.4 1.7 2.1 2.2 1.5 1.7 1.8 1.8
France 0.3 0.1 0.6 1.1 1.1 1.3 1.1 1.2 1.5 1.5
Italy -0.5 -0.2 0.5 0.7 0.8 0.9 0.6 0.7 0.7 0.8
Spain -0.6 -0.8 -0.1 0.8 1.1 1.8 1.6 1.8 1.9 1.9
Austria 1.5 1.3 1.0 2.0 2.4 2.5 2.1 1.9 1.8 1.7
UK 0.6 0.5 0.7 1.6 1.7 1.8 1.9 1.9 2.0 2.0
Switzerland -0.9 -0.7 -0.4 0.3 0.5 0.6 0.3 0.2 0.4 0.6
Sweden 0.5 0.3 1.5 1.8 1.3 1.7 2.1 1.4 1.1 1.0
Norway 1.6 1.3 1.8 2.4 2.8 3.1 2.0 2.4 2.4 2.5
Russia 3.7 4.9 4.6 4.4 4.4 3.5 3.5 3.5 3.5 3.5
Poland 3.2 2.3 1.4 1.3 1.3 1.9 2.3 3.1 3.3 3.2
Czechia 3.2 2.3 2.3 2.2 2.4 2.7 2.4 2.5 2.5 2.7
Hungary 3.4 2.7 2.7 3.5 2.7 3.2 3.2 3.3 3.6 3.9
Turkey 11.7 14.6 15.5 14.7 13.6 11.0 10.8 10.7 10.3 10.2
*Non-wda figures. Adjusted for working days: -5.3% (2020), 3.3% (2021) and 4.3% (2022) Source: UniCredit Research
**Mainland economy figures. Overall GDP: -1.3% (2020), 2.0% (2021) and 3.0% (2022)
***CEE CPI figures are end-of-period.
UniCredit Research page 16 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
UniCredit FI forecasts
INTEREST RATE AND YIELD FORECASTS (%)
Current 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22
EMU
Refi rate 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Depo rate -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50
3M Euribor -0.54 -0.52 -0.52 -0.52 -0.52 -0.52 -0.52 -0.52 -0.52
2Y Schatz -0.69 -0.70 -0.70 -0.65 -0.65 -0.65 -0.65 -0.60 -0.60
fwd -0.69 -0.71 -0.72 -0.73 -0.73 -0.71 -0.69 -0.67
5Y Obl -0.62 -0.70 -0.70 -0.65 -0.60 -0.55 -0.55 -0.50 -0.50
10Y Bund -0.31 -0.50 -0.45 -0.35 -0.30 -0.25 -0.20 -0.15 -0.10
fwd -0.30 -0.27 -0.24 -0.22 -0.19 -0.16 -0.13 -0.10
30Y Bund 0.21 -0.10 -0.05 0.10 0.15 0.25 0.30 0.35 0.45
2/10 38 20 25 30 35 40 45 45 50
2/5/10 -24 -20 -25 -30 -25 -20 -25 -25 -30
10/30 52 40 40 45 45 50 50 50 55
2Y EUR swap -0.48 -0.50 -0.50 -0.45 -0.45 -0.45 -0.45 -0.40 -0.40
5Y EUR swap -0.32 -0.40 -0.40 -0.35 -0.30 -0.25 -0.25 -0.20 -0.20
10Y EUR swap 0.04 -0.20 -0.15 -0.05 0.00 0.05 0.10 0.15 0.20
US
Fed Fund 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25
3M Libor 0.18 0.20 0.20 0.20 0.20 0.25 0.25 0.25 0.25
2Y UST 0.16 0.15 0.15 0.15 0.15 0.20 0.20 0.25 0.25
fwd 0.17 0.26 0.33 0.40 0.49 0.66 0.83 1.00
5Y UST 0.84 0.50 0.55 0.60 0.65 0.70 0.75 0.80 0.85
10Y UST 1.61 1.20 1.30 1.40 1.50 1.65 1.80 1.90 2.00
fwd 1.62 1.68 1.76 1.83 1.90 1.97 2.05 2.12
30Y UST 2.36 1.95 2.05 2.15 2.25 2.40 2.55 2.65 2.75
2/10 145 105 115 125 135 145 160 165 175
2/5/10 -9 -35 -35 -35 -35 -45 -50 -55 -55
10/30 75 75 75 75 75 75 75 75 75
2Y USD swap 0.25 0.25 0.25 0.25 0.25 0.30 0.30 0.35 0.35
10Y USD swap 1.63 1.25 1.30 1.40 1.50 1.65 1.80 1.90 2.00
UK
Key rate 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10
Spreads Current 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22
10Y UST-Bund 192 170 175 175 180 190 200 205 210
10Y BTP-Bund 94 75 75 75 90 100 110 120 125
10Y EUR swap-Bund 35 30 30 30 30 30 30 30 30
10Y USD swap-UST 2 5 0 0 0 0 0 0 0
Forecasts are end-of-period Source: Bloomberg, UniCredit Research
UniCredit Research page 17 See last pages for disclaimer.12 March 2021 Macro & Strategy Research
Macro & Markets Weekly
UniCredit FX forecasts
EUR Current 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 3M 6M 12M
G10
EUR-USD 1.19 1.20 1.22 1.24 1.26 1.27 1.28 1.29 1.30 1.22 1.24 1.27
EUR-CHF 1.11 1.08 1.09 1.10 1.11 1.12 1.12 1.13 1.13 1.09 1.10 1.12
EUR-GBP 0.86 0.87 0.88 0.89 0.89 0.89 0.90 0.90 0.90 0.88 0.89 0.89
EUR-JPY 130 125 124 124 123 124 124 124 124 124 124 124
EUR-NOK 10.11 10.30 10.25 10.20 10.15 10.15 10.10 10.05 10.00 10.25 10.20 10.15
EUR-SEK 10.15 10.10 10.00 9.90 9.80 9.75 9.70 9.65 9.60 10.00 9.90 9.75
EUR-AUD 1.54 1.58 1.58 1.59 1.59 1.59 1.58 1.57 1.57 1.58 1.59 1.59
EUR-NZD 1.66 1.67 1.67 1.68 1.68 1.67 1.66 1.65 1.67 1.67 1.68 1.67
EUR-CAD 1.50 1.54 1.55 1.56 1.58 1.59 1.59 1.59 1.60 1.55 1.56 1.59
EUR-TWI 100.5 100.9 101.6 102.2 102.9 103.3 103.6 103.9 104.1 101.6 102.2 103.3
CEEMEA & CHINA
EUR-PLN 4.59 4.42 4.45 4.42 4.45 4.40 4.47 4.45 4.45 4.45 4.42 4.40
EUR-HUF 366 358 360 353 353 356 358 360 360 360 353 356
EUR-CZK 26.23 26.30 26.10 25.80 25.60 25.40 25.20 25.10 25.00 26.10 25.80 25.40
EUR-RON 4.89 4.94 4.93 4.95 4.95 5.04 5.02 5.06 5.05 4.93 4.95 5.04
EUR-TRY 9.07 8.16 8.42 8.60 9.13 9.51 9.79 10.09 10.53 8.42 8.60 9.51
EUR-RUB 87.80 87.60 87.20 87.40 88.80 90.20 90.90 92.20 93.60 87.20 87.40 90.20
EUR-ZAR 17.90 18.00 18.18 18.35 18.65 18.73 18.82 18.90 18.98 18.18 18.35 18.73
EUR-CNY 7.75 7.74 7.81 7.87 7.94 8.00 8.00 8.06 8.06 7.81 7.87 8.00
USD Current 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 3M 6M 12M
G10
EUR-USD 1.19 1.20 1.22 1.24 1.26 1.27 1.28 1.29 1.30 1.22 1.24 1.27
USD-CHF 0.93 0.90 0.89 0.89 0.88 0.88 0.88 0.88 0.87 0.89 0.89 0.88
GBP-USD 1.39 1.38 1.39 1.40 1.41 1.42 1.43 1.44 1.45 1.39 1.40 1.42
USD-JPY 109 104 102 100 98 98 97 96 95 102 100 98
USD-NOK 8.49 8.58 8.40 8.23 8.06 7.99 7.89 7.79 7.69 8.40 8.23 7.99
USD-SEK 8.52 8.42 8.20 7.98 7.78 7.68 7.58 7.48 7.38 8.20 7.98 7.68
AUD-USD 0.77 0.76 0.77 0.78 0.79 0.80 0.81 0.82 0.83 0.77 0.78 0.80
NZD-USD 0.72 0.72 0.73 0.74 0.75 0.76 0.77 0.78 0.78 0.73 0.74 0.76
USD-CAD 1.26 1.28 1.27 1.26 1.25 1.25 1.24 1.23 1.23 1.27 1.26 1.25
USDTW$ 90.8 86.6 85.5 84.4 83.3 82.9 82.3 81.6 81.2 85.5 84.4 82.9
USD-DXY 91.9 91.0 89.6 88.3 87.0 86.5 85.8 85.1 84.4 89.6 88.3 86.5
CEEMEA & CHINA
USD-PLN 3.85 3.68 3.65 3.56 3.53 3.46 3.49 3.45 3.42 3.65 3.56 3.46
USD-HUF 308 298 295 285 280 280 280 279 277 295 285 280
USD-CZK 22.00 21.90 21.40 20.80 20.30 20.00 19.70 19.50 19.20 21.40 20.80 20.00
USD-RON 4.10 4.12 4.04 3.99 3.93 3.97 3.92 3.92 3.88 4.04 3.99 3.97
USD-TRY 7.61 6.80 6.90 6.93 7.25 7.49 7.65 7.82 8.10 6.90 6.93 7.49
USD-RUB 73.70 73.00 71.50 70.50 70.50 71.00 71.00 71.50 72.00 71.50 70.50 71.00
USD-ZAR 15.02 15.00 14.90 14.80 14.80 14.75 14.70 14.65 14.60 14.90 14.80 14.75
USD-CNY 6.51 6.45 6.40 6.35 6.30 6.30 6.25 6.25 6.20 6.40 6.35 6.30
Forecasts are end-of-period Source: Bloomberg, UniCredit Research
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