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Market environment Q2: Oil price rising, gold unattractive, inflation accelerating

Luxembourg, 08 April 2021 – The market environment is stable to positively supportive in Q2. As vaccination campaigns are ramping up, the global economy is gaining momentum. This leads to rising oil prices just as inflation rates are picking up. “We expect a solid growth trajectory that may fuel the markets even further”, said Carsten Gerlinger, Vice President of Moventum AM.

Due to the USA making faster progress on vaccination than Europe, the US economy is also picking up steam first. “Add to that the trillions of dollars from the fiscal package, which will quickly boost the economy”, Gerlinger pointed out. “This is why, by comparison, we expect the US economy to be more dynamic in the short term.” This also supports the US dollar, at least in the medium term. The higher yields on long-term US government bonds further encourage dollar buying, which should benefit the exchange rate against the euro. In the course of the year, however, the European economy should also pick up, which would then strengthen the euro in relation. “Overall, we expect the US dollar to remain in an unchanged narrow range between 1.17 and 1.22 – for a three-month period”, Gerlinger stated. “On a 12-month horizon, the range is set to remain between 1.17 and 1.25.”

The ongoing economic recovery is also driving the oil price, although it is highly politically influenced. Interruptions or even just supply disruptions, such as those caused by the recent Suez Canal blockade, are felt immediately. “The price development remains volatile”, said Gerlinger. “Due to the expected economic strengthening, the oil price is not only well protected on the downside but also has further price potential.”

Unlike gold, which has been overtaken by the recovery and is now less needed as a safe haven. “Both the economy and rising yields and real interest rates argue against a significant recovery of the gold price in the short term”, Gerlinger explained. “As an investment, it is currently unattractive.” That could change if inflation rates actually were to pick up permanently and more strongly.

“Obviously, inflation will rise, rates of around three per cent are possible in Europe and in the US by the end of 2021”, Gerlinger highlighted. Due to base effects in commodity prices and pandemic-related supply or supply chain disruptions, consumer prices, which have already picked up, may also rise further in the coming weeks and months. “The adopted fiscal and monetary policy programmes will not lead to fundamental goods price inflation, but rather to asset price inflation in bonds, real property and equities”, said Gerlinger. In the coming year, however, inflation is expected to slow down considerably, as the base effects should all disappear by then.

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