What do the unprecedented monetary and fiscal measures mean for inflation?

As the largest vaccination programme in history commences, risk markets appear to be ignoring the logistical challenges or near-term downside growth risks from tighter lockdowns imposed after infection rates in Northern Hemisphere countries soared over the winter.

With the S&P at or close to all-time highs and many investment grade corporate bond spreads trading through pre-COVID levels, financial markets appear to be priced for perfection. The accommodative stance of monetary policy, direct central bank interventions, and a supportive supply/demand technical backdrop should continue to support credit risk appetite. However, financial market pricing most likely reflects monetary stimulus more than economic fundamentals.

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