Having reflected on the December Federal Open Market Committee (FOMC) statement and of course the Fed chair Jerome Powell’s press conference, there appears to be a near-complete consensus view. 
Firstly, that 2021 will see an enhanced recovery/reflation trend through successful vaccine rollout generating a high reopening delta (i.e. the change in the price of an asset compared to the corresponding change in the price of its derivative) from a relatively low base.
Secondly, that US nominal yields continue higher as the economy rebounds, led by inflation expectations, thus keeping US real yields suppressed and driving a lower US dollar.
Lastly, by extension, that this low real yield base and global post-covid reopening will drive a rotation out of growth stocks (particularly tech that has benefitted from the lockdown) and into value (predominantly old economy) stocks, inside and outside the US.
Among analysts, there is some variation on the primary drivers of valuation, or the currencies or global equity markets that would benefit most from this consensus macroeconomic projection - but surprisingly no dissent.
In January, there have been some interesting developments for the US and for the global economy, but the consensus is unaltered. Plus ça change, plus c’est la meme chose.
As is often the case, with a consensus view, particularly when things have generally moved in the expected direction and there is a marked-to-market event (in this case the start of a new year), 2021 has begun with a wobble of uncertainty. Against this backdrop it is perhaps worth considering whether events have brought any real change to the macro outlook:
*The release of December’s FOMC minutes continued to highlight a Fed that is intent on maintaining monetary accommodation for the medium term – only one additional member joined the ‘dots’ of those expecting a rate hike in 2023 and “all participants judged that it would be appropriate to continue those purchases at least at the current pace [$120bn per month] ... until there is substantial further progress” towards its dual mandate of price stability and full employment.
*Further, building on the positive economic narrative surrounding vaccine breakthrough from the minutes, there has been further positive vaccine-related news (both in the US and globally), despite some supply issues, with more vaccines likely authorised and coming ‘on-line’ soon.
*Lastly, the Georgia elections have resulted in a de-facto (though limited) Democratic Senate majority, which is likely to generate a further fiscal stimulus. This implied fiscal expansion (expected to be in the region of $600-750bn or a further 3+ per cent GDP) was deemed as both stimulative and reflationary by financial markets. The fact that it is likely to consist of around $300bn in stimulus checks/cheques suggests a fast fiscal transmission or economic boost.
So essentially, we would argue that the events over the past three weeks have strengthened the consensus arguments. The growth argument is perhaps clearest. The reaffirmation of loose monetary policy (adding to the huge tailwind from lower rates in the US), further fiscal stimulus and higher vaccine expectations all contribute – and the net positive wealth effects of higher equity and house prices remain clear. From our perspective, this continues to argue for higher US equity markets, and while we fail to see a strong case for the rotation out of either (tech) growth into (old economy) value or indeed out of the (faster-growing) US into (lower-trend growth rate) global economies, equities are likely a rising sea that should lift most, if not all boats.
The arguments for a weaker US dollar are likely also reaffirmed by recent events, as the Fed appear resolute in driving real rates lower to stimulate demand (and inflation) and notably, the shift towards a more fiscally profligate US administration and a higher support for policies that potentially nudge (alarmingly) towards those of Modern Monetary Theory.
There is a conflict within the consensus that is potentially difficult to square in that, higher US rates, higher equities and a lower dollar are only likely compatible in a world where the US is not significantly outperforming. In the near term, it is likely that the recovery pace of many global economies flatters the sustainable or trend growth rate over subsequent periods. However, at some point, potentially relatively soon, we expect the US to widen its growth differential advantage over the rest of G10 and against that backdrop – against those currencies where perhaps vaccine rollout is weaker, and or pre-existing conditions or constraints return – the US dollar can buck the trend.
Ultimately, therefore, we continue to view the main themes as unchanged - despite the wobble of conviction as we enter 2021. However, as the year progresses, it is unlikely that the dominant FX narrative remains a uniform ‘sell the US dollar’. Differentiation will return – in some instances potentially quite soon.
Neil Staines is a senior portfolio manager at Eurizon SLJ Capital. The views expressed above are his own and should not be taken as investment advice.