Barclays says markets ‘rightly’ optimistic on growth and tips S&P 500 to hit 4,000 points next year

Barclays and HSBC buildings are seen amid the outbreak of the coronavirus illness (COVID-19), in London, Britain October 20, 2020.

Matthew Childs | Reuters

Markets are proper to be optimistic in regards to the world financial outlook in 2021, with growth returning and inflation rising beneath central financial institution targets, in accordance to Barclays Head of Economics Research Christian Keller.

In its 2021 outlook, the British lender has projected world GDP (gross home product) growth of 5.6% in 2021, rebounding from a 3.6% contraction this year, with most Western economies reaching so-called herd immunity from Covid-19 within the second and third quarters of the year.

The forecast is rosier than that supplied Tuesday by the OECD, which expects a sharper contraction of 4.2% this year, adopted by a 4.2% growth in 2021.

Speaking to CNBC’s “Street Signs Europe” on Wednesday, Keller stated his forecasts mirrored the latest slew of positive vaccine results with efficacy rates exceeding expectations, which level to a major enhance for growth within the second quarter of 2021. He additionally advised the inflation outlook wouldn’t point out any unwinding of present unprecedented ranges of central financial institution assist.

“Labor markets are recovering but we are still at very high unemployment, so there is undeniably a lot of slack in the system,” Keller stated.

“That means that when it comes to core inflation and the underlying drivers, to wage costs etc., that was unlikely to happen in the short run, meaning even next year. It would take several years really to come back.”

Keller famous that whereas Barclays anticipates a gradual enchancment in inflation, it won’t be important sufficient to trigger central banks to contemplate tightening their accommodative financial coverage stances.

“This is why markets are quite optimistic, and rightly so. We have an environment whereby growth comes back, inflation stays relatively muted, and you have central banks continuing to support the recovery, and tightening is still far out,” he concluded.

Barclays fairness analysts have already issued their 2021 outlook, projecting a rally for European shares in 2021 on the again of earnings-per-share growth, because the vaccines begin to convey the pandemic underneath management.

The British lender tips the S&P 500 to surpass the 4,000-point mark in 2021 and European equities to notch file highs, whereas the benchmark U.S. 10-year Treasury yield is predicted to rise to 1.25%.

The S&P 500 closed Tuesday’s session at 3,662.45 points and the 10-year yield was at 0.9277% as of Wednesday afternoon buying and selling in Europe.

“We remain overweight risk assets over core bonds, as investors look through the near-term drag of the winter COVID surge and focus instead on a resilient global economy and a faster return to normalcy in 2021/2,” Barclays Head of Macro Research Ajay Rajadhyaksha advised buyers in a word Wednesday.

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