The vaccination race has kicked off with the US and UK leading the G7 in jabs while Canada and a number of European countries are off to a slower start. Inoculations can’t come soon enough as outbreaks continue to intensify in many regions, straining healthcare systems and necessitating some of the harshest lockdowns since last spring. The UK, dealing with a new, fast-spreading strain of the virus, is facing a significant setback in its already lagging economic recovery. The euro area likely lost ground as well toward the end of 2020 and some restrictions are being extended to ensure recent flattening in case growth is sustained. Ongoing containment measures will slow Canada’s recovery, while a more measured tightening in restrictions and some fresh fiscal stimulus should keep the US economy growing. <\/p>\n
2021 has brought some notable political transitions. The UK and EU finally agreed to a trade deal that will allow quota- and tariff-free (but not entirely frictionless) goods trade, preventing a Brexit cliff-edge at the start of the year. And despite some deeply troubling scenes in Washington, Congress’s certification of the Electoral College vote put Joe Biden one step closer to his January 20 inauguration. Democrat wins in two Senate runoffs early this year strengthened Biden’s hand, though a narrow 50-50 split (VP Harris will act as tie-breaker) could still present challenges for the most ambitious aspects of the new administration’s agenda. Nonetheless, the prospect of more fiscal stimulus and larger budget deficits prompted a moderate selloff in the U.S. Treasury market, with 10-year yields rising above 1% for the first time since last March. Market-based inflation expectations rose above 2% for the first time since 2018, with rising oil prices contributing to the increase. Saudi Arabia’s unilateral production cut pushed WTI up to a ten-month high of more than US$50 per barrel.<\/p>\n