How big a threat is inflation?

So while we do believe inflation will push higher in 2021, we don’t think this will be a major issue for the central banks.

Regular readers will know that we have a positive medium term view of spread products. This is based on a number of factors; valuations in our view are reasonably attractive compared to history, we are convinced that both monetary and fiscal stimulus will remain in place for an extended period of time, and perhaps most importantly we remain at a very early stage of the new cycle.

With September set to be the first negative month for most risk asset markets since March, it is worth analysing what has been driving the reversal.

There are a number of countries in Europe where the banking sector remains very fragmented, and while a lot of work has been done in Spain with the mergers of multiple ‘cajas’ in the last few years, there is still scope for further consolidation.

Given most countries are going through the same issues and their fiscal expansions are justified, the relative value has not changed that much.

As more government bond curves around the world join the select group trading at negative yields, we are seeing a spike in ‘Japanification’ headlines in the press.