Good Morning from Copenhagen.

So far, we’ve held a fairly dovish stance on inflation, believing it to be a mostly US-driven story. But that narrative is crumbling – market-based and real inflation are picking up worldwide.

China’s growth is resurging, and its prior weakness was one of the key reasons we expected inflation to stay tame. Now that inflation is turning into a global phenomenon, markets are on edge. This isn’t just bad news – it’s potentially brutal as central banks stay hesitant to intervene in sovereign markets.

In Europe, term premia are finally catching up after lagging behind the US. But let’s be clear – the magnitude is still much lower than across the Atlantic. For the ECB, this is the metric to watch in terms of liquidity moves. Until European term premia rise further, expect little reaction from the ECB. It’s a slow burn, but the trend is pointing in one direction.

The general theme currently is uncertainty and thereby term premia higher – both in the US, the Eurozone and UK.

Chart 1: US Term Premia Spike – Relentless.