US inflation causes interest rate cut expectations to fall, bond yields to rise

The bi-weekly Monitor gives you a structured overview of the current capital market environment and highlights important developments.

Current market commentary

The momentum on the stock markets appears to have been broken for the time being. The S&P 500 lost for the third week in a row and is up "only" 4% since the beginning of the year. European shares, on the other hand, have held up much better. The Euro Stoxx 50, for example, is still up about 9% since the beginning of the year. We have used the recent weakness to neutralize our underweight in equities. As a result, we have reduced our underweight in US equities. Within commodities, the best performing asset class so far in 2024, we have taken slight profits in gold, but remain overweight in both commodities and gold. In addition to fundamental reasons, the fact that most investors are still heavily underinvested in commodities is an argument in favor of this. Commodities are also well suited as an inflation and geopolitical hedge. Bonds appear more attractive to us following the sharp rise in interest rates this year. Accordingly, we remain very balanced in our multi-asset strategies.

Short-term outlook

The US reporting season for the first quarter of 2024 is picking up speed: Over the next two weeks, 65% of the market capitalization of the S&P 500 will release earnings reports. On 1 May, the Fed will also make its rate decision. The market is currently not expecting any change in rates. The G7 ministerial meeting on climate and geopolitics (focus on conflict in the Middle East) takes place from 17 to 19 April. The preliminary purchasing managers' indices (Apr.) for the USA and the eurozone will be published on Tuesday. On Wednesday, the ifo business climate data (Apr.) in Germany and the preliminary new orders for durable goods (Mar.) in the USA are due. This will be followed on Thursday by US GDP figures (Q1) and initial jobless claims (Apr. 20), and on Friday by household income and spending (Mar.), core PCE deflator (Mar.) and University of Michigan consumer confidence (Apr.). Next week, the consumer price index (Apr.) in Europe as well as the GDP data (Q1) in Germany will be released.

US inflation causes rate cut expectations to fall, bond yields to rise

Source: Bloomberg, Time period: 01/10/2023 – 19/04/2024
  • Stubborn inflation and hawkish Fed comments have lowered US rate cut expectations to less than two steps in 2024, from more than six at the start of the year.
  • US 10-year yields have risen significantly, which, in addition to geopolitical tensions, boosted the US dollar - it gained 3% versus the euro.
  • Thanks to the robust US economic data and the increased risk of inflation, our chief economist has postponed his forecast for the Fed's first rate cut from June to December.