Asset Allocation Watch: Best not hope for cuts
Recent developments in components of the inflation basket leave us less convinced of the path ahead for the Fed but judging by funds futures, the market is now pricing in cuts already by April 2024.
Energy (and oil in particular) could easily wrongfoot these expectations. Our estimate is for a deficit just above 2mn barrels through the fourth quarter, which is enough to bring oil prices another 30% higher based on historical data.
This is going to be painful for the current positioning in case realized and something that could even risk wreaking havoc with pausing plans from big central banks.
Chart 1: The outlook according to markets
Last week we tried to assess where in the cycle we’re currently at and whether the recession risks were receding. In this sequel, we’ll take a look at how various asset classes perform during hikes, pauses, and cuts respectively. Hold on your cheer for cuts maybe…
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