Commentary
Global equity and bond markets rallied last week, as both the US and Eurozone inflation figures declined. In the US, the core Personal Consumption Expenditure index (Fed’s preferred inflation indicator) declined to 3.5% (from January peak of 4.9%), while the Eurozone core inflation fell to 3.6% (from March peak of 5.7%).
Positive performance in equity markets was broad-based, as S&P 500 equal weight index strongly outperformed its market cap-weighted peer (+2.4% and +0.8%, respectively). Meanwhile, Russell 2000, a US small-cap benchmark, rallied 3.1%.
Alongside the equity rally, fixed income yields declined considerably. The 10-year US Treasury yield now stands at 4.24%, down from this year’s peak of 4.99%. Corporate credit yields also retreated, with US investment grade and high yield credits now averaging 5.49% and 8.41%, respectively. Similar dynamics played out in the European fixed income markets.
Markets are now foreseeing a swift policy easing in 2024. The market-implied probability of Fed rate falling to 4.0-4.25% or below by December 2024 stands at 76% (vs 19% in past week).
