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Macro Factors at a Glance<\/h2>\n\n\n\n
Last week was primarily dominated by three themes: geopolitics, inflation, and monetary policy. Particularly striking was how quickly the market switched between risk aversion and a renewed willingness to buy.<\/p>\n\n\n\n
Geopolitics and declining oil prices<\/h3>\n\n\n\n
At the beginning of the week, tensions in the Middle East continued, causing the market to react nervously and come under pressure. Threats of new military strikes led to significant selling pressure on Tuesday and Wednesday. Risk appetite only returned on Thursday when news spread that planned US attacks had been canceled. <\/p>\n\n\n\n
The real breakthrough came on Friday, when reports of a possible peace settlement, including a reopening of the Strait of Hormuz, boosted prices. Correspondingly, the oil price fell sharply, dropping back towards its two-month lows at around $84 per barrel. This is doubly relieving for the stock markets: a lower oil price eases pressure on inflation and thus indirectly on bond yields.<\/p>\n\n\n\n
Inflation data slightly cooler than expected<\/h3>\n\n\n\n
Following recent renewed concerns about a further rise in inflation, consumer and producer prices were in sharp focus last week.<\/p>\n\n\n\n
At first glance, the numbers were alarming: at 4.2 percent year-on-year, headline inflation climbed to its highest level in three years, driven almost entirely by energy prices, which have risen due to the war. But at second glance, the report offered reassurance: month-on-month, the price increase slowed to 0.5 percent, weakening for the second month in a row. The core inflation rate, which excludes volatile energy and food prices, in particular, rose by only 0.2 percent, less than expected. This suggests that inflationary pressure is already easing outside of the energy component. <\/p>\n\n\n\n
The producer price index, released on Thursday, came in hotter than expected at 6.5 percent, a reminder that price pressures remain in the supply chain. However, the overarching takeaway was that the majority of the inflation is driven by energy and thus geopolitics. If oil prices fall, inflation should also cool down again.<\/p>\n\n\n\n
Fed Outlook: Rate Concerns Remain, But Pressure Eases<\/h3>\n\n\n\n
Accordingly, the inflation data ultimately did not trigger new panic. While rate hike concerns remain present and the market continues to price in one to two rate hikes in the coming months, the current pressure has somewhat eased, partly thanks to falling energy prices. <\/p>\n\n\n\n
The focus in the coming week will be on the first interest rate decision under new Fed Chairman Kevin Warsh. While a change in the key interest rate is highly unlikely, the subsequent first press conference with Kevin Warsh could provide clues as to how the Fed chairman will communicate the balance between persistent inflation and economic risks.<\/p>\n\n\n\n