Market Watch May 2024

First Fed rate cut in November? ECB under pressure to cut in June

Over the last week, there has been a significant shift in the outlook for Fed rate cuts during 2024. At the beginning of the year 6-7 rate cuts were anticipated. Now, only two rate cuts are priced in, with the first expected to occur in November. There is even a 20% probability that rates might be increased until the end of 2024.

We believe that both positions are too extreme. The Fed must cut its rate at least once to maintain its credibility. Therefore, July or September are now in focus. Based on the latest US Small Business indicator, there will be a slowdown in hiring over the coming months, which might give the Fed good reasons to cut rates once before November.

The situation in Europe is different. The ECB must cut rates based on their communication. The good news is that inflation is decreasing, while growth remains muted. Surprisingly strong PMI data and Sentix indicators lead us to believe that the economy might grow slightly faster than most economists anticipate.

We see further signs in the commodity market that the global economy is gaining momentum. For instance, copper has risen above USD 10,000 per tonne. Dr. Copper has historically been a good indicator of global growth.

We also observe a global increase in long-term government bond yields. In the US, the 10-year yield is currently around 4.6%, while the expected Fed rate by year-end remains at 5%. This would imply that the yield curve would continue to be inverted.

We believe that the inverted shape of the curve is not accurately forecasting a US recession this time. Due to fiscal stimulus packages and helicopter money, the functionality of the market is still distorted. However, we also believe that the normalization process will continue, and therefore, do not expect 10-year yields to fall.

We adhere to our non-consensus call that 10-year yields in the US, Eurozone, and Switzerland are still too low compared to the expected policy rate. If we are correct that the US will not fall into a recession during 2024, US 10-year yields can rise further towards 5%.

Markets in 2024: Currencies, Commodities, Equity & Bond Indices

Equity markets have pulled back but so far a correction has not happened


The Swiss Franc has experienced further depreciation against both the Euro and the US Dollar. However, the effect of the SNB rate cut is fading, along with its momentum. Nevertheless, the SNB’s strategy to weaken the CHF is still proving effective.

The Euro has further depreciated against the USD, influenced by geopolitical tensions and the expected rate cut by the ECB in June.

The USD, as measured by the DXY, has risen due to rising geopolitical tensions, playing out its role as a safe haven.


The S&P 500 has pulled back around 7%, followed by a bounce-back driven by Alphabet, Tesla, and Microsoft. The further development will depend on the earnings season. With around 8% plus so far, our base case of an expanding US economy has been confirmed.

However, we expect that this bull market will continue after the ongoing consolidation. The main drivers are expected earnings growth of around 13% for next year. Additionally, we anticipate international chip makers opening new plants in the US to access funds from the US government. This is aimed at building high-end chips domestically to support the AI revolution.

Fixed Income

The 10-year Treasury yield has surged above 4.6%, while the 2-year yield has fallen below the 5% mark after weaker-than-expected US flash PMIs. The 2-year bond auction saw massive demand without the yield rising significantly above 4.9%. However, the Fed is expected to conduct only 2 rate cuts until year-end. Furthermore, the first full cut is anticipated by future markets for November.

We believe that market expectations are overshooting, and we might see a rate cut before November. However, the cut is aimed at demonstrating the credibility of the Fed, as the economy may not necessarily need a cut to stimulate further development.

Alternative Investments

Since our last publication, gold has surged to almost USD 2400 per ounce, followed by a consolidation. The price reflects the increasing global tensions, while rising yields are still being neglected. We expect a mean reversion before gold might restart rising.

The price of copper has surged above USD 10,000 per tonne, reflecting the acceleration of economic growth. Additionally, it may finally be pricing in the expectation that demand will be greater than anticipated production.

Both oil futures prices are trading at similar levels to one month ago. However, we have seen the price range-bound. Despite this, since the latest weaker than expected US macro data, there has been a decline. There is price pressure from the futures market, and with the end of the heating season, we might see further pressure on prices.


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