By Bertel Roslev Rasmussen

Equity gains continued in March with the global equity index rising 3.4%.

The equity gains come on the back of strong macroeconomic data from the US economy indicating strong underlying economic growth. Investors' narrative has thus shifted from the possibility of a recession (2023) to the possibility of a "soft landing" (late 2023 to early 2024) and now to the possibility of "no landing" - i.e. an economy that does not pause, but simply continues to grow at a high rate.

For a long time, the US economy has been supported by a favourable development in the service sector, which is also by far the largest part of the US economy. Recently, however, activity in the manufacturing sector has turned around, as confirmed by the US manufacturing PMI figures, which are now back above the 50 index and at their highest level in 22 months. Combined with the emerging optimism about the Chinese economy, this leaves the impression of a global economy where growth is reaccelerating.

The reacceleration of the global economy is also confirmed by the commodity markets, where a wide range of commodities, led by oil, gold and copper, have risen further in March. In particular, the increases in oil and copper, which are key elements in the global manufacturing industry, indicate an increase in industrial production.

However, the flip side of the favourable economic development is that the spectre of inflation has started to show its face again. In Europe, the current inflation rate is compatible with the 2% target, but in the US the story is now different. In the recently released US inflation figures, inflation in March was 3.5%, up from 3.2% in February. Measured over the last 3 months instead of the usual 12 months, and adjusted for fuel and food, the so-called core inflation in the US shows a clear trend of reacceleration. Thus, there are no immediate signs of US inflation dipping down to the long-term target of 2%.

The upward (US) inflationary pressure is also putting pressure on US monetary policy, and as better and better macro figures trickle in, investors are downgrading their expectations for the size and timing of US rate cuts. From starting the year with an expectation of 6-7 rate cuts in the US starting in March, the expectation is now 2-3 cuts and the first cut has now been postponed until after the summer holidays. Some investors have now also started talking about the possibility of no rate cuts at all in 2024. If this happens, the bond market will be challenged again, just as there have been signs of this in early April.