By Bertel Roslev Rasmussen

US inflation and interest rates once again dictated the development of the financial markets in April. With market interest rates rising significantly, the theme “higher for longer” has once again moved to the top of the investor agenda. This put pressure on both equities and bonds during the month.

The interest rate policy of the US Federal Reserve in particular remains in full focus. In recent months, we have seen more sticky inflation than the central bank expected at the beginning of the year. This means that in April, investors had already begun to cancel expectations for this year's interest rate cuts, which otherwise amounted to 6 - 7 at the beginning of the year. Instead, rising inflationary pressures led to fears that the central bank might not cut interest rates at all, but instead raise them later in the year to control the burgeoning inflation.

However, these fears were allayed at the Fed's interest rate meeting in early May, where the Fed made it clear that monetary policy is already tight enough and that it is not considering further rate hikes.

The fear of interest rate hikes was further dispelled by the US jobs report in early May. The report showed that 175,000 jobs were created in April - a significant drop from 315,000 the month before. So there are - finally, one might be tempted to say - signs of a cooling of the US job market, which has been a positive surprise for some time. Although it may seem counterintuitive, a weaker jobs report increases the likelihood that inflation will slow over the coming quarters, which will increase the Fed's ability to lower interest rates. The jobs report was well received in both equity and bond markets.

The latest economic data from the US also supports the narrative that the foot is off the gas in the US economy. However, there is still maximum uncertainty about the numbers and thus the direction of the US economy, and with the recent weaker than expected US economic data, even a recession scenario cannot be taken off the table.

However, growth expectations for the full year 2024 still look robust, which combined with a relatively strong US/global consumer and low unemployment is expected to be supportive for risky assets such as equities and credit bonds.