Dual inflation: pushes equities and puts pressure on bonds

The truce on the markets continues, waiting for what could in fact materialise for the conflict in the Middle East on the negotiating table. Yesterday too, the stock markets continued on the path of recovery started the day after the announcement of the albeit fragile 'ceasefire'. The situation in the bond world was more complex, with government bond yields returning to levels close to the highs reached at the height of tension on the geopolitical chessboard, and therefore kept under close observation by investors.

On the subject of stock exchanges, Europe ended the day with rises of 0.59% at Piazza Affari and within a percentage point on the other continental listings. The weekly balance thus speaks of a maxi-rise of over 4% for the Italian stock exchange and only a few cents smaller for the other European and New York indices. The release of the inflation data in the United States, the highlight of the day from a macroeconomic point of view, did not, in this respect, have much influence on the share performance.

The 0.9% increase recorded on a monthly basis in March by the consumer price index (the highest since March 2022) and the 3.3% annual increase, although in line with analysts' forecasts, seemed to have a significant impact on the dynamics of bonds. Here, the rise was evident, first of all, for US Treasuries, whose 10-year yields returned to 4.31%, but it also spread to that part of Europe that is basically unanimously considered more vulnerable to energy price shocks. The Bund, in particular, broke the 3% threshold again, settling a good seven cents above it and thus close to the highs since 2011 reached in the very days before the agreement, while the BTp moved accordingly, ending at 3.85% and 78 basis points away from the German benchmark.

Evident then is the ongoing dichotomy between the behaviour of the different asset classes. Investors "still appear eager to buy on any downturn" on equities as Mark Dowding, head of fixed income investments at Rbc Bluebay, points out, despite the fact that "any way out will be more bumpy than other geopolitical episodes" and above all that "from a fundamentals perspective, higher oil and gas prices are already affecting the global economy". At the same time, caution remains extreme on bonds: "The market currently believes that the Fed will continue to keep a tough tone on inflation, but with very limited action, and is discounting the status quo on US rates for at least the next ten meetings," reports John Kerschner of Janus Henderson Investors.

In the latter case, the manager of the British investment house warns in particular how market participants are essentially ignoring the statistic found in the past, on the basis of which "a 10% increase in oil prices corresponds to an overall increase of 25-30 basis points in consumer prices". Even yesterday, the crude barrel remained just under 100 dollars, levels 40-50% higher than pre-Iran levels, which, if confirmed for a considerable period of time, "could lead to US inflation of over 4% for the overall figure and around 3% for the core index, which would render in vain - still according to Kerschner - much of the progress made by the Fed over the past four years". A still extremely fluid and uncertain picture, therefore, at least for bonds.