Markets Update April 2024 - Inflation worries and geopolitics put the brakes on the stock market rally

Following the publication of the US inflation data for March, which was higher than expected for the third month in a row, the mood on the markets has changed. Until recently, it was considered certain that the US Federal Reserve would start to cut interest rates in June at the latest. But now there are suddenly fears that the long-awaited turnaround towards lower key interest rates will not happen at all this year. As a result, market interest rates on the bond markets have risen noticeably. The stock markets, which are already highly valued and react sensitively to changes in interest rate expectations, experienced the biggest corrections in six months as a result. Disappointing earnings reports from companies in the AI sector further clouded the picture.

The risk of a further escalation of events in the Middle East has not only caused risk premiums to rise on the markets, but has also put pressure on global central banks. If crude oil prices continue to rise due to an escalation of the conflict between Israel and Iran, this could prolong the already high inflationary pressure. Interest rate cuts would therefore be off the table for the time being. Central banks could even be forced to raise interest rates.

Emerging markets expand their gold reserves

Despite rising real interest rates and a strong US dollar, which usually correlate with lower gold prices, the gold price is continuously reaching new highs. This trend can be partly explained by increased demand from central banks in emerging markets, which are expanding their gold reserves while reducing the proportion of the US dollar in their currency reserves. Geopolitical risks are also increasing the attractiveness of gold as a safe haven, which continues to support high gold prices despite falling demand from global ETFs.

Uncertainty on the capital markets is currently increasing due to various, partly overlapping developments. Professional investors should therefore critically review their risk exposure and adjust it if necessary in order to protect themselves against negative surprises.