Details Cookies
Cookie policy

This website uses cookies to offer you a better browsing experience by enabling, optimising and analysing site operations, as well as to provide personalised ad content and allow you to connect to social media. By choosing “Accept all” you consent to the use of cookies and the related processing of personal data. Select “Manage consent” to manage your consent preferences. You can change your preferences or retract your consent at any time via the cookie policy page. Please view our cookie policy here and our privacy policy here

Macro Insights: Too soon to take inflation concerns off the table Macro Insights: Too soon to take inflation concerns off the table Macro Insights: Too soon to take inflation concerns off the table

Macro Insights: Too soon to take inflation concerns off the table

Macro 4 minutes to read
Charu Chanana

Market Strategist

Summary:  The inflation vs. recession debate continues to heat for the global markets even as a sense of calm is prevailing on banking stress. This week’s inflation data out from the US did not materially change the expectations of the Fed path as sticky core pressures remained the highlight. Risks on inflation remain tilted to the upside for H2 with activity levels in China improving and commodity prices surging higher again. That makes us question whether the pricing of rate cuts for this year may be too aggressive.

Sticky US inflation despite mixed headline figures

This week we had a host of inflation prints out from the US, but there was not much to absorb in terms of policy implications. The March CPI report was cooler on the headline and disinflation trends were also noted on the core and supercore measures. However, the supercore measure, which is preferred by Chair Powell as well, still trends somewhere in the 4-6% range, highlighting the stickiness and showing little conviction that inflation is on the way to fall below the Fed’s 2% target.

The PPI report last night cooled both on headline and core measures, and negative M/M prints cheered markets as Fed rate cuts continue to be priced in for later in the year. However, February prints for PPI were revised higher for both the headline and core, suggesting it may be too early to put inflation fears behind.

While it is reassuring to see disinflation trends continuing, the pace has been quite muted. Meanwhile, upside risks to inflation have not gone away. Average retail gasoline prices in the US are up 8% since the end of February and crude oil prices have also trended higher since the surprise OPEC cut. Banking crisis concerns have also eased, suggesting demand concerns could come back, and also get aided by China recovery gathering steam as indicated by PMI, credit and trade data this month. Meanwhile, labor markets continue to remain tight despite some recent signs of cooling, suggesting wage pressures have room to run.

Can the Fed really cut rates this year?

Markets are currently expecting a Goldilocks situation where inflation continues to cool and recession isn’t looking too bad either. This suggests equities can continue to trade sideways to higher and there will be little in the way down for the US dollar. But what happens when one of these assumptions take a turn for the worse?

Market expectations are currently pricing in one more rate hike from the Fed but 200bps of rate cuts in the next two years. So the risk of an inflation shock is far greater than that of a recession shock, and that is also the one which is more likely. Even if a swing higher in inflation doesn’t bring the market to price in more rate hikes in light of the financial sector risks, we believe the expectations of rate cuts this year is aggressive. So the risk/reward remains tilted towards a hawkish shift in Fed expectations, provided the bank stress does not deteriorate.

Equity investors looking ahead at a potential Q1 earnings drag

Bank earnings kick off today, and will be in focus to get a sense of how much tighter lending standards could get. We expect the deposit flight into big banks (from smaller regional banks) to offset some of the credit tightening concerns. Meanwhile, consumer and corporates are still flush with enough cash and less dependent on debt, which suggests the economy is somewhat more resilient to a credit crunch in the current cycle.

Still, even as concerns of an economic recession remain subdued, equity investors will need to stay cautious of a potential drag from the upcoming earnings season. As inflation eases, companies are losing their pricing power, but wage pressures haven’t yet eased proportionally. This means there could be revenue misses, but more concerns are still on margin pressures. FactSet estimates Q1 earnings for S&P 500 companies could decline by 6.8%, the steepest decline since Q2 2020. If this was to materialize, it will be the second consecutive quarter of negative earnings growth signalling an earnings recession. Bloomberg consensus expectations are calling for a ~8% slide in EPS for S&P500 companies with most declines coming from healthcare, materials, IT and consumer staples while energy and utilities companies are still expected to post positive earnings growth.

Singapore’s MAS pausing too soon?

The Monetary Authority of Singapore, in a surprise decision, kept its policy settings unchanged at the April meeting after five rounds of tightening measures. The MAS did not change the slope, mid-point, or width of the SGD NEER policy band as it expects core inflation to ease materially by end 2023 while still noting that fresh shocks to global commodity prices could impart additional inflation pressures but they may be balanced by a sharper-than-expected downturn in advanced economies.

Unlike some of the major central banks that have paused so far, the MAS did not openly signal that more tightening could come later on. Instead, growth risks seemed to weigh more heavily for Singapore’s central bank, which was a surprise given China reopening tailwinds are now starting to magnify as well. Still, what is getting clear is that central banks are ready to pause and let the effects of tightening flow through the system, rather than facing risks of a recession.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (
- Full disclaimer (

Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.