Financial markets are relying on an unusually favourable combination of economic outcomes that may prove difficult to sustain, according to Deutsche Bank, which warned that current valuations leave investors with little room for disappointment.
Macro strategist Henry Allen said risk ***** ets remain strong, with global equity markets trading around record levels. At the same time, rates markets are ***** uming central banks are close to completing their tightening cycles, while commodity markets appear to be pricing supply disruptions as manageable.
"This goldilocks window isn't a sustainable equilibrium," he wrote, adding that markets are "pricing a near-immaculate scenario where basically everything goes right."
Deutsche Bank outlined two potential paths that could challenge those ***** umptions. Under the first, economic growth remains resilient and financial conditions continue to loosen, potentially forcing central banks to respond with more aggressive interest rate increases.
The bank highlighted Bloomberg's index of U.S. financial conditions, which recently reached its loosest level since 1996. Meanwhile, both headline and core inflation remain above central bank targets across most major economies.

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