Deutsche Bank strategists warn: The market is pricing in a "non-existent perfect combination," simultaneously betting on strong growth, limited rate hikes, and controllable oil prices, leaving almost no room for error regarding policy, inflation, and geopolitical situations.

In his latest report, Deutsche Bank macro strategist Henry Allen points out that the current market is simultaneously betting on strong economic growth, limited interest rate hikes by the Federal Reserve, controllable energy supply shocks, and falling oil prices. This "Goldilocks" combination appears favorable for risk assets, but leaves almost no room for error regarding policy, inflation, and geopolitical situations. The report emphasizes that U.S. stocks are at record highs, reflecting economic resilience, yet the interest rate market is pricing in quite limited further rate hikes by the Federal Reserve; meanwhile, although Brent crude oil prices have fallen back to around $88/barrel, the Strait of Hormuz remains obstructed, and there is a disconnect between expected supply recovery and actual risks. Deutsche Bank warns that if strong growth pushes up inflationary pressures or energy supply disruptions persist, the existing pricing relationships could be broken.