The biggest trade of 2026 is suddenly under threat
The biggest consensus trade of 2026—lower interest rates—is suddenly under threat and investors must act, warns the CEO of global financial advisory deVere Group.
The warning from Nigel Green comes as fresh US inflation data showed consumer prices rising at their fastest pace in three years and the European Central Bank (ECB) prepares to raise rates today (Thursday 11 June for the first time since 2023, a combination he says could force investors to rethink one of the year’s most widely held market assumptions.
He says: “Markets have spent much of 2026 expecting inflation to continue cooling, paving the way for lower borrowing costs across the world’s major economies.
“Events of the last 24 hours have cast serious doubt on that outlook.
“The market’s central assumption this year has been that inflation was beaten and lower rates were inevitable,” he says.
“Both assumptions are now being tested.
“Investors focusing solely on the ECB are missing the bigger story. In less than 24 hours, the two most important central banks in the developed world have received the same warning: inflation is proving more persistent than markets expected.”
US consumer inflation, it was confirmed yesterday, accelerated to 4.2% in May, its highest reading in three years, driven in large part by rising energy prices linked to the ongoing Iran conflict.
At the same time, the ECB is widely expected to lift its deposit rate today to 2.25% as elevated oil prices continue feeding through into eurozone inflation.
The significance extends far beyond either individual announcement.
“For the last two years investors have been obsessed with the differences between the Federal Reserve and the ECB.
“Now they’re increasingly confronting the same challenge.
“Energy prices are rising and geopolitical tensions are feeding inflation. Policymakers on both sides of the Atlantic are facing price pressures that originate outside their own economies.
“Financial markets entered the year expecting central banks to become steadily more accommodative as inflation retreated toward target levels.
“Instead, investors are now facing the prospect that geopolitical events could keep inflation elevated for longer and force policymakers to maintain restrictive settings well beyond previous expectations.
“Three months ago, investors were debating the timing of rate cuts,” says the deVere CEO.
“Today, they’re debating whether rates will fall at all.
“The great rate-cut trade has become deeply embedded in market thinking.
“Bond markets, equity valuations, and broader risk appetite have all been influenced by expectations that borrowing costs would eventually move lower.
“If that expectation proves wrong, there will be consequences across every major asset class.”
He notes that a growing number of analysts now expect the Federal Reserve to leave rates unchanged through the remainder of the year, while market pricing has begun reflecting the possibility that further tightening cannot be completely ruled out.
“Markets are still adjusting to the possibility that the next move from major central banks may not be a cut,” he says.
“Investors have been conditioned to expect monetary easing as the natural next step. Policymakers are increasingly signalling that inflation risks remain very real.”
Nigel Green argues that the nature of the current inflation threat makes it especially difficult for central banks.
“This is not inflation primarily driven by consumer demand. It’s being shaped by energy markets, geopolitical instability and supply-side pressures.
“Central banks can’t increase oil production, can’t resolve conflicts, and can’t eliminate geopolitical risk.
“Yet they still have a responsibility to preserve price stability, which means policy could remain tighter for longer than many investors currently anticipate.”
He believes investors should be reassessing portfolios built around a lower-rate future.
“Markets are forward-looking. Waiting for complete certainty is rarely rewarded.
“The biggest risk today is not volatility, but assuming the economic environment investors expected at the start of the year remains intact.”
The deVere CEO concludes: “The combination of hotter US inflation and an ECB rate increase should be treated as a loud wake-up call.
“The biggest consensus trade of 2026 is facing its most serious challenge yet.”