Principal Asia Pacific's head of diversified asset solutions, Thomas Poullaouec, and his team recently published a new report stating that by 2024, it is widely believed in the market that due to progress in controlling inflation, coupled with current high interest rates, the Federal Reserve will be the first among developed market central banks to cut rates, while the European Central Bank is expected to act more slowly as inflation persists and growth remains weak. Although the situations in the United States and the eurozone differ, the market reflects expectations for both central banks to begin cutting rates in June. In addition, Principal also maintains a relatively high allocation to cash, as cash still provides attractive yields and liquidity, and may take advantage of potential market mismatches. Principal stated that the current economic growth in the United States continues to exceed expectations, the trend of slowing inflation is easing, the labor market remains robust, and the market expects the Federal Reserve to delay rate cuts. Conversely, as inflation in the eurozone accelerates downward and growth weakens, market expectations for the European Central Bank to cut rates are increasing. However, the European Central Bank remains patient, prudently monitoring wage growth and labor negotiations to ensure that inflation pressures are weakening. However, Principal also pointed out that while the situations in the United States and the eurozone differ, the market reflects expectations for both central banks to begin cutting rates in June. While a more synchronous approach to central bank action is expected to reduce the risk of market volatility, there are still many uncertainties before June arrives, which may once again lead to differences in central bank policies. In the fixed income market, investors unanimously expect a "bull steepening" of the yield curve, a phenomenon that has not yet occurred this year. Principal stated that the market is betting on an imminent Fed rate cut, and as the curve steepens, it may cause the short-term bond yield to decline faster than the long-term bond yield, benefiting the price of short-term bonds. However, the yield curve has been inverted for several months, which often signals an impending recession. Principal said that the U.S. economy remains robust, inflation is gradually slowing, and the possibility of avoiding a recession is increasing. While this is positive news for the economy, it also creates space for the Fed to maintain higher rates for a longer period to control inflation. This may be seen as negative news for investors betting on a reduction in short-term rates. This expectation also affects stock investors, who may optimistically anticipate a decline in short-term bond yields, attracting the over $6 trillion in cash in money market funds back into risky assets. Although the "bull steepening" of the yield curve has not yet occurred, it is expected that this situation will eventually arise, albeit later and in a more gradual process. Moreover, due to strong growth, slowing inflation, positive earnings trends, and reasonable valuations (excluding large-cap stocks), Principal is slightly overweighting equities. In terms of fixed income, Principal is increasing its allocation to local currency bonds in emerging markets to overweight, expecting this asset class to benefit from many emerging market countries rapidly cutting rates.