Thematic Research What are the biggest market dislocations Henry Allen

Global Cross-Discipline Date 11 August 2026 Thematic Research

What are the biggest market dislocations? August 2026 Henry Allen In the latest of our monthly “dislocations” series, we looked at what appears Macro Strategist strange in markets, and what might be ripe for a correction.

This summer has seen one of the strongest market performances in recent years, with investors pricing in a very benign set of conditions:

n First, equities and risk assets are buoyant, based on the premise of resilient and even accelerating growth. n Second, rates markets are pricing that central banks are nearly done with hikes, with only one or two more priced from the likes of the Fed and ECB. n Third, we have commodity markets pricing that supply shocks will prove contained, with Brent crude well beneath its recent peaks, and the oil futures curve still downward-sloping on hopes for a reopening of the Strait of Hormuz.

This might be great on paper, but the problem is this leaves next to no margin for error. This cross-asset story would require a near-perfect landing to occur, and several dislocations follow from this. In particular, the risk is that central banks like the Fed prove more hawkish than anticipated, as we've seen in past tightening cycles where markets are too slow to catch up. That risk becomes even more pronounced if inflation is also underestimated, particularly given that commodity markets are pricing in lower oil prices for the months ahead. Indeed, hopes for a reopening of the Strait of Hormuz have persisted, even as very limited traffic is getting through.

So what are some of the biggest market dislocations right now? 1. Markets are pricing contradictory narratives for the US economy. Risk assets point to robust growth, with the S&P 500 at record highs, whilst credit spreads remain tight. But, given how accommodative financial conditions are currently, rates markets still aren’t pricing many Fed rate hikes, raising the risk that markets are caught off guard (again) by the extent of the Fed’s hawkishness.

n It’s possible to paint an incredibly robust picture for the US right now. For instance, the S&P 500 hit another record high on Friday, earnings growth is robust, credit spreads remain tight, and the Atlanta Fed’s GDPNow

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11 August 2026 Thematic Research

estimate is even pointing to annualised growth of +5.8% in Q3. Meanwhile, Bloomberg’s index of US financial conditions closed at its most accommodative level since 1997 on Friday, and the unemployment rate hit a 13-month low of 4.1% in July. n Yet, despite seemingly buoyant conditions, and PCE inflation running at 3.7% in June, futures are still only pricing in 31bps of Fed hikes by the December meeting, with a hiking cycle that peaks at 47bps of hikes by next June. n It’s hard to reconcile this simultaneously, where we have buoyant economic conditions, above-target inflation, but markets pricing limited rate hikes. Something has to give, whether that’s a sharp fall in inflation, risk assets slipping back, or a Fed that needs to hike faster than the market anticipates. And, with inflation consistently proving stubborn in recent years, the risk is that the Fed proves more hawkish than markets expect, just as we saw in 2022-23 during the last hiking cycle when they tackled above- target inflation. n Moreover, a “one-and-done” hiking cycle is very rare historically. The only time in the 21st century it’s happened was in 2015, when it took a full year before the second hike thanks to data weakness that fuelled concern about a wider slowdown.

Figure 1: Polymarket probability of a US recession in 2026 Figure 2: Bloomberg's index of US financial conditions (%) – recession risks have been continuously priced out reached its most accommodative level since 1997 on this year Friday

Source : Bloomberg Finance LP, Deutsche Bank Source : Bloomberg Finance LP, Deutsche Bank

2. Connected to this, there’s a historical dislocation in market pricing. In the past 70 years, the…