From the studio

Video: Investors Club | Bonds, gold, and USD outlook after Warsh’s Senate hearing (8 mins)
Video: The AI Show | Opportunities amid software disruption and margin squeeze (4 mins)
Video: Portfolio positioning amid US-Iran talks (5 mins)

Thought of the day

Brent crude oil prices are on track to rise 17% this week, their biggest weekly gain in seven weeks as US-Iran talks stall and the Strait of Hormuz remains closed. While US President Donald Trump said Israel and Lebanon will extend their ceasefire by three weeks, he ordered American forces to shoot boats placing mines in the Strait. The US Navy also boarded a supertanker carrying Iranian oil in the Indian Ocean as it stepped up its blockade.

Elevated oil prices for an extended period is a significant tail risk to global growth with multiple secondary impacts. While the indefinite truce has buoyed market sentiment alongside solid tech earnings, ongoing investor concerns over growth, inflation, and liquidity mean that risk appetite may swing in response to fresh headlines.

But we think growth should stay resilient, inflation is likely to undershoot market expectations, and there is adequate demand to meet higher supply of debt.

Our base case is that the growth drag from higher oil prices is manageable. The global economic outlook has softened since the start of the Iran conflict. In late February, futures markets were pricing average Brent crude prices of less than USD 70/bbl through 2026, but we now forecast Brent crude oil to stay above USD 90/bbl until the end of the year. We estimate that this increase in average oil prices would represent a 0.2-0.4ppt drag on 2026 growth in the US, Europe, and China. At the same time, it is important to view this drag in the context of a supportive economic backdrop. In the US, consumer demand is resilient, the labor market is solid, and AI-driven investment spending remains robust. In Europe, high consumer savings rates (about 15% in 2025) should provide a temporary buffer. In China, the impact of the Middle East conflict is likely to be limited given the country’s integrated supply chains, large oil reserves, and policy support. Overall, while risks to the growth outlook remain, we expect the global economy to remain on a positive trajectory and note that central banks and governments are prepared to respond if needed.

We expect headline inflation increases to have limited pass-through to core readings. While we think higher energy prices may push annual headline inflation to around 3.8% in the US and 3.3% in the Eurozone in the coming months, we expect limited pass-through to core readings. We also believe the potential for second-round effects is lower than in the 2022-23 rate-hiking cycle because inflation is less elevated to start with, labor markets are less tight, and upward price pressures are more narrowly concentrated. We think inflation risks are less pronounced than the market is anticipating, and believe that current pricing in the rates markets is too hawkish. We see 50 basis points of interest rate cuts from the Federal Reserve by year-end, 25 basis points from the Bank of England, and expect the European Central Bank to keep rates on hold.

Capital markets should have sufficient liquidity to absorb additional supply. Issuance of government bonds and corporate bonds is set to rise this year amid a widening US deficit, and a series of potentially record-breaking initial public offerings in the pipeline would also boost equity issuance. Elevated issuance raises the risk of negative feedback loops if some combination of weaker investor sentiment, slower earnings growth, higher inflation, or fears about deficits or disruption drives financing costs higher. But we believe capital markets have sufficient capacity to fund additional supply. Shorter-maturity government debt helps reduce the risk of sharp or disorderly moves in long-term yields, while changing regulation is making it less costly for banks to hold longer-maturity Treasuries. Corporate bond issuance also appears manageable as there have been substantial maturities this year that are typically reinvested. In equities, investors should expect volatility as a rotation away from some existing megacap stocks is possible, but we believe the market will be able to absorb the new supply with structural growth drivers intact.

So, we think it remains important to invest, and we believe a clear plan matters more than ever in a world of fast-changing narratives. In equities, we recommend that investors diversify exposure beyond megacap tech to capture broadening earnings growth. In fixed income, we see opportunity in short- and medium-duration quality bonds. Elsewhere, we like gold and commodities as diversifiers, and think investors should focus on diversifying both with, and within, alternatives.

For more details, read our latest Monthly letter: Investing in a fast-changing world.