MARKETS HAPPY HOUR PODCAST

In today's Markets Happy Hour Podcast we talk about two sorts of ships passing in the night – the ships that are stalled, or slowly passing through the Strait of Hormuz, as well as the Artemis II mission that will be shortly returning to earth – a symbol of persistent technological progress and pace towards a new frontier in energy extraction. Markets have come down to earth too as geopolitical risk has increased although since Tuesday's announcement of a fragile ceasefire have shown intermittent attempts at take off again – fuelled by resilient earnings and strong economic data. The inflation picture remains mixed – short term focused on transitory drivers, such as gas at the pump (up over 20% year to date) and the spike in oil and other supplies such as fertiliser. However the long-term picture is more muted and more in line with historic norms. This settling into long-term norms has also led to interest rates enjoying a soft landing too – with a new Fed chair on the horizon and the expected "points on the board" he seeks to score with an early concessionary rate cut (or cuts). Moving to the economic vibes we saw a stark rally in global markets in the aftermath of the cessation of escalation rhetoric. We ask whether the new normal is in fact the “new chaos” as markets have now normalized a rupture in the old world order as we knew it – starting with the new unorthodox foreign policy of President Trump and punctuated by Canadian Prime Minister Mark Carney’s “rupture” speech at Davos. This same chaos has been now the norm in oil markets and the movement in oil prices this week – which ranks with other dramatic oil price sell-offs in history, reflecting the real impact of these geopolitical tensions. Flows have told another interesting story about risk appetite. The US has been seen as a safe-haven, despite being one of the real actors in the current conflicts. We have seen a surge of flows into US assets including US treasuries and the US Dollar has essentially seen a recovery of its slump. The Euro has levelled out with its weakness. Meanwhile flows have continued out of emerging markets although there has been some parsing of the difference within emerging markets with some countries clearly more dependent on the Middle East for its energy supplies and these countries suffering accordingly. We cycle quickly through other trends in markets – the sustained underperformance of software, the surprising underperformance of defence stocks despite the increase in kinetic warfare and rising concern around trust and security around AI. This adds to the uncertainty around AI business models just as the increase in fund raising in this sector breaks prevous records.   We ask ultimately whether this breakdown of geopolitical trust and the need to reduce dependency on single sources of energy supply will lead to deglobalizing forces or enforce alliances between “middle powers” such as Europe. This echoes what is termed as the “energy trilemma” – the tension between energy security, energy affordability and energy Ending with private credit while much remains unknown about the nature of the contagion and underlying default rate across this segment the policy of “sell first, ask later” continues to apply, particularly in some high profile funds, and given that in the worst affected funds there has not been the same level of satisfaction or meeting of redemptions, which of course compounds the negative impression and the selling pressure. This has become a crisis management exercise at this point – a public relations quest to stem panic and shore up confidence and trust. Jamie Dimon’s recent statement on the matter suggested that the risk was not likely to be “systemic” due to the relative small size of the private credit sector, but he did continue to stoke concern.