MARKETS HAPPY HOUR PODCAST

In today's Markets Happy Hour Podcast we start "happy hour" early on Thursday morning, which is an essential disclosure – given the pace of newsflow affecting market expectations and trends in real time. We kick off with a discussion of the oil price shocks, and how oil has now for some months been the marginal responder to geopolitical news. We illustrate how much it moved in one day alone in response to a (later rebutted) assertion that some oil tankers were being escorted through the Straits of Hormuz. Inflation was – prior to the current oil shock – trending downwards and had been subdued both in terms of pressure from labour and from services, although there were pockets of concern that the next rate move – at least by the ECB – would be upwards following their current pause. Interest rate expectations have seen a significant U turn in recent days – suggesting that expectations around the effect of the current conflict would not be transitory. This has manifested as spikes in government bond yields – particularly the 2 year GILT and the US 10 Year Treasury. This is an interesting development as it begs that question as to whether these – supposedly – risk free assets are behaving like safety assets. It would seem not, perhaps it is because the overhang of currency debasement, rising fiscal deficits (only rising more with defence and war expenditure) and general skittishness that is preventing investors from fleeing to government bonds. Gold similarly has not been seeing many inflows – falling 2% over the last few weeks – since the outbreak of the conflict. Again, this could be due to unique factors driving technical levels in gold over recent weeks. In equity markets there has been volatility but no clear move down – indicating the level of assets on the sidelines that will be risk seeking as they seek to deploy cash. Certain markets such as Korea were particularly exposed to oil price movements, as we saw last weeks market movement there. Moving then to private markets, the current newsflow is certainly a distraction from the spotlight being shone on private credit and private equity. The nagging concerns persist however, with a concern around contagion from SAAS companies and their travails, a general lack of due diligence (MFS in the UK) and crowding in the general space. Our final comment is regarding AI and the current wave of interrogation that is facing that segment, which is around governance. The spat between the Department of War and Anthropic underscored the moral pivot points that will define the AI rollout and now that companies themselves are concerned about guardrails of their own systems, is an indication that reviews will be forthcoming.