GeoMacro

Bears will fold like lawn chairs this summer as traffic returns to Hormuz, allowing markets to overcome seasonal malaise. But we are starting to see how the expansion ends. A macro brew of global central bank tightening due to stickier-than-expected inflation, negative second derivative in AI capex, and surging supply of equities due to Monster IPOs. Expect a blow-off rally until midterms, uncertainty after, calamity in 2027.

The rally in Colombia’s financial markets has a short shelf life. The election will bring a right-wing government, but it cannot fix inflation, fiscal arithmetic, or balance-of-payments vulnerabilities. Use the near-term rally to downgrade Colombian fixed income and equities.

The odds of a near-term US-Iran deal have gone up slightly, but the odds of a Russian provocation that divides NATO have also gone up.

I spent the last week in London, speaking to a wide array of BCA Research clients. Throughout the early part of the week, well connected friends and sources in the Middle East warned me that a renewed US attack on Iran was imminent (by Friday, May 22, after the market close, bien sûr). Several clients with hefty AUM’s – and thus an impressive geopolitical consulting budget – in London confirmed that the US attack was all but assured.

In this month’s Beta Report, we assess what that structural tension means for investors under two distinct scenarios. In our base case – a multipolar world order – Australia's position turns out to be more advantageous than it appears. The great power capital expenditure race generates demand for precisely what Australia produces. In the tail risk – a hard bipolar rupture – the calculus inverts, and the same commodity dependencies that long appeared as structural strengths begin to look like structural liabilities.

Special Report

The US-China trade truce is getting bigger and better, but a grand strategic bargain on Iran and Taiwan is not happening.

Hopes for an imminent Middle East de-escalation have capped oil prices in recent weeks, but that restraint may soon fade.

Special Report

Democrats are likely to win big in this year's midterm elections. Our new quant model still slightly favors Republicans for the Senate, but we expect the oil shock to deliver surprise Democratic victories.

Equities have thrown caution to the wind for much of April and early May. We do not disagree with the sanguine mood, but caution that the Hormuz saga is far from over. Still, the AI capex mania continues and the labor market is firming in the US, suggesting that there is more upside to equities.

Aggregate Senate betting market pricing appears too pessimistic on Democrats relative to state-level odds and early polling, suggesting a potential mispricing and a relatively sanguine attitude towards the still-unresolved conflict in Iran and its aftermath.