Inflation
In the US, the oil shockâs impact is more inflationary than recessionary but in the other economies, like the UK, the impact is both inflationary and recessionary. This creates relative value opportunities for bond investors. Plus, we reiterate short AUD/JPY as a trade.
We do not expect the oil shock to have a lasting effect on inflation. Looking further out, a variety of structural forces will influence inflation, including fiscal policy, globalization, demographics, and AI.
In this Special Report, we describe how inflation expectations are formed. We then demonstrate that steady state inflation expectations have un-anchored in the UK, are un-anchoring in Japan, and are at high risk of un-anchoring in the US. And we conclude with some implications for bond markets.
Volatility is high, but the path for yields is clearer than it looks. Across three oil scenarios, we show how policy responses shape fixed income markets and why the balance of risks still points to lower yields.
The Iran war provides a timely motivation for examining how the main financial asset classes and commodity sectors perform across different inflation regimes and during periods of elevated geopolitical risk.
We are pleased to introduce our new Quarterly Investment Outlook, a joint publication bringing together the European Investment Strategy (EIS), Global Fixed Income Strategy (GFIS), and Foreign Exchange Strategy teams.
The main takeaway of the current edition is that investors should not add risk. Markets are still focused on inflation, but the binding constraint is growth: if the energy shock persists into mid-April, a rapid shift toward recession pricing will follow.
One month into the Iranian conflict, we take stock of how markets have moved so far and how some of the big open questions might influence them going forward. A long opportunity may be developing at the long end of the Treasury curve.
The Fed will not cut rates again until core inflation trends lower. This remains likely as the tariff impact on goods inflation wanes, but the recent energy price shock could delay any meaningful downtrend.
The gap between PCE and CPI inflation will narrow within the next few months, mostly driven by core PCE inflation converging toward its trimmed mean.
The recent oil price shock reinforces our view that inflation will surprise to the upside during the next few months but fall rapidly in H2 2026.