Military escalation continues in Iran, and energy markets are pricing this in across the futures curve. If sustained, this will have significant effects on macro markets and the economy. We work through our thinking on portfolio construction during this time.
Energy markets have begun to rally dramatically, pricing in a massive inventory shock. We see this across energy markets:
The cross-asset macro trend implications are clear: markets have moved to price an inflationary shock. We show how our macro regime probabilities have shifted in the US to reflect this shock:
This inflationary shock will eventually make its way into reported inflation data, which we show below:
