Iran
Outside Asian semiconductor producers, EM corporate earnings and profitability have seen little improvement. Despite the ceasefire in the Middle East, the medium-term outlook for EM stocks is still unattractive.
As we publish this regularly scheduled GeoMacro Alpha Report, President Trump is warning of civilization-ending strikes against Iran. A bluff? Stage Five on the Seven Steps of Maximum Pressure? A real threat to use weapons of mass destruction? The odds and pattern of Trump's behavior are skewed towards the former, but even small odds of the latter make trading the next 24 hours dangerous.
Domestic politics suggest that President Trump needs to retreat from the war in Iran, but strategic factors suggest not. Stay defensive for now.
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.
Our "miniature stagflation" episode is coming together on the back of the Iran shock, China slowdown, and American political division.
The global risk-off phase will persist. It is too early to buy local-currency bonds in Mainstream EM, but it is not too late to sell EM sovereign and corporate credit (USD bonds).