Fixed Income
The current macro environment is a toxic brew of many of the same vulnerabilities that haunted the global economy in the lead-up to past recessions: Rising oil prices, an unsustainable tech capex boom, elevated equity valuations, excessively high homes prices, and brewing stresses in private credit and other parts of the financial system. While global equities look increasingly oversold in the very near term, they will still finish the year below current levels.
Indonesian rupiah will continue to plunge, and its local-currency bond yields will rise materially. Investors should short domestic bonds, currency unhedged.
Forced to choose between growth and inflation, the Fed will save growth and the stock market rather than the 2 percent inflation target and the bond market.
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.
If the 2022 roadmap is any guide, equity markets and cyclical currencies will trough only after confirming that the peak in energy prices is in the rearview mirror. In the very near term, investors should focus on P&L preservation. Reduce exposure to equities, and seek refuge in gold, and inflation-linked bonds (ILBs). Amid a very different demand side than in 2022, today’s supply shock is unlikely to generate lasting inflation, and investors should fade rate-hike odds.
Looking through month-to-month volatility, job growth’s underlying trend is stable and consistent with a flat-to-slightly higher unemployment rate.
Iran doesn’t need to sink a single US warship; it could inflict much more damage by sinking the US stock and bond markets by disrupting shipping, trade, and oil tankers with decentralised low-tech drone warfare. We discuss why it is not the direct pain of higher oil prices, but the knock-on repercussions for stock and bond markets that could inflict the greater damage. Plus, a new tactical trade is to underweight Materials.
Our Portfolio Allocation Summary for March 2026.