Iran
We remain bullish on risk assets given that the Hormuz war has resolved itself and oil prices have declined by even more than we expected. In addition, the macro fundamentals are not flashing any red signs. That said, we remain skeptical that the AI revolution will continue without any hiccups. In fact, a price war may ensue once all the players realize they’re in the commodity – not tech – space.
Geopolitical risk may rotate to Russia/Ukraine in Q3, while the Middle East could reignite in Q4.
Midterms matter but geopolitics are the main risk this year. Markets will eventually refocus on geopolitical and inflation risks, raising Fed rate hike odds and supporting US dollar and stocks over global counterparts this year.
The dollar's muted response to the Iran conflict has led many to question its safe-haven appeal. We argue the opposite – the dollar's defensive properties have returned, while improving growth and rate dynamics should underpin further USD strength in the months ahead.