Shockwaves (But Not Much Else) Through the Strait of Hormuz
CIO, Multi-Asset Strategies and Solutions
As the war in Iran continues to escalate, the effective closure of the Strait of Hormuz has sent shockwaves through global markets, cutting off a meaningful share of the world’s oil supply and pushing Brent oil above $100 per barrel.
The result is rising inflation, slowing growth, and renewed stagflation fears, which has been further amplified by a negative surprise in the U.S. jobs report earlier this month.
Markets have shifted firmly into risk-off mode: Equities have declined, credit has weakened, and the U.S. dollar has strengthened. Energy and utilities have been the clear outperformers. Surprisingly, China has held up better than expected.
Central banks are caught in a difficult position, balancing stubborn inflation against a weakening growth outlook. Markets are now pricing just one rate cut from the Federal Reserve, making this week’s central bank meeting especially important for forward guidance.
The bottom line: As we’ve said before, volatility remains the only constant. The longer the conflict persists, the greater the risk of broader cross-asset weakness. In this environment, we continue to favor high-quality companies with strong pricing power and operational flexibility to navigate an increasingly uncertain backdrop.
Sebastian Teper contributed to this article.