FICC

Special Report

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.

Over the past month, oil market participants have scrambled to fill the gap in global oil supply caused by the Strait of Hormuz’s closure. While these efforts have been impressive, the scale of the disruption means they are ultimately insufficient. Upside pressures will continue to dominate energy prices until transit through the Strait of Hormuz is restored.

WTI is relatively calm amid the current conflict in the Middle East. Markets are too complacent on US crude relative to other international benchmarks.

Special Report

We outline a framework for the Iran war's impact on the commodity outlook in the event of a prolonged Strait of Hormuz disruption. We break it down into three phases: (1) the Initial Shockwave, (2) the Ripple Effects, and (3) the Backwash. The first phase has largely passed, and we are now in the Ripple Effects phase.

Drone and ballistic missile attacks were slowing, as of March 11. Air traffic in the region was also slowly recovering, as the pace of attacks declined. Warning, however: Reports from US CENTCOM and the IDF claim that Iran still has around 40% to 50% of its stockpile of missiles and launchers. Attacks are continuing, even though at a reduced tempo.

The war in Iran is disrupting global oil and LNG flows and remains a threat to regional energy infrastructure. Energy price risks remain skewed to the upside over the near term.

Special Report

The global drive to build a resilient ex-China rare earth supply chain is accelerating. It has emerged as a strategic priority and is backed by both public and private sector investment in many countries. In this Special Report, we argue that rare earth adjacent plays present a more attractive opportunity for investors looking to gain exposure to the rare earth capex cycle than a pure-play strategy.

Oil price risks remain skewed to the upside over the near term as geopolitical risks continue to dominate. Nevertheless, we ultimately expect bearish fundamentals to reassert themselves over a six-to-12-month timeframe and drive oil prices lower.

This report flags near-term risks for gold. Yet we remain optimistic about the prospects for its long-term bull market.

The metals mania is fueling extreme volatility. In particular, the price of copper has become detached from fundamentals and is vulnerable to the downside.