A just-published report updated our global investment strategy and noted that critical “red lines” in the Middle East are being approached: crossing these lines would likely trigger a severe risk-off phase.
In fact, global financial markets face growing threats on three fronts:
- A resumption in the U.S.-led tariff war.
- A rekindling of the Middle East energy shock, including increased odds of a supply crisis.
- Ever-higher DM government bond yields.
Politics will determine the outcome of the first two threats. Past behavior suggests a de-escalation before the global economic expansion is derailed, albeit misjudgments may yet occur.
The third threat, however, is not under the control of politicians and seems destined to progress until it undermines the economic and investment cycles. When? Stay tuned.
