Geopolitics
President Trump referred to the US-Venezuela agreement as the “biggest oil deal in world history.” However, oil production growth constraints limit its near-term impact on global crude markets. Instead, Middle East developments will continue to dominate oil’s trajectory over the coming months.
An acute shortage of AI hardware will support tech stocks into year-end. However, AI companies may need to ultimately generate $10 trillion per year in revenue to justify their capex. Barring a massive increase in productivity growth, this will be very difficult to achieve. Despite today’s Treasury announcement of upsized buyback operations, bond yields are likely to remain elevated over the coming months. Rising crack spreads have reduced the demand for crude, which is not encouraging for global growth. On the FX front, recent intervention to support the yen will probably be insufficient, but there is significant long-term upside for the currency.
The fragile balance in the Ukraine war has broken – the conflict can escalate and take investors who are focused on Iran by surprise.