While the conflict’s evolution remains unpredictable, the outlook for specific segments remains resilient despite elevated tail risks, particularly in sectors supported by fundamental drivers.
With oil and gas at $90/bbl and €50/MWh, Eurozone inflation is projected to reach 2.5%, a level unlikely to necessitate further ECB tightening. Strong household savings and government support should mitigate growth volatility; however, a prolonged closure of the Strait of Hormuz remains a primary risk that could lead to a more disorderly market reaction.
In this environment, focus is shifting toward sectors with structural support, specifically Bank AT1s. The asset class appears well-positioned due to favourable supply technicals, M&A activity, and robust regulatory frameworks. The recent contained sell-off has adjusted valuations to levels that offer an attractive relative value opportunity.
