Geopolitics remained central, as the Iran conflict and Strait of Hormuz disruption lifted energy, freight and inflation premia, before a preliminary US-Iran accord reduced tail risks.
The US economy remained an inflationary expansion, with resilient nominal demand, slower growth, firm labour markets, renewed price pressure and Fed policy anchored in higher-for-longer.
Europe weakened into a stagflationary policy dilemma, as PMIs contracted, inflation reaccelerated, the ECB delivered an insurance hike, and defence spending partly offset energy sensitivity.
China remained bifurcated, with China’s domestic demand, property sector and credit appetite fragile, while exports, AI components, Taiwan and Korea’s semiconductor cycle provided resilience.
Markets advanced, led by US technology, semiconductors, infrastructure and AI beneficiaries, while Europe, China, bonds and broader cyclicals lagged, increasing dispersion across regions.
Conclusion: The global environment increasingly resembles an inflationary boom: nominal growth remains resilient, real activity is moderate, inflation risks are persistent and stagflation is the main downside risk. We therefore emphasise capital preservation, active rotation and selective opportunism. Credit remains attractive, particularly short-duration high yield and senior secured loans offering resilient carry. In equities, we reiterate our positive bias, but elevated valuations argue against broad beta, while rising dispersion and volatility strengthen the case for Liquid Alternatives as a source of alpha.
