Why this report matters

In our “What Matters” cross-asset report two weeks ago (here), we highlighted that bond markets had begun pricing in renewed rate hikes, a dynamic that has now moved to the forefront as the Iran conflict triggers far-reaching macro consequences that will unfold over weeks and months. Based on our regression analysis, inflation could rise from 2.4% to 3.4%, as we previously outlined. This view is increasingly moving into consensus, with central bankers now openly acknowledging the upside risks to inflation. Gold has now reached our initial $4,400 target, which we flagged just a week ago (here).

However, as sovereign debt issuance accelerates and fiscal pressures intensify, governments are increasingly forced to raise liquidity. As seen in Turkey, where the central bank sold 60 tons of gold, other central banks may sell gold reserves to generate cash and subsidize rising fuel costs, introducing a potential source of supply even amid structurally bullish conditions.

While the immediate impact, energy shortages, is increasingly visible, particularly in Asia where dependency is highest (from fuel shortages in Australia to driving restrictions in South Korea), the full shock is only starting to propagate through the system: gradually at first, and then all at once.

However, the more important story lies in the second-order effects. These extend well beyond energy markets and tend to persist even if oil supply normalizes, embedding themselves into input costs, supply chains, and inflation expectations. Below, we outline how this transmission cycle works and why, despite the risk of a broader risk-off move, a select group of 18 global equities (spanning Canada, Hong Kong, the U.S., Saudi Arabia, the Netherlands, Chile, Russia, and Germany) could emerge as key beneficiaries of this evolving macro regime. During the last crisis in 2022, those stocks rallied 2-5x.

Some prices are moving - others could catch up