Markets Showing Fatigue Amid Escalating U.S.-Iran Tensions and Rising Yields

Good morning.

Thank you so much for joining us.

Well, we are looking at the major US stock averages in the red, but still pairing losses and oil back above that $100 barrel mark.

So break down the impact of the war when it comes to the broader market and what you expect to see as we digest artificial intelligence in the overall forecast moving forward.

I mean, I think what we're really seeing right now is the market, especially the equity market, has been trying to see through some of this conflict and getting a little bit fatigued.

So, if you look at what's happened, uh, we had some rebound, but then, of course, as you see the real ramifications.

Oil prices higher, yields higher, the equity markets have struggled a little bit with that, particularly in the last week or two.

And so I think as you try and think about how do we focus on AI and where we are in AI, you notice that there's a lot of things that are really.

Unclear and that's why you see the markets very back and forth right now until we can actually see a real resolution in what's happening in Iran, uh, with the US.

So I think it's really a lot of things that are open ended right now and the markets are a little fatigued by this.

Absolutely.

In New York morning trade, we are also looking at US yields slightly higher as well.

But when it comes to the inflation picture, we know that Federal Reserve officials are paying attention to this and of course Kevin Warsh will be sworn in tomorrow at the White House.

That is something that all of us will be watching.

So what do you make of global yields surging to multi-year highs and what do you think this is signaling near term.

Well, I think it's interesting because imagine a few months ago us looking at today's date thinking that we'd be talking about yields rising as we change direction in the Fed theoretically.

What's interesting with higher yields is you've really seen this positive correlation between stocks and bonds since the beginning of the US-Iran conflict, and this is something that's very important for investors because.

As you see that positive correlation between stocks and bonds, there's less diversification out there, and yields in general are reacting to inflation uncertainty.

And I think until we have a little bit more clarity on how impactful higher energy prices really are going to be, there's going to be a lot of volatility and potential for higher yields, um, as we navigate that.

And Katie, I want to take a quick look at the FX market.

So what we are looking at the dollar index fast approaching that 100 level yet once again and in New York morning trade, the US currency may be higher against the majors, including the euro, the pound, as well as the yen.

But given rate differentials as well as the fundamental and technical outlook, what do you expect to see for the US currency?

So this is a really good question, because the dollar is such a complex asset.

When you look at what is pro dollar right now, the fact that markets have been selling off some has been positive for the dollar, but if you start to think about how the dollar is positioned relative to interest rate policy, as the US may look neutral and other regions may look to hike, that could be detrimental to the dollar.

I think really the dollar trade is going to be a little bit more complex and nuanced over the coming weeks.

So you're going to see different themes with places like the, the yen than you might see, for example, against the Aussie dollar.

Um, and so there could be some interesting cross-sectional moves in the dollar in relative sense that could not just be a one-way trade like we saw last year.

And I do want to get your take on commodities.

We know oil has been getting the spotlight here, but in terms of gold, it is taking a breather from all-time record highs.

We are looking at spot gold prices hovering right around the 4500 level here.

So what's happening to the traditional safe haven?

So this is a very good question because gold has been really taking a retreat, uh, despite, uh, some sort of safe haven events over the past few months.

There, there's some complexities to this, I think, A, the incredible amount of momentum that we already saw in gold, but B, just sort of the, the fact that we need to follow how real rates. are actually moving.

And so you really just have a sort of an inflection point in gold right now.

Trend signals in terms of momentum have been mixed to slightly long on the longer end, and you're already seeing some short signals, uh, in terms of momentum on the shorter term horizon.

So, I think the picture is very mixed, and there's no clear safe haven status right now.

Well, Katie, we will have to leave it there for today, but as always, great talking to you.

Thank you so much for joining us and thank you so much for sharing all of your insights.