Week ahead: Bubble, oil and trouble

0:00This week, we begin the final full week of the quarter and what a quarter it's been. And markets get the first survey data reflecting the impact of the war in Iran. This is Reuters Morning Bid bringing you unfiltered market news and analysis straight from the Reuters newsroom seven days a week. I'm Anna Shmanski in London. And I'm Mike Dull. It's Sunday, March 22nd. While Mike were entering, as you said, final full week of the quarter and wow, a lot has happened since January 1st, what a quarter. It's been, you know, we've gone from member of Venezuela, we've remembered Greenland, remember, any number of the political, the eds and flows in Washington, certainly around the Fed, and indeed around the Supreme Court and the tariffs. And then it's not just been in politics, it's been in the tech space we went from euphoria around AI to this sudden anxiety about which sectors were going to be hit badly by new

1:01developments in that area. And of course, these scare stories that circulated about just how bad the jobs hit would be white color, white color damage over the horizon. So huge amounts of competing things going on. And the same time, just as a driving force, the economy seems to be doing very well through it all, at least up until Iran attacks. And so given all of that, you've obviously seen just massive shifts in how different assets have performed. A lot of assets that did quite well early in the year, we've seen reversals of that, especially in the last few weeks. Yeah, I think one of the things, one of the questions that people have had certainly since the beginning of March has been how, you know, this conflict in Iran, which has had a huge energy shock, is a, why has been a reluctance to back away from some of the very, very bullish positions? I think Bank of America at one point during the quarter call that this is an uber bull,

2:02right? This was, this was where global investors were positioned into this hot economy that was going to be racing at high growth rates and generating inflation at the margins, but also very high earnings growth going on. So people wanted to be invested and wanted to be in the, the most, most of the raciest sectors, right? So at that point, you would think an energy shock that could bring tighter monetary policy and slower growth together, the stagnation nightmare might see people run for the hills, but of course, not happen, there's reluctance to see this conflict as, as, as breaking where people were beforehand. You obviously did have pullback in some of the emerging market moves, especially in Asia. Yeah, there has been certainly pullback, but, you know, if you look at some of the, take for example, one of the most spectacular markets of the first quarter so far.

3:03So it takes out Korea, which is a leading emerging economy with a very big tech sector and lots of domestic stories behind it that are, are about governance that is souping that market up. It was up at one point, almost 50% before the war started, it came back and have that gain in the first week of the war and it's still up 40%. So, you know, the reluctance to back away from a story like that, which you would imagine is a very high octane, very risk-gone story is notable in its own right. But that's true also in Japan, it's true in many of the other best performing sectors and best performing markets of the year so far. There's been a leveling off, but not a tree, not a return to the bunkers. No, no, but it's interesting because obviously, you know, coming out of last year, you had this story about the week dollar and expectation that you were going to potentially

4:06have more dollar weakness this year and obviously the dollar has been one of the big winners in the last few weeks. You know, similarly, you know, US equities were underperforming earlier in the year and now that's also at least in the last, again, last few weeks, we've seen a little bit of a shift in that. So it does seem like, as you say, you're definitely not seeing a running for the hills. You're not seeing, except maybe with the exception of the dollar, people rushing to, you know, traditional safe havens, you're just not seeing actually the type of moves, maybe outside of the energy markets again, a little bit in Asia that you would anticipate with the level of turmoil that we're seeing. Yeah, and that's why it's kind of notable just to see what people are saying about the next quarter ahead and what the remainder of the year would look like. And I think again, it's not that people are optimistic about it because much like Jerome Powell said last week, nobody really knows. I think everyone understands that that's where everyone is, but they have to look at that sort of historical precedence for this and there may be none that match it completely. But in these sorts of conflicts, they tend to dissipate and people focus on the six-month

5:10horizon. So that's what many of these investment managers are doing. They're trying to see where we're going to be in six months time, not over the next headline or the next week or the next twist and turn of this war. And if you look at there, there is still a look in census that grows will be hot. Things will be high, AI will be dominant and lots of those themes will endure. Now that could change. Yeah. And obviously we're going to be getting some survey data this week, PMIs, that will give us a little bit more of a sense of the impact that we're seeing. Surveys are not exactly hard data, but they are an indication of how businesses certainly manufacturers often, many who are dependent on energy and energy prices, how they see the first couple of weeks of this conflict. And that will give us a very important gauge. We already saw in Germany, for example, last week, one of the first of these surveys, which is admittedly very heavily on the investment and financial market side.

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