Complacency everywhere ? Our weekly cross-asset views

Market risk aversion and oil prices were up this week, but the moves appear low, when compared to the current geopolitical uncertainty and the lack of progress in US–Iran negotiations. Brent spot rose about 15% to nearly $105, while the MSCI World index dipped 0.8%. Implied and realized volatilities are roughly stable (and low!), with the VIX below 19. Furthermore, credit indices showed dispersion, with the € X-Over underperforming, but € HY spread tightening.Regarding the oil market, prices appear low when compared to the scale of supply losses, the significant instability stemming from the prolonging conflict, and the projected deterioration of physical balances. On risk assets, the Q1 earnings season - which has thus far been favorable - is probably helping to maintain a complacent market sentiment. The AI rotation continues to provide support, with semiconductors emerging as major winners of this earnings week. However, this broad corporate strength is vulnerable to the highly uncertain macroeconomic environment and to tangible disruptions in energy markets and global supply chains (including the chip supply chain).Barring, of course, a positive impulse and concrete steps toward reopening Hormuz – which would lead to a rebound in risk appetite – we believe the current global investor complacency represents a hedging opportunity more than anything else in the short run.