Resilience or complacency? - Our Weekly Cross-Asset Views

This was the 3rd week of war in Iran and it was again an hectic week with the markets swinging from early week de-escalation hopes to fears that the worst may be happening when Ras Laffan was damaged yesterday and reported that 17% of Qatar’s LNG exports will be gone the next quarters. Brent oil price is stuck well above 100$/bbl (up 5% wtd, touched 119$ yesterday), TTF is up 22% wtd (at 61 €/MWh down from the Thursday high of 72), and risk asset correlation to oil price remains very negative.Attacks on energy assets along with fresh rumors that US may consider to occupy Iran’s Kharg Island are facts that are eroding the consensus view that the crisis and/or its consequences will be short lived. Central banks gave another reality check this week, with the Fed, BoJ, SNB, BoE, BoC and Riksbank delivered hawkish “status quo”, boosted rate hike expectations, bear flattening and rate volatility as uncertainty and inflation fears grow.No de-escalation and hawkish central banks do not bode well for growth expectations. Yet as stagflation risk increases, markets price essentially inflation risk, much less so growth/recession risk. Risk assets are again resilient: our risk perception index is still in its 60%+ (64%), US stocks are flattish wtd, Japanese stocks down 1%, Europe less than 2% wtd, EM rebound slightly thanks to the early week rebound; credit spreads are stable (HY and XO above 300bps). Industrial metals were the exception this week with copper and aluminum taking a hit notably yesterday (-8% aluminum its sharpest drop since 2008). Interestingly too, US dollar is down this week (-1%) after two weeks of gains (2x1.4%).