Market Resilience & Earnings Validation
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Jason and Jordan discuss how markets continue to look past geopolitical tensions, with investors viewing Iran-related volatility as manageable and unlikely to derail the broader outlook. They also discuss earnings season, where strong expected profit growth could validate elevate
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4 itemsTop of the Morning: Resilience tested - Emerging markets navigate the energy shock
The desk underscores the resilience of emerging market bonds amid escalating geopolitical tensions and an energy crisis, diverging sharply from the vulnerabilities observed in emerging market equities. Per the full note from UBS, historical data suggests that investors who remain steadfast during geopolitical shocks often reap rewards, indicating a potential for stability in this sector despite current challenges. The desk notes that the S&P 500 has historically provided positive median returns following such shocks, highlighting a broader context of recovery opportunities. Consequently, the desk may suggest a careful reevaluation of positions within emerging markets, especially as investors navigate the risks and opportunities presented by the ongoing energy crisis and geopolitical landscapes.
EM Fixed Income: Will EM markets keep trading Iran conflict de-escalation?
The desk believes that emerging market (EM) fixed income is poised for a positive shift following the recent two-week ceasefire in the Iran conflict, which has alleviated some geopolitical tensions. Per the full note [source], this development has led to a significant relief rally in EM assets, with currencies strengthening by approximately 3% against the dollar and sovereign credit spreads tightening by 22 basis points. Our current consensus target for EM currencies is 1.075, with a range of 1.04 to 1.12, reflecting a cautious optimism in the market outlook.