Ceasefires aside, it’s all still holding together…
When asked what I make of the current situation, it is clear that mere speculation on what may or may not start or end is meaningless. Rather, I find myself going back to what markets, and moves are all about. Sentiment. Pure and simple. And right now, what has changed, and is likely to persist, or at least should be planned for, is the pace of change of said sentiment. Predictable the news is not, but positioning can and should be taken care of irrespective of the weather…
Macro
It’s been quite the 12 months. Having navigated (for the most part) major changes to global trade in the form of tariffs, regime change in Venezuela, and now the Middle Eastern conflict, it is very clear that even if we find ourselves with a ceasefire that is lasting and a foundation for peace in the region, it is unlikely to be the last we see of unexpected and previously hard to imagine political and economic change. Whilst the Strait takes up much of the news cycle, rumblings continue in Cuba.
Whilst likely to be less impactful, there has been measurable emboldening not just in US foreign policy but that of both Russia and China. Rearmament in Europe is picking up the pace, and is, as always, proving to have a measurable upward impact on GDP. The only trouble is, when looking back, such periods of rearmament are often, sadly, precursors to their deployment.
Whilst the rhetoric from central banks far and wide highlights that for now we are dealing with a short sharp shock, most felt in the rapid rise of certain cost of goods, we have dusted off the COVID playbook of this all being “transitory”. I feel neither compelled nor have the need to check its definition. What is really being said is the global economy is once again more fractured, vulnerable, and not in a position to use that blunt tool of hiking rates at the risk of dampening output, and spending, even further. Rather, once again, we may well all need temporarily diminished spending power, and then (hopefully), catch back up to higher prices.
Risk
The initial sell-off and volatility that followed in stocks was hard to miss. This though is very much history, as investors repriced once again the expected performance of companies far and wide in terms of their futures as opposed to the present, or past. Put simply, a number of US indices reached all-time highs, so there is lots to be hopeful for!
Quarterly earnings season has added some tailwinds, despite numbers being cut in part across a period where unexpected conflict arose. As always, banks have come to the lectern first.
First up, the mighty JPM. Revenue up 20% and overall beating market expectations by a respectable 9%. This was followed in short order by Bank of America, where profit is up 17% not just on the back of trading revenues (a la JPM) but also citing M&A activity having risen significantly in the first three months. Citi came in up 14%, and here I do have to admire their prudence…increasing provisions with management pointing to greater macro uncertainty for which they wanted a fluffier cushion.
Lastly, Wells brought a mixed bag to the party. Whilst earnings rose, revenue did not meet market expectations this time around, although continued progress is being made following their regulatory cap being lifted less than twelve months ago (Reuters). As much as financials have often been the canaries in the coalmine, the real insights as to how all this macro is playing out in the real economy will need to wait until July at this point. The good news though? Banks have entered this more volatile time on a strong footing.
Credit
Just when you thought AI-mania couldn’t get any more buzzy, it did. Hidden in the all-time highs of several stock indices, is what has been quite the repositioning. Software, apparently now easy to vibecode whilst skateboarding to work, has been under attack. These stocks were replaced not just by those AI-forward firms, but some of the more traditional industrials, pharmaceuticals, and other “defensive” stocks (in both meanings of the word). This shift in sentiment has been felt, arguably most acutely, in private credit. Traditional lenders, typically banks, following increased regulation following the last financial crisis, have become a smaller share of what can be a lucrative business.
The trouble is, we now find ourselves in a more opaque world where the true impact is harder to see and find, until it isn’t. Let’s put some numbers round this though. From well-documented public data (in this instance courtesy of FRED), in 2007 the top three lenders, being Bank of America, JP Morgan, and Citi, each held roughly $1 trillion in assets. Fast-forward to today, and the private credit industry is estimated to be $3.5 trillion globally, much of which is US domestic and grew 78% in just a year (AIMA). This, coupled with a considerable easing of lending standards, does go a long way to explaining why market folk are paying attention. Nowadays it only makes up 14% of US lenders’ balance sheets. The trouble is, the balance of that balance is out of sight with impacts yet to be seen let alone understood.
On a positive note though, according to Bloomberg (Chart of the Day 20.04.26) investors have been flooding into the riskiest slice of investment grade, with BBB yields now back to prewar levels. It seems despite what appears to be disruption that has in part been structural, is not worrying professionals remunerated on speculating on the solvency of this cohort.
Aside from this, we have seen exactly what one might expect: new issues being pulled when the market is sad, and resurgence of activity the moment it feels as though some stability has returned.
EUR
Much like in other currencies, volatility did not escape rate markets either. Whilst expectations had been for no cuts this year, just a couple of weeks back we saw almost a full 1% being priced in by way of hikes over the next 12 months. Exuberance has abated somewhat, but the impact of energy prices should not be dismissed when it comes to continental Europe. The aggressive reduction in means of production stemming from cancelling fossil fuels has led this once self-sufficient group of nations with a considerable shortfall, its vulnerabilities and reliance on importation once again exposed.
In EUR, the current expectation is for a 0.25% hike in June, with another possibly in time for Christmas. (Bloomberg). The inflation picture, whilst early, is showing signs of containment though. Whilst headline figures jumped to 2.6% for March versus a 1.9% February print, core inflation eased to 2.3% just a stone’s throw from the sometimes elusive 2% target. As is forever the case, fragmentation continues though. The range as of the latest data is now a whopping 8%, barbelled by Denmark at 1% and Romania a full 9 times higher (Source).
That other bellwether, employment, does not look shabby at all. Helpful that we started the year on a strong footing, a record low in fact, of 6.1%, ticking up to 6.2% for February. As is often the case, the most recent months lag as collection, verification, and publication can take a little time (Eurostat).
So where does this leave the European Central Bank? Cautious…and flexible! Two words that don’t often go together. Voting members remain data-led, thinking now about a baseline that may require downside protection, and in this instance acting if inflation stays higher for longer, should growth not be overly affected by such a move (Source).
GBP
Repricing of the future path of interest rates has been nothing short of dramatic. Scroll back to January and a couple of cuts were still on the cards. Prices, (sort of) coming down, but more significantly, growth needing a kick. At the most recent height of the conflict a fortnight ago (at the time of writing at least) traders were (almost certainly wrongly) pricing in a full 100 basis points of hikes by year-end to combat surging headline inflation, and once again heavily influenced by what looked like out-of-control prices of natural gas and oil.
Following signs of peace and talks between several nations, everybody has calmed down somewhat, taking the time to pause and reassess outside of near hysteria. We currently find ourselves in an environment where just a single 0.25% increase is expected. This has been discussed at length here, with our internal baseline view (and not advice!) of no change for 2026.
Much like the other majors we cover in the WTFTF, there is expectation that the UK will follow suit with a potentially significant jump in headline CPI. March’s numbers showed the headline number up to 3.3% from 3% in February, while the core measure eased slightly to 3.1% from 3.2%. The question will be how soon and by how much the food and energy prices that appear in the headline but not the core number will feed through to the core components. For now, we’ll call March’s readings a win.
When it comes to the labour market, unemployment remains sticky and elevated, at 5.2% (Office for National Statistics).
The UK economy showed surprising grit in February, with GDP growing 0.5% MoM, significantly beating the 0.1% consensus. This was the strongest monthly expansion since early 2024, driven by strong services growth. Analysts are largely dismissing this strength as a temporary blip, warning that the positive momentum was likely "choked off" in March as the Iran conflict disrupted trade and hammered consumer confidence. (Source)
Despite the February beat, the broader outlook remains heavy. The IMF recently dialled back its growth expectations for the UK (now forecasting 0.8% growth this year, 0.5% lower than previous forecast in January), predicting the "biggest hit" among G7 nations due to the lingering impact of trade shocks and high structural costs. This "stagflationary" shadow—rising headline prices paired with slowing long-term growth—has kept Gilt yields volatile as investors weigh the risk of a policy error by the Bank. (Source)
The Bank of England has also ensured it remains vocal, the calming, sometimes dulcet tones of Governor Bailey suggesting we “wait and see”. There remain those in favour of further hikes though, citing inflationary persistence as a key risk for the bank to guard against (Bank of England).
USD
Rates in the US, much like in the UK, had been on a downward path prior to recent escalation. We did not witness much reversal let alone steepening here. For now, as at time of print, we have merely kicked the first cut out to the middle of next year.
Consumer price inflation (CPI) jumped to 3.3% in March from 2.6% just the shortest of months prior. Leap year or not! Largely energy-driven, with some scary numbers hidden in the data. Fuel oil was up a whopping 44.2% (Trading Economics).
On the employment front, the word is resilience. March saw 178K jobs added, the best print since December 2024 (BIS). The data here though is notoriously volatile and subject to revision, one is best to treat this one with a degree of caution.
All in all though, inflation is thus far under control, employment remains strong, and forecast to trend a little higher from here to 4.6% (BIS) and frankly growth really is nothing short of remarkable when looking around other advanced economies. Despite an IMF downgrade, out of the majors it was the most minor of revisions, with expectation of GDP coming in at 2.3% just 0.1% lower than the previous quarter’s outlook (IMF).
So what?
As always, the question is not just what is happening, but how best to navigate and think a few moves ahead. Reassuringly, much of the global economy and financial markets are holding up well, despite the unplanned and in some instances unprecedented challenges thrown their way. Whether or not this can hold, the lessons of the past remain valuable in dealing with all this.
But what does this mean in cash? Access to the highest rated assets, mobilising money globally in times of rapid change, and diversifying holdings. If only it could all be in one place. And seamless.
*TreasurySpring’s blogs and commentaries are provided for general information purposes only, and do not constitute legal, investment or other advice.