Weekly Research Briefing: Broken

Zeitgeist II: “In a good market when the index falls below its 200-day moving average investors cover their shorts, but in a bad market that’s when they sell their longs.”

Global stocks and bonds have this month suffered their biggest combined sell-off since 2022 as the energy shock unleashed by the Iran war leaves investors “nowhere to hide”.

The MSCI All Country World index, which tracks stocks across developed and emerging markets, has fallen more than 7 per cent in March as the outbreak of war in the Middle East and de facto closure of the crucial Strait of Hormuz has caused a surge in energy prices.

At the same time, a broad gauge of global government and corporate bonds has lost more than 3 per cent, as investors bet that central banks will need to raise borrowing costs to contain the inflationary fallout.

The combined moves have put a traditional “60-40” portfolio of equities and bonds on track for the worst month since September 2022, when a previous cycle of global interest rate rises hammered markets. Even gold has tumbled as investors rush to liquidate previously winning trades, underscoring a lack of safe havens in financial markets.

Where are the Robinhooders? Individual investors, many trading on their phones, have reliably stepped in since 2020 to buy any dip in stocks and push bull runs to extremes, driving valuations to levels previously seen as fanciful. Early evidence suggests that the retail crowd is now in retreat.

 Even before the US-Israeli conflict with Iran broke out, net flows from individual investors into single-name US stocks were already slipping, according to Vanda Research data. Robinhood Markets Inc., a retail proxy popular with younger cohorts, reported that its average daily equities trading volume fell 11% in February from the previous month; its stock ended last month down by half from its October highs.

The $30tn US Treasury market is showing growing signs of strain, as turmoil in the Middle East drives swings in bonds that underpin the financial system.

The ease of trading in the world’s biggest and most important financial market has deteriorated in recent weeks, even as dealing remains fluid, according to Wall Street banks and investors.

The pressure in markets suggests some investors are pulling back from trading Treasuries as the war in Iran prompts the most serious bout of volatility since President Donald Trump’s so-called liberation day tariff announcement shook Treasuries last April…

Investors and policymakers keep close tabs on the Treasury market’s functioning since it acts as vital benchmark for global borrowing costs…

US government auctions of new shorter-dated bonds have also gone poorly this week. At Tuesday’s sale of $69bn worth of two-year bonds, dealers — the big banks that are forced to mop up any bonds not purchased by investors — took the largest percentage of the offering since 2022.

The same pattern was seen at Wednesday’s auction of $70bn of five-year notes, where dealers purchased the most since 2024. An auction of seven-year notes on Thursday was moderately better, but still weak by historical standards.

GOLDMAN DESK: “.. Nvidia now trades at par / slight discount to the S&P500 on fwd P/E for the first time in 10+ years... yes, Nvidia is now trading at par with the S&P500 on fwd P/E despite, Nvidia alone expected to contribute to ~21% of the indices growth in 2026."

After an 11% slide from its last record in October, the tech-focused gauge now trades at 21 times projected 12-month earnings, just 1.7 points above that of the S&P 500 Index. A gap that narrow has appeared only a quarter of the time during the aftermath of the dot-com bust at the turn of the century, data compiled by Bloomberg show. The last time the index’s valuation premium to the broader market was this low, the Nasdaq 100 proceeded to outperform the S&P 500 by the most in a year.

Of course, the economic uncertainty created by the Iran war is threatening to render mute many trusted market signals of the past, and only time will tell if that’s the case with this one. Still, Big Tech’s time-honored history of leading the market and being its profit engine has many Wall Street strategists studying the oversold signals piling up and recommending the sector as the best place to be.

If the strait stays closed, the world will have to significantly reduce its oil and gas consumption — but not before prices spike to a level that forces consumers and businesses to fly, drive and spend much less. Already, demand has begun to drop, and some countries in Asia are hoarding and rationing fuel. US government officials and Wall Street analysts are starting to consider the prospect that oil prices might surge to an unprecedented $200 a barrel…

For the global economy, the shock from the Iran war has already begun. Bloomberg Economics’ big data price tracker puts the US CPI for March at 3.4% year on year – a marked increase from 2.4% in February, and with rising fuel prices the main culprit…

If the strait remains closed for a second month, traders and analysts say they expect global energy markets will quickly evolve into a fight for supplies, driving up prices and benefiting buyers and countries that are able to outbid others…

But if the Strait of Hormuz stays closed too far into the second quarter, the risk is that oil prices move sharply higher. At $170 a barrel, the impact on inflation and growth roughly doubles — a stagflationary shock that could shift everything from the path ahead for central banks to the outcome of the US midterm elections…

“If you think about the magnitude of the shock coming out of the Gulf right now, you could lose between 5-10 million barrels a day of demand, which will have a significant impact similar to the seventies,” said Jeff Currie, chief strategy officer of energy pathways at Carlyle Group Inc. “The main message is that we’re going to get the energy transition forced on us in a very painful way that’s going to happen very quickly.”

The Chinese economy appears better positioned amid the oil supply shock than its global peers, owing to its: a) strategic energy diversification efforts, with crude oil and LNG accounting for 28% of China's primary energy consumption in 2024, one of the lowest in the world. On the flip-side, alternative/renewable energy, notably nuclear, wind, solar, and hydro, now represents 40% of China's electricity generation, up from 26% a decade ago; b) rising oil reserves, encompassing strategic and commercial stockpiles, are close to 1.2bn barrels based on official statistics, sufficient for +110 days of oil consumption assuming the entire crude imports fall to zero; and, c) continued access to oil and gas supply from energy producing nations outside of the Middle East region, Russia, Australia, and Malaysia in particular.

@bespokeinvest: The Iran war’s impact on US consumers in one chart:

“When gasoline prices jump, families—especially those with lower incomes who spend a larger share on essentials—have less money for everything else. The longer energy prices remain elevated, the more households will need to confront tradeoffs. Families who depend on petroleum products to commute to jobs and school and to heat their homes may need to pull back on more discretionary forms of spending. That could potentially result in lower spending at restaurants or retailers. It could also result in households carrying elevated levels of debt.” - Federal Reserve Vice Chair Philip Jefferson

The war in the Middle East has triggered “panic buying” of aluminium by some of the world’s biggest carmakers amid fears that supplies could run out within months if the conflict persists.

Gulf producers, including Aluminium Bahrain and Qatalum, have cut production, with disruption to power supplies and shipping bottlenecks hitting both raw material imports and exports. Aluminium is widely used in industries from carmaking to aerospace and construction.

Executives at car parts companies and aluminium producers said carmakers were trying to build up contingency stocks as the war enters its fourth week.

“If the situation continues, there will be more panic buying,” said an executive at an aluminium producer. “We have lived through crises in the past, but this one is very different.”…

Traders in Japan said the country’s carmakers and suppliers were also considering buying supplies from Russia, having chosen to boycott the country since its full-scale invasion of Ukraine in 2022.

“We don’t really want to take supplies from Russia but we have no choice but to,” said one Japanese trader.

Global brewers operating in India are warning of price increases and supply disruptions as a shortage of gas due ‌to the Iran war drives up the cost of glass bottles and shipping delays hit imports of aluminium needed by can makers.

India is especially vulnerable to fuel availability as the world's fourth-largest importer of natural gas, relying heavily on the Middle East for shipments, sourcing about 40% of its supply from Qatar…

The Brewers Association of India, representing global brewers Heineken, Anheuser-Busch InBev and Carlsberg told Reuters that glass bottle prices have surged around 20%, paper carton rates have doubled as well ⁠as other packaging materials such as labels and tape…

Nitin Agarwal, CEO of Fine Art Glass Works in Firozabad, a glass-making hub in northern Uttar Pradesh state, said he has cut ⁠production by 40% at his glass bottle making factory due to gas shortages. His customers include many liquor companies as well as producers of juice and ketchup bottles.

"We've cut production and increased prices by 17-18%," Agarwal said.

The shortages have already affected India's $5 billion bottled water market with some producers ⁠increasing prices by 11% due to rising rates of plastic bottles and caps.

MDI and PVC present the clearest near-term inflation risks within housing inputs. MDI is a key input in mattresses, OSB and spray foam insulation and PVC is a key input in flooring and commercial roofing/siding. MDI prices are up approximately 40% in China and ~25% in the US spot market, with contractual pricing typically lagging by one to two quarters. PVC prices have increased 30–35% internationally, reflecting higher electricity driven Cl costs and elevated ethylene/methanol inputs. US contract pricing has lagged, but spot prices are moving higher, which could impact LVT flooring, pipes, siding, and commercial roofing. Polyethylene pricing has moved sharply higher in Asia despite weak demand, and although US producers remain cost advantaged, they are hiking prices too. That said, durability of these increases appears lower if geopolitical pressures ease. Coatings seem more manageable, and our chemicals team sees 5% inflation starting in 2H26 for the basket of commodities used in coatings (which includes TiO2).

“This conflict is already creating significant constraints on raw material availability with impacts that extend across feedstocks, intermediates, logistics lanes, and energy inputs. We have received over 40 force majeure letters from suppliers in recent weeks, clear evidence that this is a major disruption. Chemical production capacity has decreased significantly, and tanker routes have been disrupted and repositioned.” - H.B. Fuller CEO Celeste Mastin

Most Americans think of helium as the gas that holds balloons aloft, but, more important, it is an essential coolant in MRI machines and semiconductor manufacturing.

The U.S. produces the most helium, yet Qatar accounts for about 35% of world capacity. If its output remains offline for another four to eight weeks, supplies will be stretched and could cause problems for chip makers, said François Jackow, chief executive of industrial gas supplier Air Liquide.

“Any shortage of helium supply to this industry, which is probably one of the most critical, would definitely limit the production of those most advanced chips,” he said this week on the sidelines of S&P Global’s CERAWeek energy and mining conference in Houston. “Given what’s at stake today, that could be a major challenge for the world.”

Prices paid for inputs meanwhile spiked higher, due principally to the energy price jump caused by the war. Overall average input costs rose to the fastest degree for ten months. Higher costs were passed on to customers to generate the largest rise in selling prices in over three-and-a-half years. Rates charged for services rose on average at a rate not seen since August 2022 while goods prices increased at the sharpest rate last August.

The U.S. Postal Service is seeking a temporary 8% charge on certain popular products, including Priority Mail, to help blunt the impact of rising transportation costs.

USPS filed notice on Wednesday with the Postal Regulatory Commission seeking the price increase, which would take effect on April 26 and remain in place until Jan. 17, 2027, pending final approval.

“This temporary price adjustment will provide needed flexibility for the Postal Service by helping to ensure that the actual costs of doing business are covered, as required by Congress,” the agency said in a news release, noting that its competitors have reacted to rising fuel prices with “a number of surcharges.”

“Because, as you know, in a business like ours, we rise and fall with the state of the economy, and a sort of global recession would be, you know, a pretty ugly situation to be in, even though on a relative basis. In the U.S., we would stand to position ourselves better than most.” - Phillips 66 CFO Kevin Mitchell

The entire case was built around the design. Infinite scroll, autoplay, algorithmic feeds, notification systems. Those are not user posts. Those are the company's own engineering decisions, made in their labs, tested on their servers, optimized by their employees. CBS News put it plainly: this case centered around how the apps are designed, not the content itself. Section 230 does not protect you from your own product choices.

The jury answered yes to seven specific questions per defendant. Were they negligent in the design or operation of their platforms? Was that negligence a substantial factor in causing harm? Did they fail to adequately warn users? And did they act with malice, oppression, or fraud? That last finding triggered punitive damages.

The pipe (aka the Social Media platform), not what flows through it. That argument won and opened new legal ground that can change everything that comes next.

If the design is the defect, the remedy is redesign. Not a warning label. Not a terms of service update. The product itself has to change.

Volkswagen has bet $7bn that it can finally crack the American market by reviving a retro American brand of farmyard trucks that kicked off the US obsession with sport utility vehicles…

In an interview with the FT, Scout’s chief executive and VW veteran Scott Keogh said Scout would establish itself as a separate brand in the US, with a view “potentially” to pursuing a public offering in the future.

“Scout was designed to meet this American moment,” said Keogh. “We are bringing back an iconic American brand that basically invented the SUV.”…

Keogh insisted that despite a recent EV sales slump in the US, more Americans could be convinced to go electric as long as their concerns over range were addressed.

He added that the new Scout models’ consciously “1950s and 1960s vibes” served as an acknowledgment that many EV makers had gone too far in removing familiar creature comforts in favour of futuristic touchscreens and electric door handles.

“Americans said, ‘yeah, I’m not into the whole spaceship thing. I’m just like, dude, where’s my truck?’,” Keogh said. “Dude, here is your truck.”