Weekly Research Briefing: Looking For An Exit Ramp

But oil flows remained depressed last week despite the ceasefire, and negotiations between the US and Iran have ended without an agreement. As a result, we continue to see the risks as tilted toward a longer disruption of Gulf exports and a higher path for oil prices. If the ceasefire does not hold and the reopening of the Strait is postponed for another month, we would expect Brent to remain at $100/bbl in 2026Q4 in an adverse scenario or $115 in a severely adverse scenario where later reopening is followed by persistent 2mb/d Mideast production losses (the orange and red lines in Exhibit 1, respectively).

Japanese toilet maker Toto Ltd. has suspended new orders for its prefabricated bathrooms due to a material shortage as the Iran war squeezes the global oil supply chain.

Toto notified its business partners of the halt Monday, a representative told Bloomberg. The suspension applies to prefabricated and modular bathrooms and the company doesn’t know when orders will resume, the representative said. The firm’s shares fell 7.2% in Tokyo on Monday, the most in a year.

Toto’s troubles underscore the far-reaching supply chain impact of the Middle East conflict, which is hitting Asian manufacturers especially hard due to the region’s reliance on Gulf countries for oil products. Japan gets more than 90% of its crude oil from the Middle East and depends on the area for almost 45% of its naphtha, a feedstock crucial for plastic production, according to government data.

“The procurement of raw materials both domestically and internationally has become extremely unstable” as a result of the Middle East conflict, Toto said in a statement released Friday.

High-yield bonds are not ideally suited for inflationary pressure that has built amid the constrained flow of goods through the Strait of Hormuz, and yet the riskier issues from the lower end of the high-yield credit spectrum, which generally offer higher spreads and yields for investors, have dominated April’s high-yield business. These deals include Sealed Air (the dollar tranches of its cross-border deal are rated B+/B1 and B/B3), Univision (B/B2), Skeena Resources (B-/Caa1), and Chobani (CCC+/B3), which this week placed bonds to support a dividend recapitalization.

"Loan growth at US commercial banks remains very strong, with no sign of a credit crunch emerging. We suspect banks may be stepping up to purchase private loans at attractive distressed prices."

The retail exodus from business development companies has dragged the vehicles’ debt to levels that are starting to look attractive, according to MFS Investment Management’s Alex Mackey.

“Pressure for redemptions that they’re facing likely ends up creating some opportunities within the public credit markets,” the co-chief investment officer for fixed income at the $622 billion asset manager said on the Bloomberg Intelligence Credit Edge podcast.

The century-old MFS is eyeing the debt after BDC investors raced for the exits, fearing losses driven by weak underwriting standards and outsized exposure to software firms at risk from artificial intelligence’s rapid advances. The flight from the investment vehicles that lend to mid-size companies has sent a chill through the private credit market, spurring a negative outlook revision on BDCs from Moody’s Ratings.

Home sales declined 3.6% in March, getting the crucial spring selling season off to a poor start as the high cost of housing and economic uncertainty held buyers back… The 3.6% month over month decline was much worse than the 1% drop economists surveyed by The Wall Street Journal forecast. It was the second largest monthly decline in the past year… The market is more sluggish in the Southeast and Southwest, where the inventory of homes for sale is above prepandemic levels. In the Northeast and Midwest, many markets are still undersupplied. The national median existing-home price in March rose to $408,800, a 1.4% increase from a year earlier, NAR said.

@JustinWolfers: The University of Michigan has been measuring consumer sentiment since 1952. We just got the first Iran-afflicted measure for April, and it's at the lowest level ever recorded.

Important: Wage growth is almost entirely eaten up by inflation now.
Wage growth was +3.5% in March for the past 12 months
Inflation was +3.3% in March for the past 12 months.
This is the **squeeze** many households are feeling. Their pay won't be able to keep up with this level of inflation. (And yes it was the same situation in 2022).

@JavierBlas: President Trump's other inflation headache: beef.
While everyone is rightly focused on gasoline and oil amid US-Iran war, the meat market isn't giving a respite.
Live cattle wholesale prices in Chicago have reached a new all-time high, surpassing last October's peak.

• Three years after AWS launched commercially, it had a $58 million revenue run rate. Three years into this AI wave, AWS’s AI revenue run rate is over $15 billion in Q1 2026 (nearly 260 times larger than AWS at that same point)— and ascending rapidly.
• AWS added 3.9 gigawatts (“GW”) of new power capacity in 2025, expects to double total power capacity by the end of 2027, and is monetizing that capacity as fast as it’s installed. In Q4 2025, AWS reported 24% YoY growth with a $142 billion dollar revenue run rate. That’s a lot of absolute growth. And yet, we still have capacity constraints that yield unserved demand.
• The way AWS’s cash cycle works is that the faster AWS grows, the more short-term capex we’ll spend. AWS has to lay out cash for land, power, buildings, chips, servers, and networking gear in advance of when we can monetize it (typically 6-24 months before we start billing customers, depending on the component). However, these capex investments fund assets with many-year useful lives (30+ years for datacenters; 5-6 years for chips, servers, and networking gear). The FCF and ROIC for these investments are cumulatively quite attractive a couple years after being in service; however, in times of very high growth (like now), where the capex growth meaningfully outpaces the revenue growth, the early-years FCF is challenged until these initial tranches of capacity are being monetized and revenue growth out-paces capex growth.
• Of the AWS capex we expect to spend in 2026, much of which will be monetized in 2027-2028, we already have customer commitments for a substantial portion of it. We are willing to make large capex investments and endure short-term FCF headwinds for the substantial medium to long-term FCF surplus. AI is a once-in-a-lifetime opportunity where the current growth is unprecedented and the future growth even bigger.

New analysis from Wood Mackenzie shows that 220 gigawatts of additional power demand from data centers is in the pipeline in the US, and 183 GW of that is already backed by firm commercial commitments. That is a huge amount to add in just a few years: it’s equal to about 22% of US peak demand in 2025.

Goldman Sachs "now projects global power demand from data centers to grow 220% by 2030 relative to 2023 levels, up from 175% previously."

“Ramp AI Index shows business AI adoption crossed 50% for the first time in March, reaching 50.4% of businesses. A year ago, it was 35%. Half of businesses on Ramp now pay for AI. Anthropic continued its surge, growing from 24.4% to 30.6% of businesses — a 6.3-percentage-point gain, surpassing last month's record monthly gain., surpassing last month's record monthly gain. The gap between OpenAI (35.2%) and Anthropic is now just 4.6 points, down from 11 points in February. At this pace, Anthropic will overtake OpenAI within the next two months.”

Through April 7, 19 deals valued at $1 billion or more have been announced, according to Stifel. Yet none of those deals have been for more than $10 billion. The number of deals already rivals many full years and puts 2026 on pace for an annualized record of 72 such deals, more than double last year.

Total dollar volume is on pace to make this the second-most-active year for biopharma M&A in history, trailing only 2019, notes Stifel’s Tim Opler.

Notably, six of those 19 deals came from just two companies: Gilead Sciences and Eli Lilly, spanning cancer, autoimmune diseases and sleep disorders.

Both happen to be among the least exposed to near-term patent expirations. This frees them to think longer term, placing smaller bets on companies whose payoff might not arrive immediately. That is instead of trying to replace revenue that is disappearing now.

Two forces suggest the dealmaking has further to run. Pharma needs to keep buying. Of the roughly $700 billion in annual revenue generated by the world’s 14 largest drug companies, nearly half of it will face patent expiration by 2031, according to investment-bank Needham.

And the industry can afford to: It has more than $650 billion in what Stifel calls “comfortable” M&A firepower. This represents the debt capacity available while keeping balance sheets on solid footing.

• Unilever (UL) agreed to combine its food business with McCormick (MKC) in a deal that creates a new sauces-to-spices behemoth valued at more than $65 billion, including debt. Under the terms of the deal, Unilever and its shareholders are expected to own about 65% of the new, combined foods business. Unilever will also receive a one-time $15.7 billion cash payment.
• GFL Environmental (GFL/Can) has agreed to acquire SECURE Waste Infrastructure Corp. (SES/Can) at $24.75 per share in cash and stock. A 23% premium to SECURE's 60-day VWAP in a deal with a 6.4 billion Canadian dollar ($4.62 billion) enterprise value.
• Eli Lilly (LLY) will acquire Centessa (CNTA) for $7.8bn (including upfront cash of $6.3 billion and a CVR representing an additional potential equity value of $1.5 billion). The deal value reflects a valuation of 10x 2030E sales and represents a premium to last close of 38% based on the $38 upfront and 70% based on total potential consideration of $47 including the CVR.
• Biogen (BIIB) agreed to acquire Apellis Pharmaceuticals (APLS) for approximately $5.6 billion in cash representing a premium of about 140% to the stock's last close.
• Gilead Sciences Inc. (GILD) agreed to buy private German biotech Tubulis GmbH in a deal worth up to $5 billion as it looks to boost its portfolio in a hot new area of cancer drug development. Gilead will pay $3.15 billion upfront in cash, and as much as $1.85 billion more if certain milestones are met.
• Neurocrine Biosciences (NBIX) agreed to buy Soleno Therapeutics (SLNO) for $2.9 billion, giving it the first approved treatment for a rare genetic disorder that causes relentless, life-threatening hunger. Neurocrine agreed to pay $53 a share in cash, a roughly 34% premium to Soleno’s closing share price.
• MAI Capital Management said on Tuesday that Carlyle Group (CG) will buy a majority stake ‌in a deal valuing the wealth management firm at more than $2.8 billion. Galway Holdings, funds managed by Harvest Partners, and private ⁠equity firm Oak Hill Capital will exit their positions in MAI.
• Somnigroup (SGI) to acquire Leggett & Platt (LEG) in a stock deal valued at $2.5b which is a +13% premium to its last close.
• Whitestone REIT (WSR) to be acquired by Ares for $1.7 Billion in cash for a premium of 12% premium to its last close a 26% premium to its pre-news affected price.
• U.S. oil-field services provider Baker Hughes (BKR) agreed to sell its Waygate Technologies business to Swedish industrial technology company Hexagon (HEXA/Swe) for around $1.45 billion in cash.

Treasury Secretary Scott Bessent and Federal Reserve Chair Jerome Powell summoned Wall Street leaders to an urgent meeting on concerns that the latest artificial intelligence model from Anthropic PBC will usher in an era of greater cyber risk.

Bessent and Powell assembled the group at Treasury’s headquarters in Washington on Tuesday to make sure banks are aware of possible future risks raised by Anthropic’s Mythos and potential similar models, and are taking precautions to defend their systems, according to people familiar with the matter who asked not to be identified citing the private discussions…

Anthropic’s Mythos is a more powerful system that the AI firm has said is capable of identifying and then exploiting vulnerabilities in every major operating system and web browser when directed by a user to do so…

In releasing Mythos to a very limited set of companies, Anthropic pointed to several vulnerabilities that the AI system was capable of both identifying and potentially exploiting during testing. None of the examples related specifically to financial institutions, but in one instance, the firm’s security team said it was able to compromise a web browser so that a website set up by a hacker could read data from another website “e.g., the victim’s bank.”

Mythos Preview “fully autonomously discovered” a way of reading information stored in “multiple different web browsers” and then used that ability to find ways to exploit them, according to a post from Anthropic’s security team.