The main news last week was the US and Israeli military strikes on Iran.
Although Iran is not a major oil producer, we've seen the oil prices spike this weekend. Could you explain to us the reason behind this movement?
Yes, the main risk relates to the logistics of getting Middle Eastern production to global markets. First, last weekend Iran decided to close the Strait of Hormuz, through which around 30% of seaborne oil production flows every year, as well as 20% of LNG. Second, there is also a risk that Iran could target energy infrastructure in the region which could impact production capacity as well as market sentiment.
And how would the rise in oil prices affect our scenario and also our asset allocation?
A sustained increase in oil prices could impact global inflation as well as monetary policies. And by that we mean that monetary policies could become less accommodative. So in terms of portfolio construction, we continue to have a very diversified exposure to different assets and currencies. For example, we are overweight gold with a strong position in gold, as well as an overweight in Swiss franc. And in the equity allocation, we are also very diversified in terms of regions and also sectors. In terms of portfolio, we think that we are well positioned to mitigate the volatility related to this geopolitical risk.
February was also marked by news on US trade policy. We had the US Supreme Court's ruling against parts of US tariffs, existing tariffs. What are the implications?
We see two key uncertainties surrounding these tariffs. First, last year tariffs have been agreed between countries but have not been formalized.And following this ruling from the Supreme Court, they will have to be renegotiated. Second, US companies will have to individually ask for a refund related to those $130bn of tariffs that have now been judged illegal and that it would take years for the US administration and the courts to agree on those refunding.
Globally, we think that those tariffs will not have a big impact on our outlook for inflation and we don't think it will change the course of monetary policies.We think that average tariffs for the US will settle around 10%.For emerging markets, we think that this ruling is also very positive because they will be able to negotiate lower tariffs than what they had last year.
So February delivered its share of geopolitical shocks and also shifting trade policies.
At Mirabaud we will closely monitor these two elements.
