00:00Are the markets just overly optimistic?
00:02Yeah, I mean, it's a big discussion we currently have,
00:04this gap between equities on the one hand and rates and energy prices.
00:09I think certainly equities are back at all-time highs,
00:11whereas rates and energy prices, they're still kind of reflecting the lingering conflict.
00:17I think there are multiple drivers at work here.
00:19First of all, earnings so far have been remarkably strong.
00:23Corporate sector has been doing well.
00:24And most importantly, the equity rally is incredibly narrow.
00:27Like, it's a real momentum-driven rally.
00:30I'm like, momentum stocks, which also is quite scary in that regard,
00:33because we know there can be sharp reversals.
00:35But I think it has meant that the equity market can decouple,
00:39coupled with the fact that a lot of investors have tried to look through the conflict
00:43because the twists and turns are so difficult.
00:45But we're quite worried that the discount rate of the cash flows might actually move
00:50if we don't see a resolution of the conflict.
00:52And it can move in two ways.
00:54Either rates push up, and we've seen the longer-dated yields in the U.S. go by 5%.
00:59There's all kinds of worries that continue to push up bond yields.
01:02And a lot of these momentum stocks, they're quite long-duration.
01:06They're tech.
01:07So there could be a bit of a tension there.
01:09And the other one is, of course, that the risk premium so far has been remarkably anchored,
01:13both credit spreads and equity risk premium.
01:15So if there's any sign that the conflict lasts and impacts growth in a more sustainable way,
01:20that also isn't discounted.
01:22Is there a belief in the market that actually President Trump won't let it come to that?
01:26Because it's unclear, frankly, diplomatically, how this significantly de-escalates.
01:30Yeah.
01:31No, I think there is this kind of like problem that the baseline is still okay.
01:36And the tails are quite large in both directions, not just in the direction that it gets worse,
01:43but also in the direction it gets much better.
01:45Because if you get sanctions relief, if there's a buildup of inventories in the Middle East that could be released,
01:51you could actually get oil prices down much faster.
01:54So from that perspective, a lot of the clients we speak to do very little in terms of taking a
01:59view on that conflict
02:00if President Trump will resolve it.
02:02But they rather try to do tweaks and twists to the portfolio and focus on diversification.
02:08And I think that looks a bit like they're betting on the conflict getting better,
02:13but to some extent it's just not taking a view on it.
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