Equities: Fragile advance under energy and yield risks – NBC

National Bank of Canada strategists highlight that global equities, such as the MSCI ACWI, are on track for another quarter of positive gains. However, they caution that factors like the Strait of Hormuz traffic constraints, dwindling oil reserves, soaring refining margins and historically high government bond yields make the equity outlook susceptible to potential inflation spikes.

The MSCI ACWI is projected to experience positive growth, yet the Strait of Hormuz remains far from stabilization, while energy supplies continue to dwindle and supply-chain pressures escalate. The outlook is deemed fragile, akin to the challenges faced by Odysseus in his epic journey. The primary concern remains the energy sector, with oil prices potentially surging due to the ongoing conflict and depleting inventories.

If this leads to the inflation normalization slowing down, investors may lower their expectations for monetary easing, maintaining elevated or even higher long-term yields. Elevated government bond yields are a risk to equities, given the generational highs and the result of fiscal deficits, public debt, and sovereign issuance. The GBP/USD pair shows a decline, hitting low 1.3500s, and EUR/USD is correcting below its 1.1600 support level, influenced by US data releases and uncertainties surrounding the US-Iran crisis.

Gold falls to near three-week lows supported by higher US Dollar and rising Treasury yields, while Bitcoin holds steady above its $78,000 support level, and Ethereum consolidates around $2,450. UK government bonds yield increased, reflecting broader economic concerns.