James Campion @campervans: "TS Lombard | "War RAG,..."

United Arab Emirates

TS Lombard | "War RAG, Term Premium, and Mispriced Central Banks" Markets are mispricing the fallout from the Middle East shock. TS Lombard argues the hawkish repricing in Europe is an overreaction, while the risk of a 2027 Fed hike is being underestimated. The core thesis is that central bank paths will diverge based on domestic labor market conditions, not just the global energy spike. THE CONTRARIAN EUROPEAN VIEW Beamish believes the market is wrong to price a fresh hiking cycle from the BoE. Unlike the post-COVID period, the UK and Eurozone now have significant labor market slack. This slack will severely dampen the pass-through of energy costs into core inflation, making the current hawkishness a fade. Just as investors have accepted the UK's structural inflation problem, the cyclical reality has shifted. THE PERSISTENTLY HAWKISH FED In contrast, US inflation stickiness is a domestic story. The US economy is positioned to reaccelerate later this year, driven by wealth effects and a supportive fiscal impulse. TS Lombard expects the US unemployment rate to fall by year-end with inflation remaining above 3%. This backdrop makes it very difficult for the Fed to avoid a hike next year. SCENARIOS & PORTFOLIO RISK The base case remains the "Green" scenario, where a deal is reached and oil returns to ~$80/bbl. The key risk is the "Red" scenario (oil >$150), which would trigger a "Rising Volatile" inflation regime. In this environment: • Term premium gaps significantly higher. • The bond-equity correlation turns positive (stagflationary). • Investors would likely rotate from bonds to a basket of commodities as a hedge. This tail risk is what is driving term premium higher, even if the base case is more benign. Source: TS Lombard | Finvaulta $USO (United States Oil Fund) $BTC $SPX500

Not investment advice. The author may have financial interests in the mentioned instruments.