Markets got ahead of themselves. Ceasefire is sloppy, conflict may become regional. Friction in global trade (crypto/yuan payments) is inflationary. Energy costs will take time to adjust. US inflation expected 3.3-3.4%. Europe concerned about sticky inflation, stagflationary pressures exist with pre-existing lower growth and buffers.

People are worried about these stagflationary pressures. That is not only like '22, but you had a lot of pent-up demand before. This time, you have pre-existing conditions of lower growth and lower buffers.

Worried about profligate European announcements vs. Asian sobriety. Hopes not to completely buy out the crisis due to limited fiscal space and future debt costs (2025-27). Prefers balanced rationing and price support measures over massive spending.

The political feel is we have a lot of room to maneuver... I would be a bit more cautious.

Rationing is demand destruction, immediate cost ~0.1-0.2% of growth. Smarter to preserve midterm buffers if crisis lasts months.

More cautious on equity markets because company margins are eroded and they need capex for AI cycle, so energy shock is not welcome. On bonds, base rates are higher, main issue is credit spread widening. Yesterday's credit spread tightening 'can't be right', expects more triaging and selectivity on credit risk.

This is a credit risk shock 101.

This week is first week seeing last drop of pre-war oil, so reality of demand/supply kicks in. Ceasefire postponed a stronger reality check. Expects more restrictions, disruptions, and scarcity economics soon, e.g., for travel industry and jet fuel, which will impact companies with weaker financials.

It will take time and this will be choppy.