Introduces Joe Amato and asks if continued upward pressure on oil and natural gas is why stocks are under more pressure.
CNBC Anchor
Joe Amato
The main transmission mechanism for geopolitical issues in the Middle East is energy prices, with 20% of the world energy market flowing through the Strait. We are watching this closely.
Notes knock-on effects: Japan and Korea are big oil importers, their markets had run up and are now selling off. They were big owners of US tech assets, so maybe there is some unwinding.
CNBC Anchor
Joe Amato
Risk premia go up in situations like this. We think it will be short-lived but uncertain, with twists and turns over the next weeks/months.
Asks if the situation is inflationary or deflationary.
CNBC Anchor
Joe Amato
It depends on duration. A spike in oil prices is inflationary; every $10 increase in oil is a 25 cent increase at the gas pump. The longer the duration, the higher inflation, but we think it will still be very modest.
Notes 10-year yields at 4.1% and says it's complicated for the Fed, especially with a President who wants lower rates.
CNBC Anchor
Joe Amato
There are a lot of cross currents in the bond market, causing confusing action. If the conflict is extended, costs could put pressure on the long end of the curve. If short, markets move back to pre-conflict trends.
Asks if private credit concerns come back to the fore, referencing Blackstone and exposure to software.
CNBC Anchor
Joe Amato
Current economic conditions do not suggest a broad credit default cycle. There will be idiosyncratic situations, but broad conditions are sound for credit.
Summarizes: if no default cycle and Iran issue ends quickly, then own equities and risk assets full speed ahead.
CNBC Anchor
Joe Amato
We have been overweight equities due to better global economy, picking up nominal growth, and strong earnings. AI disruption is the most important longer-term driver for stocks and sectors.