Markets are focused on inflation from higher energy prices, pricing in hikes from ECB/BoE. But this is a stagflationary shock that will reduce real incomes and weigh on growth. Central banks will eventually shift focus from inflation to downside growth risks.

Pre-war growth resilience hid fragility and divergence. The energy shock creates more uncertainty. In uncertain environments, bonds should be a diversification asset relative to equities/credit and garner a premium for that benefit.

Short-term breakevens are up, but longer-term (5y5y) are down. This speaks to the view that the shock is short-lived. As it weighs on growth and labor markets, it will reduce second-round effects, keeping long-term inflation expectations anchored.

The US is buffered as a net energy exporter, but global supply chains mean Asian disruption spills over. Gulf energy powers Asian manufacturing; a prolonged disruption reverberates globally.