What goes up must come down, reminds David Woo. The AI trade is clearly stalling. Of the 6 Mag7 firms that have released earnings reports, the 4-quarter moving average of their EBIT has slowed to the lowest level since 2023. The question is how long before profit taking begins. For the last three years the AI trade has been driven by the capex spending of the hyperscalers, which investors saw as a proxy for expected return in AI investment. David has been sceptical of this for some time, which is why he went short Nasdaq in September. Over the past month the correlation between the AI trade and related spending not only broke down but went negative, a watershed moment for investors. Hyperscalers are driven by fear rather than greed, and overinvestment is almost certain. The bubble remains the biggest risk in 2026, and David is staying short Nasdaq, long Nifty50, short Bitcoin and long 5s-30s steeper positions.

Ron Williams explains how the correctly anticipated Q1 2026 shakeout signals a structural repricing rather than routine macro volatility. Cycle convergence; late-cycle economics, geopolitical tension, and behavioural reflexivity, is pushing markets to price credibility risk and supply fragility ahead of fundamentals. Oil has become central to this shift, increasingly trading as a geopolitical hedge amid rising volatility and renewed attention to chokepoint risk. A longer historical view of Iran shows recurring phases of strain, rupture, consolidation, and renewed pressure. Current developments suggest another inflection window, unfolding within a broader transition in the global order that favours hard assets and resilience over precision.

Valerie Gastaldy points out that the STOXX 600 has outperformed US indices in 2025. The strongest contributors to this performance have been Basic Resources, Telecom, Utilities, and Oil and Gas. Valerie notes that these sectors may still have a few additional percentage points of upside before three of them retest their 2007 highs. Banks, meanwhile, approached resistance again a couple of weeks ago. In the past, reactions at comparable levels have been relatively benign. However, if several leading sectors were to encounter resistance simultaneously in the coming days or weeks, Valerie says it would make the achievement of new index highs more challenging.

Brunello Rosa notes that the 62nd Munich Security Conference took place at a moment of profound uncertainty for the international system. Under the stark theme “Under Destruction”, much of the conference can be understood through two lenses: the Trump administration’s National Security Strategy, and the contrasting keynote speeches delivered in Munich by German Chancellor Merz and US Secretary of State Rubio. Chancellor Merz said the post-1945 international order “no longer exists”. A widening rift has emerged between Europe and the United States. Rubio gave a conciliatory address, emphasising that the United States and Europe “belong together”, but he also echoed Merz’s conclusion that “the old world is gone”. The conference ultimately laid bare a central paradox. Transatlantic tensions are real, structural, and unlikely to dissipate. Yet disengagement is not an option. In a world defined by fragmentation, rivalry, and competing visions of order, continued engagement may be strained, but it remains indispensable.

Graham Turner points out that US core inflation is trending just above 2.0%. The ex-food, energy & shelter CPI was up 2.20% in the 6-months to January, annualised. Meanwhile unemployment is falling, despite a rise in the labour market participation rate to new highs. The rapid adoption of AI suggests that the growth-inflation trade-off for the economy should improve. Therefore, the noninflationary growth path of the US economy is notching higher. Graham comments that how the Treasury market views the jobs and inflation data has been interesting. The two-year Treasury yield fell to 3.40% on Friday, the lowest since October 27th, 2022. This is pulling longer-dated yields down: break-even inflation rates are falling across the curve. The Treasury market has rightly concluded that stronger labour market data does not preclude lower interest rates when AI shifts the NAIRU lower. However, to prevent stock markets falling, the decline in short-dated Treasury yields is going to need to be quicker.

Michael Belkin’s model closed most short bond positions last week as he adds US and global sovereign bonds as new long positions, at what is now a major inflection point for US and global long-term interest rates. Michael’s hunch is that the recent risk-off move in sector rotation is now moving from equities into fixed income, with the MAG7 stocks in massive liquidation and the S&P500 unchanged on the year. Meanwhile, energy, consumer staples and utilities are all up, signalling a massive risk-off move in sector rotation. Of course, that’s the last thing Wall Street expects; the same sell-side strategists who said the software stock selloff was overdone never said to sell in the first place! Michael’s forecast for the Nasdaq points down big, both intermediate- and long-term. He maintains his bullish forecast for the value/growth and S&P493/MAG7 spreads, already up +13%ytd and +11%ytd (see chart).

The Vermilion team will maintain their near-term bullish outlook on the S&P500 and Russell2000 as long as crucial support levels of 6780-6824 on SPX and $255-$257 on IWM continue to hold, although they do expect a period of consolidation/pullback. The team also maintain their bullish intermediate-term outlook, and recommend buying pullbacks, as long as market dynamics remain constructive and the SPX is above 6480-6520 and IWM is above $245. Staples (XLP) are at 7+month RS highs and the team are upgrading Staples to overweight (see chart).

In Stephen Jen’s view, USDJPY may be the best (i.e., with the highest Sharpe ratio) FX trade for 2026. With the dominant election victory, Stephen points out that the LDP has enough popular support for PM Takaichi to go through with her 3%-GDP worth of fiscal stimulus. With inflation still above the BOJ’s target (headline CPI is down to 2.1%, but core-core is still hovering around 3.0%), this prospective fiscal stimulus will likely be met with accelerated or earlier rate hikes by the BOJ. Stephen says that the US Fed and the BOJ will continue to converge in 2026, with the former cutting while the latter is hiking. Stephen argues that the US dollar itself is in a structural descent, and the particular policy mix in Japan should lead to a stronger JPY. He still views 125 as a very reasonable target for USDJPY this year.

There’s a lot of talk about China Shock 2.0, where the flood of capital goods exports from China will be deflationary for the rest of the world. However, for the rest of Asia, Paul Cavey argues that the impact will be considerably less than that in the 2000s. That era saw a sharp deterioration in the terms of trade of nations across Asia, brought on by the huge demand for commodities from China which had offset the fall in electronics prices that occurred in the same period. By contrast, the last five years has seen export prices contributing positively to the terms of trade for the first time since at least the 1990s, helping offset the impact of the rise in import prices. The more stable terms of trade should provide support to Asian currencies. Asia is certainly exposed to China’s move up the value-added chain, with Korea looking particularly vulnerable, but the impact is likely to stop there.

Niall Ferguson has argued that Argentina needs to show more and say less on reserve accumulation if it hopes to roll over its dollar debt maturities. The new year began with the central bank accumulating reserves at an impressive pace and Argentina’s country risk compressing sharply to ~500 basis points. Niall believes Economy Minister Caputo could soon be in a position to issue a bond in international markets, as Ecuador recently did at a comparable spread. Moreover, Argentina and the United States have concluded a trade and investment agreement, underscoring President Javier Milei’s steadfast political alignment with President Donald Trump. Niall remains optimistic about the Milei administration’s political and macro durability, and reforms are passing in Congress. However, he expects the FX outlook to continue dampening growth potential, forecasting ~3% growth this year along with a consolidated fiscal surplus.

Asif Khan observes that 49 individuals, primarily newly elected Members of Parliament from the Bangladesh Nationalist Party and its allied parties, were sworn in on February 17th as ministers and state ministers in the new cabinet led by BNP Chairman and Prime Minister Tarique Rahman. In policy-related remarks, newly appointed Finance and Planning Minister Amir Khosru Mahmud Chowdhury outlined a reform agenda focused on deregulation and reducing the cost of doing business. Meanwhile, the newly appointed Commerce Minister indicated that the government will seek a deferment of Bangladesh’s graduation from the Least Developed Country (LDC) category by at least three years.

Variant Perception’s leading indicator for Brazilian growth has stayed resilient despite the lagged effects of the recent tightening cycle (top left chart). Some indicators in rate-sensitive sectors like manufacturing are showing an upturn in expectations, which tends to lead growth in industrial production (top right chart). Inflation has continued to fall, in line with the team’s leading indicator (bottom left chart). This should give the central bank plenty of scope to ease the Selic rate from very high levels and shift monetary policy from a headwind to a tailwind. The macro setup still looks favourable for continued gains in bond and equity prices. There has been an uptick in net foreign inflows as Brazilian equities have rallied (bottom right chart). But this is minor compared to the major inflows seen from 2021 to 2022. And as interest rates fall, domestic investors will be encouraged to shift from cash/bonds to equities, another tailwind as the cycle progresses.

According to Jonathan Anderson, India has little chance of catapulting itself into middle-income levels without seriously raising its game on exports, in particular light manufacturing exports which would maximise employment, income and dollar earnings gains. Jonathan points out that there are no examples of sustained rapid services-led growth in any but the smallest emerging market economies – and certainly not in a case like India with a population of 1.4 billion. In practice, the only proven model that leverages on underlying comparative advantage for the populous low-income world is labour-intensive manufacturing. And until India jumps on the bandwagon, it will not be a breakout. This doesn't stop Jonathan from investing in India's domestic growth cycle on a cyclical basis, but it does very much inform how he sees the country's structural prospects.

The iShares MSCI India ETF (INDA US, USD52.89) has been ranging for 7.5 months following an initial 18% rally from the Mar 2025 low. Chris Roberts views the INDA’s Mar 2025 low as an important cyclical trough. At USD47.60, the ETF had retraced an exact 50% of the 2023-24 cyclical bull market. Note that RSI has been ranging between Low Neutral 40 and High Neutral 60, typical of a rangebound market. Chris remains 60% long the NSE Nifty (last 25,471) from 24,627.69 but will only add to Indian exposure if the INDA US breaks above the Jun high of 56.01.

Over a month after Maduro was removed, Venezuela is operating under a modern form of US fiscal receivership. Niall Ferguson remarks that history doesn’t point to a positive outlook, with previous examples rarely increasing revenues or creating long-lasting institutional change. Iraq showed that going all out with military occupation and recovered oil production, deep bond haircuts can still materialise. Genuine democratic transitions, like those in Spain or Paraguay, can take decades to materialise. Niall sees the most likely outcome for Venezuela being a modified Chavismo with closer ties to Washington. This is not the “different Venezuela” Secretary Rubio envisions but rather a rebranded authoritarianism, at least in the short term. Despite the market rally, Niall sees Venezuelan and PDVSA bonds as high-risk.

Kathleen Kelley notes that much of the recent to-ing and fro-ing in commodity and other markets has been driven by AI headlines and/or disruption signals, and by the implications each will have on global capex. AI needs reliable power supplies, robust power grids, data centres for computing, and the manpower and stuff to build it all. Metals have behaved as if a global manufacturing cycle were underway. Ruining that conclusion, energies have not. There is now a disconnect between stable manufacturing, surging copper (aka metals), and lacklustre energy. Which category is correct? Or will everything meet in the middle? Kathleen says that identifying which markets are likely to be in surplus or deficit is a good place to start the analysis. She expects surpluses in oil, gas, iron ore, zinc, and nickel. Grains, too. Aluminium, copper, and palladium should be close to balanced, barring any surprises. Silver and platinum will be in deficit.

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In this presentation, Jeffrey Christian of CPM Group reviews current conditions in gold and silver markets, beginning with the latest US inflation data and what it implies for interest rate expectations. He explains the January CPI and PCE readings, why inflation has remained structurally higher than in the past, and discusses how this environment continues to influence investor behaviour toward gold and silver. Jeff then focuses on silver market realities, addressing widespread misinformation surrounding Comex inventories, deliveries, and so-called “shortages.” He explains how Comex silver actually functions, including good delivery standards, the difference between eligible and registered inventories, and why metal moves in and out of depositories. He also provides historical context, showing how large contract rolls and speculative positioning can drive sharp price moves without implying market failure or physical scarcity.
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James Burdass observes that China’s 15th Five-Year Plan is moving the goalposts from raw GDP growth to high-quality development and security. Explicit targets aim for solar capacity to surpass coal capacity in 2026, cementing structural demand for silver and lithium. Furthermore, James expects Beijing to explicitly formalise national security reserves for critical minerals. In this new era, copper and lithium stockpiles are likely to be treated with the same strategic importance as oil reserves, potentially tightening market balances faster than fundamental supply and demand would suggest. James says this is why the bears were wrong. Heading into 2026, the consensus trade was likely "Short China Commodities" based on the property collapse. However, the RMB 4 trillion grid budget is not just a "replacement" for lost property demand; for specific metals like aluminium and copper, it acts as a growth accelerator. China's property bubble has burst, yet electrification is not dead. This is the critical takeaway for the year ahead.