One of the topics discussed recently by G7 finance ministers besides the war in the Gulf was the private credit sector, or as it is alternatively known – Shadow Banking. Two high-profile bankruptcies late last year in America – First Brands and Tricolor – suddenly rang alarm bells about the health of the private credit sector.

The Tricolor collapse prompted the CEO of JP Morgan, Jamie Dimon, to say, ‘when you see one cockroach, there are probably more.’

Private credit offers an alternative source of funding for companies to bank lending.  Private credit, as the name suggests, is a loan but not one made by a bank but by an investment fund. Specialised managers raise funds from pension funds and insurers pool them into credit funds and lend directly to companies. These pay floating interest and then repay the loan principal at the end of the term. Typically, private credit has been provided to smaller companies and especially those considered ‘high yield’ or ‘junk’ status because of low profitability or high debt. For the investors of the credit funds, the main attraction is that it has provided higher yields, albeit at a higher risk.

Despite the risk involved, private credit has been a force for good, providing growth capital that otherwise would be inaccessible for some companies. The Bank of International Settlements reports that over $200bn of private credit loans have already been provided to fund AI-related investment and estimates that this could grow to between $300bn and $600bn by 2030.

So why are G7 finance ministers concerned?

Well, the private credit market has rapidly grown to $3.5 trillion globally of which the US accounts for about $2 trillion. Furthermore, the private credit sector is opaque from a regulatory point of view. When banks provide loans to companies, regulators see these on balance sheets and require capital to be provided against them. Private credit, by comparison, is distributed by investors and does not show up on any single balance sheet that is stress-tested by regulators. When the auto supply parts business First Brands collapsed in the US last year, it did so with estimated liabilities of between $10bn and $15bn.

Investors have been spooked and have since withdrawn billions, pulling more than $10bn from some of the largest private credit funds in the first quarter, reminiscent of the early days of the 2008 financial crisis.

Unfortunately, it isn’t usually until after a financial crisis that markets and regulators realise just how interconnected the different parts of the financial system tend to be. Central bankers, regulators and investors will be hoping that the First Brands and Tricolor collapses were one-offs as the private credit sector looks too big to fail.

Let’s hope there are no more cockroaches crawling around out there!

What have we been watching?

US equities surged to new highs, posting a sixth consecutive weekly advance driven by strong earnings in AI businesses, particularly AI chipmakers. The US ‘hyperscalers’ continue to increase AI-related investment, with the AI ‘arms race’ now reaching fever pitch. The scale of the capital investment is breathtaking. For example, Alphabet is doubling its capital investment from $91bn last year to $180bn-$190bn in 2026. While this level of spending can be justified by huge backlogs in revenue – Alphabet has indicated a $460bn backlog – the return on capital from this investment is still to be determined!

The market mood was also helped by the news that the US and Iran were close to agreeing a one-page memorandum that would end the Gulf War and set the framework for more detailed nuclear negotiations.

However, earlier this morning there were reports of further explosions in the Strait of Hormuz, with America’s military Central Command saying that ‘US forces intercepted unprovoked Iranian attacks and responded with self-defence strikes.’ Meanwhile, President Trump has posted that ‘I have just read the response from Iran’s so-called representatives’, which he went on to call ‘TOTALLY UNACCEPTABLE.’  American media reports suggest Iran has offered to transfer some of its highly enriched uranium to another country but wouldn’t dismantle its nuclear facilities. Iran’s official news agency has denied the report. Israeli PM Benjamin Netanyahu said, ‘the war is not over’ and is still seeking to end Tehran’s nuclear ambitions.

While the Strait of Hormuz remains closed, markets remain on a knife-edge. Trump clearly wants a deal with the mid-term elections looming, but what about Israel? Meanwhile, uncertainty remains about who holds negotiating authority in Iran, which may be complicating progress and delaying a resolution. Focus may now shift to the meeting later this week between President Trump and Xi Jinping in Beijing. Both leaders will no doubt wish to show their influence on the world stage, so it will be interesting to see how this plays out in potential peace talks with Iran. Betting sites currently indicate a 50% chance of the Strait of Hormuz re-opening by the end of June.

Brent oil, which fell below $97 at one point last week on news of the one-page peace memorandum, has jumped this morning by 3% to over $104.       

In the UK, PM Sir Keir Starmer is under tremendous pressure following the very poor local election results on Thursday. There is talk of a leadership challenge as soon as today. However, many left-wing Labour MPs may be wary of such a development this soon, as their preferred candidate, Andy Burnham, is not currently an MP. They fear a contest right now might allow a more moderate candidate such as Wes Streeting to prevail. Will timing prolong Starmer’s reign?  

In the US, AI chipmakers and hyperscaler results together with developments in the Gulf, have tended to overshadow economic news. Inflation expectations have edged upwards with the New York Federal Reserve (Fed) increasing the one-year outlook to over 3.6%. This has raised expectations of a more ‘hawkish’ response from the Fed, particularly given the latest strong US jobs data. We must also not forget Trump’s tariff policy. The 10% global tariff put in place following the US Supreme Court ruling against Trump’s IEEPA tariffs, has been found to be unlawful by the US Court of International Trade. Meanwhile, Trump has set a deadline of the 4^th July for the EU to ‘deliver their side of the deal’ or tariffs would be raised.       

Finally, hard times ahead due to Trump’s Gulf War? The world’s leading condom manufacturer Malaysian-based Karex, produces 5 billion condoms annually and is a supplier to leading brands such as Durex and Trojan as well as to the NHS. It is now raising prices by between 20% and 30% due to higher raw material and freight costs.

The post Private credit – are there more cockroaches? first appeared on Alpha Portfolio Management.

G7 finance ministers and some central bankers met recently in Washington, DC, to discuss a number of global challenges, by far the greatest concern was the closure of the Strait of Hormuz.

The Trump administration’s response to concerns about the energy shock and stagflation was predictable: the war will be over soon, and the gain is worth the pain. However, many remain sceptical and are concerned that the risk in terms of world energy will have to be managed for years, even when the conflict is over.

It has only been during the recent two-week ceasefire, the full scale of the damage to oil and gas infrastructure in the energy-rich Gulf region has started to become clear. Some energy analysts are suggesting that even with a durable ceasefire and the re-opening of the Strait of Hormuz. The oil, gas and fertiliser markets may not return to normal for at least six months.

Saudi Arabia, the world’s largest oil exporter, has said that it has suffered significant damage to its production capacity. Qatar, one of the world’s largest liquified natural gas producers, has lost almost a fifth of its output. Both of Abu Dhabi’s largest oil and gas refineries have been damaged by Iranian drone attacks. Meanwhile, Kuwait’s two oil refineries have suffered serious damage from multiple strikes, while Bahrain declared force majeure at its Sitra refinery. The re-opening of the Strait of Hormuz would be a major relief for markets, finance ministers and consumers and would remove the threat of a further energy shocks. Although it looks like it will take a considerable time to bring damaged energy infrastructure back on-line.

Trump’s Gulf War may also prolong the conflict in Ukraine. President Zelensky has condemned a US decision to extend the period during which Russia is allowed to sell oil despite Western sanctions. Trump is desperate to ease the energy crunch, but an oil revenue boost for Putin is not helpful for Ukraine or European NATO members.

Getting the Strait of Hormuz back open and keeping it open is a priority. Seeing the stranglehold this is causing to World trade, disrupting the free passage to shipping appears to be Iran’s ‘trump card’ in negotiations.

What have we been watching?

Two months into the Iran strikes, a fragile ceasefire holds as Iran’s fresh proposal to reopen the Strait and end the war — which notably defers nuclear talks — has lifted market sentiment to start the week, though with Trump having rejected prior terms as insufficient and Iranian President Pezeshkian ruling out negotiations under duress, resolution remains deeply uncertain.

The recent trend of the US and Iran repeatedly failing to send delegations to Pakistan continues, and to date peace talks have no agreed framework — a far worse situation than markets expected when the conflict began. Despite this, markets are hitting all-time highs, with the iShares Semiconductor ETF (SOXX) up 53% year-to-date across 18 consecutive up days — the longest winning streak in the index’s history — with April on course for its best month since the peak of the dot-com bubble during February 2000.

We’re deep into the US Q1 earnings season — hyperscaler capex is still accelerating, with Microsoft, Meta, Amazon, and Google all yet to report. AI, a genuine structural tailwind, and the risk isn’t that AI is overhyped; it’s that the market is pricing cyclical businesses as though the cycle has been abolished. Cyclicals characteristically look cheap near cycle peaks — that’s part of what makes them dangerous — and serious supply chain disruptions from the Iranian conflict are yet to be felt.

The UK economic data read well amid a challenging outlook, with unemployment coming in lower than expected and GDP beating forecasts, with broad-based gains across services and production — partly aided by car production recovering from last year’s cyber incident. Retail sales were meaningfully stronger than expected, with a strong Easter providing additional support. Inflation came in at 3.3%, up from 3% in February.

The US Q1 earnings season has shown the real economy is booming, driven so far by massive hyperscale capex and banks benefiting from the extreme market volatility.

While much of the S&P 500 is rallying, it is interesting to note that businesses like ServiceNow, an IT systems business and poster child for AI monetisation, saw its stock fall 15% on a beat and raise. Is the market starting to ask a harder question: where does AI actually show up in the numbers?

US retail sales grew 1.7% for the period, ahead of expectations, but primarily due to increased gas prices.

China’s imports continued to surge, up 28% year-on-year to a record $270bn, far exceeding market expectations, as China continues to intensify efforts to secure resources despite supply chain disruptions and elevated costs linked to the Iran conflict.

Today Brent crude sits at $108, up nearly 14% on the week amid stalled Iranian negotiations. On top of this, while peace negotiations with Russia were starting to look positive, Russia has reversed course and is now blocking oil from Kazakhstan that flows through the Druzhba pipeline and supplies almost all of Berlin’s petrol and heating fuel. Subsequently, the price of German gas is up 14% on the week and a painful 55% year-to-date.

Finally, we all know that markets move instantaneously on Trump’s Truth Social posts and that traders have been betting millions of dollars just before he makes major announcements. However, it was interesting to note an analysis by the BBC of some of Trump’s recent posts and moves in oil prices called ‘The insider trading suspicions looming over Trump’s presidency’. None of the US financial authorities contacted by the BBC acknowledged any of the allegations of insider trading.

The post Iran’s Trump card first appeared on Alpha Portfolio Management.

The European debt crisis beginning in 2009 saw a series of government debt and financial crises in the Eurozone triggered by high government borrowing, banking vulnerabilities and a global financial downturn. This particularly affected Portugal, Ireland, Italy, Greece and Spain, or the ‘PIIGS’, as they became known.

Fast forward to today and the energy shock and economic uncertainty from Trump’s Gulf War have pushed up government borrowing costs, but markets are no longer concerned by the ‘PIIGS’ but instead by Britain, Italy and France, collectively known as the ‘BIFs’. All three have ageing populations, growing welfare costs and stretched government finances. This coincides with pressure from both Trump and Putin for NATO to increase defence spending, which is putting additional pressure on government spending commitments.

The UK currently offers a gross redemption yield or interest rate of 4.8% on its benchmark 10-year Gilt, the highest of any in the G7. Britain has also suffered the biggest increase in borrowing costs since the Gulf started of any major economy.

The cost of government borrowing globally has risen and markets have become more concerned about those countries where debt to GDP (Gross Domestic Product) ratios are already stretched. The UK’s debt challenge was underscored last week by a record £15bn syndicated 2036 Treasury Gilt launch by the Debt Management Office that carried a 4.91% redemption yield. That is the highest yield offered in any 10-year UK government bond fundraise since 2008!       

Despite Chancellor Rachel Reeves’ much vaunted ‘fiscal headroom’ following a record tax burden on British businesses, the reality is that much now rests on UK economic growth. Despite North Sea oil and gas and the growth of renewables, the UK is still reliant on imported energy. Trump’s Gulf War has driven up energy prices, which will adversely impact UK economic growth. A great deal hangs on the duration of the conflict in the Gulf and whether the Strait of Hormuz re-opens to shipping.

It doesn’t take a financial genius to realise that higher government borrowing costs are painful. Britons are already enduring a record tax burden, but the Labour government doesn’t seem willing to address the ballooning welfare bill. So, just how can the Chancellor improve the UK’s finances and improve the UK’s appeal to global bond investors? Political uncertainty is not helpful either, with PM Sir Keir Starmer facing an uncertain future due to the Peter Mandelson vetting row.

What have we been watching?

The Strait opened, then closed……

Hopes of a de-escalation between the US and Iran helped propel markets higher last week, with the US S&P 500 index closing at a record high. The scale of the relief bounce in US equities has been staggering – just 11 days ago the S&P 500 was trading at an eight-month low! European and Asian equities – particularly Japanese equities – also put in a strong performance last week. Hopes of a peace deal and the freeing up of the Strait of Hormuz eased market fears of a global energy shock and stagflation.

Markets were very firm on Friday and oil prices fell after the Iranian leadership announced they were reopening the Strait of Hormuz after the Lebanon ceasefire and Trump suggested that Iran was surrendering all its nuclear material. Trump said, ‘It’s looking very good and we’re going to make a deal with Iran, and it’s going to be a good deal.’ He claimed that Iran ‘had agreed to almost everything’, including handing over the ‘nuclear dust.’

However, both these claims have turned out not to be correct over the weekend, and the Strait of Hormuz seems very much closed, with both Iran and the US firing on commercial shipping.

There is speculation that Pakistan will host another round of peace talks on Tuesday as the current ceasefire is due to end at some point on Wednesday. Trump was more hawkish over the weekend and once again threatened to ‘knock out every single power plant and every single bridge in Iran.’ Meanwhile, Iran reported that it has ‘no plans for now to participate’ in talks after US marines seized an Iranian ship that tried to run the American naval blockade. While the US may have the military might, for now Iran continues to hold the world to ransom by blocking shipping through the Strait of Hormuz and appears to be calling Trump’s bluff. Keep watching Trump’s approval rating with US voters, as a renewed deterioration in negotiations would be unlikely to help his chances in the US mid-term elections if US gasoline prices were to rise again.           

The IMF published its latest World Economic Outlook and downgraded its global economic growth forecasts and upgraded inflation. Global growth is now expected to be 3.1% with the growth outlook cut for those countries directly affected by Trump’s Gulf War, particularly those that import large amounts of energy. The IMF has raised its global inflation forecast to 4.4%.

While all eyes are upon the Gulf and Trump continues to lash out at anyone who criticises his Gulf War, there was some further Trump tariff news. US Treasury Secretary Scott Bessent said that the tariffs that had been struck down by the US Supreme Court could be restored to previous levels by mid-summer. He said, ‘We will be implementing or conducting Section 301 studies, so the tariffs could be back in place at the previous level by the beginning of July.’  This comes as Chancellor Rachel Reeves told Americans that Trump’s Iran war was a mistake. In turn, this led Trump to threaten that he would shred the current US-UK trade deal!

The UK economy saw its biggest monthly rise in February in more than two years, with GDP growing by 0.5%. Unfortunately, this is not set to continue due to Trump’s Gulf War, which has created massive uncertainty.

European Central Bank (ECB) president Christine Lagarde said that the central bank ‘did not have a tightening bias.’ This helped ease investor concerns about an immediate ECB interest rate hike in April.

In the US, while equities have been propelled higher by hopes of peace talks, the latest inflation data has also been supportive. The headline Producer Price Index (PPI) inflation reading was slightly softer than expected in March, rising by 0.5% for an annualised 4%. The week ahead is also a key one for markets as Kevin Warsh, Trump’s nominee to become the next chair of the Federal Reserve, is due to appear before the Senate Banking Committee. He has previously argued for lower US interest rates due to disinflationary forces such as deregulation and AI.

China’s economy grew faster than expected in the first quarter of 2026, with GDP growing by 5%. This was despite the Gulf War starting to impact the economy in March. The outperformance was driven by exports, particularly EVs. However, exports are likely to weaken given the Gulf War impact on many western economies. Presidents Trump and Xi Jinping are expected to meet in May when tariffs will no doubt be discussed and Trump must be hoping a peace deal with Iran can be concluded ahead of such a meeting. While berating NATO allies, Trump has so far been strangely quiet about news that Iran deployed a Chinese satellite to target US military bases across the Middle East!

Brent oil eased back from $101 to just over $91 last week on news that Iran was to re-open the Strait of Hormuz. However, developments over the weekend have once again taken a turn for the worse and this morning Brent oil is up 4% to about $95.

Finally, with the Gulf War dominating headlines, investors should not forget the ongoing AI uncertainty which has overshadowed many traditional business models in recent months. In the latest twist last week, the launch of Anthropic’s Claude Mythos AI tool, which has advanced cyber-security capabilities, has been delayed after fears were raised that it could cause a wave of catastrophic attacks that could take down critical infrastructure if it were to fall into the wrong hands. Let’s hope that is not Iran!

The post Britain’s Debt Crisis first appeared on Alpha Portfolio Management.

A diplomatic team led by US Vice-President JD Vance tried, and failed, to reach a negotiated agreement to end the war with Iran over the weekend.

Markets were not hopeful of a swift resolution to the conflict, given the level of distrust between both sides. Israel has continued its attacks on Hezbollah in Lebanon, with the US and Israel claiming it was outside the scope of the two-week ceasefire. Iran has called for a halt to attacks on all its allies.

Meanwhile, Trump is under growing pressure at home ahead of the mid-term elections, with the latest polls suggesting 59% of Americans feel the war is going somewhat or very badly for the US. Many believe that key American objectives such as the opening of the Strait of Hormuz, securing regime change and thus greater freedom for the people of Iran, as well as ending Iran’s nuclear programme remain unmet.

President Trump has said the US will now impose a naval blockade of Iran and ensure no one who pays an illegal toll will have safe passage on the high seas. The US will continue clearing mines from the Strait of Hormuz, while Trump added that the US military was ‘locked and loaded and prepared to resume attacks against Iran at an appropriate moment.’ Meanwhile, the Iranian regime, no matter how bruised, bloodied and battered, just to have survived is effectively a victory for the tyrants of Tehran. At the current time, the regime lives to fight another day and remains a threat to the Strait of Hormuz and neighbouring Gulf states. This still has the makings of a geopolitical disaster, but for now markets cling to the hope that if the current ceasefire holds, then diplomacy is not dead in the water.

The truth is nobody knows what Trump will do next, not even Trump possibly!

Meanwhile, Trump’s frustration has been targeted towards NATO allies, including the UK. Trump continues to threaten to withdraw from NATO. This is disturbing given the threat from Putin, who continues to bombard Ukraine. The Russian ‘Cold War’ threat was once again highlighted last week as the UK confirmed it had tracked Russian submarine activity above UK undersea fibre-optic and gas pipeline infrastructure. Media reports also suggest that Russian cyberattacks on the UK have risen by over 1500% since the UK backed Ukraine. The UK is facing inflationary challenges as a result of Trump’s Gulf war, but must also ramp up defence spending when government finances are looking particularly stretched.

At least there was some good news over the weekend in Europe after Victor Orbán – a Putin ally – was defeated in a landslide result in Hungary’s election. Orbán has been a thorn in the side of the EU and Ukraine, but strangely also a European ally of the Trump administration. Indeed, JD Vance was in Budapest last week voicing his support!

What have we been watching?

A good week for global equities, but particularly the S&P 500 and ‘Mag7’ as Trump’s two-week ceasefire and peace talks between the US and Iran raised hopes of a deal. European equities also performed well. Japanese equities had their best weekly performance since 2024 while emerging markets also rebounded strongly, posting their best week since 2020. Brent oil retreated 14% on news of the ceasefire. This, in turn, eased inflation fears a little and US Treasury yields fell slightly on hopes that the Federal Reserve (Fed) might be able to cut interest rates later this year. In Europe, fears of an April interest rate hike from the European Central Bank (ECB) also eased.

However, a week is a long time in finance markets these days and the collapse of peace talks over the weekend has seen risk assets open lower this morning, while Brent oil has jumped by 7% to above $101. Fears of an energy shock continue to overshadow the global economy and risk assets.

All this comes as the global economic impact of the conflict is increasingly clear. For example, the US CPI print for March last week showed headline inflation increased by 0.87%, the biggest monthly inflationary gain since June 2022. This was driven by a 21% increase in the cost of gasoline, which was the biggest monthly jump since records began in 1967! This pushed the annualised rate of US inflation up to 3.3%. This is likely to make it more difficult for the Fed to cut interest rates. Meanwhile, US media reports suggest that Treasury Secretary Steve Bessent has spoken with Trump about the market reaction to the war in the Gulf and has discussed measures the Treasury could implement if the war were to last 2-3 months.

Meanwhile, investors are left to consider just how will Trump’s blockade work? Will mine-clearing activities place US vessels at greater risk? How will the US determine who has paid Iran a toll? How will those countries that buy Iranian oil, such as China respond? Most critically, will the move intended to choke off Iran’s primary income stream drive global oil prices even higher? The list of uncertainties goes on. Last week’s bounce in global equities gives an idea of the relief bounce possible if the Gulf War is able to be resolved, but given the distrust between the US, Israel and Iran, expect market and energy price volatility to continue!

For the UK, like Europe, being more dependent on global energy prices, particularly gas, the failure of peace talks and uncertainty over the opening of the Strait of Hormuz provide a more challenging inflation outlook. The Bank of England is currently expecting UK inflation to have risen to 3.5% in March. However, higher fuel and energy costs are expected to lead to higher food prices, with some industry sources suggesting that grocery inflation could hit 10% later this year. Clearly, this would be unhelpful for the Bank of England and add to the government’s challenge from the ongoing cost-of-living crisis. The uncertainty about inflation and interest rates has also led some analysts to reassess the outlook for the UK property market. For example, Deutsche Bank is forecasting that UK house prices could fall by between 3% and 5%. How will all of this and events in the Gulf play out in the May local elections?

Finally, with the Gulf War dominating headlines, investors should not forget the ongoing AI uncertainty which has overshadowed many traditional business models in recent months. In the latest twist last week, the launch of Anthropic’s Claude Mythos AI tool, which has advanced cyber-security capabilities, has been delayed after fears were raised that it could cause a wave of catastrophic attacks that could take down critical infrastructure if it were to fall into the wrong hands. Let’s hope that is not Iran!

The post Iran – a Slippery Slope first appeared on Alpha Portfolio Management.

The Office for National Statistics (ONS) has recently updated its shopping basket, which is used to measure UK inflation.

The ‘basket’ provides a fascinating insight into the changes in UK consumer tastes, trends and lifestyles. The 2026 basket reflects 760 goods and services and a further shift towards healthy living. Alcohol-free beer and houmous are among the latest items added. Together with pet grooming, to reflect care treatments for dogs beyond the services offered at vets.

Caravans were already in the basket, but motorhomes have now been added. Also included are dashcams reflecting the growing number of security products being used by drivers. Amongst the items removed are premium bottled lager bought in pubs and restaurants, along with sheets of wrapping paper, with consumers now buying rolls of wrapping paper instead.

Some of the changes also reflect the new method of data collection by the ONS. It will now use real-time supermarket scanner data for more than half of the grocery market information on a billion products sold each month. Scanned data will now be obtained from some 300 million price points compared to a manual process where prices were previously checked on 25,000 items in stores by ONS inspectors.

However, while the ONS is continually improving the quantity and quality of data used to measure inflation, unfortunately the actual rate of inflation can be heavily influenced by events outside the control of the UK. The conflict in the Gulf has pushed oil and gas prices much higher, which is expected to feed through into higher prices for UK consumers and higher inflation. The Bank of England had previously expected inflation to drop towards its 2% target by the end of 2026 and markets had anticipated at least two further interest rate cuts each of 0.25%.

However, markets are now pricing in that interest rates could now rise in 2026 if the conflict in the Gulf is prolonged. Housing and household services currently represent over 31% of the inflation basket and energy bills are forecast to jump by 20% in July. Transport is the third largest category, alongside restaurants and hotels at 11%, with both sectors energy dependent.

Little wonder the Bank of England is sounding more cautious!

For investors, the Gulf conflict will continue to overhang markets, but those businesses with pricing power that can pass on higher energy costs should be better placed to navigate current market volatility.

What have we been watching?

The US-Iran conflict remains a fast-moving situation. Key developments last week include Iran’s rejection of the US 15-point peace proposal, Trump citing positive ongoing talks with unnamed officials, and Iran-backed Houthi militants joining the conflict over the weekend. Trump subsequently openly floated the idea of a military operation to extract Iran’s uranium and whether the US could seize the Kharg Island export hub, raising fears of a new front in the war.

With many senior Iranian officials having gone underground and are avoiding all electronic communications to evade targeted assassinations (recall the Israeli pager attack). It is unclear whether any single diplomat in Tehran actually speaks for the Islamic Revolutionary Guard Corps – the people who control the weapons – so it is increasingly difficult to see how the conflict ends.

While back-channel negotiations are reportedly underway in Pakistan, progress remains opaque. Compounding this, Iran has reportedly insisted on negotiating exclusively through JD Vance, reflecting a deep distrust of the broader Trump administration.

In the absence of concrete confirmation from all parties, markets have largely stopped listening to Trump’s positive rhetoric. Previously, it wasn’t necessarily that markets believed Trump, but rather that they read it as a signal of him capitulating – reflecting increased likelihood of a “TACO” moment (Trump Always Chickens Out).

The S&P 500 is now down for five consecutive weeks for the first time since 2022, and with no clear end to the conflict in sight, investors remain fearful of a fresh escalation. As of Friday, the Nasdaq Composite entered correction territory, dropping by over 10% from its October 2026 record high.

Bond markets remain nervous but appear to be showing some signs of stability, with US 2-year and 10-year Treasuries flat on the week, yielding 3.9% and 4.4% respectively – pulling back from their 8-month highs on Friday. UK 2-year and 10-year gilts have shown similar behaviour, yielding 4.5% and 5.0%, respectively, meaningfully higher than what Rachel Reeves would have budgeted for. Overnight index swaps ahead of the next ECB meeting in April currently price a 47% chance of a cut – the first time in over a week it has fallen below 50%.

Brent crude has opened at $115/barrel, up 15% on the week following the Houthi escalation over the weekend, while EU gas is slightly lower at -2.5% to €55.50/MWh.

Shell’s CEO has warned that Europe could face fuel shortages as soon as April, with supply issues already emerging in parts of Asia.

Finally, only in the UK! We have previously observed the UK’s embarrassing track record when it comes to infrastructure projects relative to other countries. HS2 is a prime example. The latest news is that HS2 high-speed trains could be made to run slower than initially planned to keep costs down. Why build it then? You couldn’t make it up if you tried!

The post A Sobering Time first appeared on Alpha Portfolio Management.

Three weeks into the war in the Gulf and there is a deepening impression that Trump has entered the US into a conflict with no clear aims or strategy.

Trump is under mounting pressure at home. His voter appeal is waning as nearly half of Americans hold him responsible for the surge in gasoline prices triggered by the US war with Iran. Trump must find an exit ramp to avoid pain in the midterm elections in November.

Meanwhile, the world must deal with the economic fallout from the conflict and the closure of the Strait of Hormuz to shipping. While attention has focused upon oil and gas prices, a number of industries are watching the price of sulphur, which has jumped by 35% since the start of the conflict. The surge has exposed the fragility of supply chains that are built around the Gulf, which accounts for 45% of the world’s sulphur exports. Sulphuric acid is used in leaching to separate and recover metals such as copper, nickel and uranium. The disruption to sulphur supplies through the Strait of Hormuz is expected to have an impact on copper production. Semiconductor manufacturers also use sulphuric acid to clean wafers.

However, there is now a growing risk that the conflict could escalate and create a global food crisis.

The fertiliser industry is the biggest user of sulphur, accounting for 60% of demand, while there have also been price spikes in urea and ammonia, which are both critical ingredients of fertiliser. A prolonged conflict and ongoing disruption to Gulf shipping would feed into higher food production costs and inflation. The conflict in the Gulf comes as peak fertiliser season approaches.

It was not that long ago that global supply chains faced disruption from attacks on shipping in the Red Sea by Iranian backed, Yemen-based Houthi rebels. While attention remains focused on the Strait of Hormuz, the world’s economy and global supply chains also remain at risk from disruption to shipping in the Bab al Mandab Strait off Yemen. This accounts for 12% of global oil tanker traffic.

The world is still hoping for a swift resolution to the crisis in the Middle East, as a prolonged conflict would be very painful indeed.

What have we been watching?

Another nervous start to the week for markets as events in the Gulf risk escalating further. Has Trump bitten off more than he can chew? Last week, all four central banks – the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan – kept interest rates on hold and markets sat on their hands watching developments in the Gulf. However, market expectations have rapidly shifted from anticipating interest rate cuts from some of the central banks to fearing the possibility of interest rate hikes.  

Market sentiment improved late last week as Trump said he was considering ‘winding down’ military operations and suggested that responsibility for policing the Strait of Hormuz would be transferred to other countries. However, over the weekend, Trump posted on Truth Social that Iran must ‘fully open, without threat, the Strait of Hormuz within 48 hours from this exact point in time.’ He warned that failure to do so would result in the US ‘hitting and obliterating’ Iran’s power plants. Iran responded by saying it would not only close the Strait of Hormuz but also target ‘all energy, information technology and desalination infrastructure belonging to the US and the Israeli regime in the region.’

Increased risk aversion has seen global government bond yields rise. The US 10-year Treasury yield climbed above 4.38% at the end of last week and has nudged higher this morning. The last time that the US Treasury yield hit this level was following Trump’s Liberation Day tariff announcement and the Greenland spat. On both occasions Trump did blink, so if the US Treasury yield becomes entrenched around these levels will it influence Trump’s actions in the Gulf and influence the length of the conflict with Iran? As we write Trump has just posted on Truth Social saying that following ‘good and productive conversations regarding a complete and total resolution of hostilities’ that he has ‘instructed the Department of War to postpone any and all military strikes against Iranian power plants and energy infrastructure for a five- day period.’  

Iran’s Foreign Ministry has subsequently issued a statement saying ‘We deny what President Donald Trump said regarding negotiations taking place between the US and Iran.

In the UK, PM Sir Keir Starmer is holding a ‘Cobra’ emergency meeting to discuss the cost-of-living crisis and the rise in energy prices. Energy consultancy Cornwall Insights has forecast that a typical annual household energy bill in the UK could go up by 20% in July. Clearly this would not be good for the economy or the inflation outlook. Markets have already moved in a little under three weeks from expecting two interest rate cuts of 0.25% in 2026 by the Bank of England to over 0.75% of rate hikes! Equally bad news for Chancellor Rachel Reeves is that the conflict in the Gulf has pushed government bond yields higher. The UK 10-year Treasury yield climbed to almost 5% last week, the highest level since 2008!            

Brent oil opened above $113 this morning following Trump’s comments over the weekend but has fallen 12% to $98 following his latest post to halt attacks on Iran for a five-day period.

Finally, as part of an anti-counterfeiting move and following public consultations, the Bank of England intends to depict British wildlife on its next set of £5, £10, £20 and £50 notes. This has already sparked a backlash from some politicians, with Reform’s Nigel Farage calling the decision to replace Sir Winston Churchill with a picture of a beaver ‘absolutely crackers’. However, will the Bank of England take note?

The post Creating a bit of a stink first appeared on Alpha Portfolio Management.

The conflict in the Gulf has left markets attempting to assess which countries are likely to face the biggest economic shock.

It appears that Europe and Asia will suffer a bigger blow than the US, which will be partly cushioned by its large domestic energy sector, it being the world’s largest oil producer. By contrast, Europe and Asia are reliant on energy imports, particularly gas.

Oil and gas prices have spiked on fears that the Strait of Hormuz will remain closed to ‘unfriendly’ tankers and that Iran will continue its attacks on the production facilities of neighbouring Gulf states. Higher commodity prices, if sustained, will drive up inflation, curb household spending power and weaken economic growth in countries across the world. Central banks may be forced to end their interest rate-cutting cycle or even tighten monetary policy. Some governments may also face extra fiscal strain if they seek to insulate households from higher energy bills.

Some analysts are now forecasting that the UK could see inflation hit 3%-4% by the end of 2026, compared with previous forecasts of 2%. Likewise, Eurozone inflation could increase by more than 0.5%. Not surprisingly, UK gilt yields have risen because of the uncertainty, which is bad news for the Chancellor trying to balance the books.

By contrast, US inflation may only rise by 0.2%. This is because over the last 20 years, the US has been transformed into the biggest producer of oil and gas in the world due to the shale revolution. This will partially shield US consumers, whereas European and Asian gas prices have spiked. In the US, the gas price has only inched up. A lack of export capacity will limit American producers’ ability to export gas and so keep a lid on US gas prices. However, US consumers will not be so protected in oil, where the market is more global. The oil price surge and higher US gasoline prices pose a risk for Trump and threaten to exacerbate the US affordability crisis ahead of the mid-term elections.

In Asia, China, India, Japan and South Korea are all big importers of oil and gas. China imports approaching 75% of its crude oil consumption from the Gulf and via the Strait of Hormuz and, despite sanctions, purchases 90% of all Iran’s oil exports.

Everything depends on the length of conflict in the Gulf and whether the US is able to either end Iran’s ability to attack neighbouring Gulf state oil facilities or make the Strait of Hormuz secure for oil and gas tankers. Markets still fear a prolonged conflict might push Brent oil back above the previous peaks seen in 2008 and 2022.

Meanwhile, Russia looks to be a big winner, having been given the chance to tighten its grip on the energy market at the expense of Gulf states that are unable to export their oil. A temporary relaxation of US oil sanctions is making Russia $150m a day in extra revenue from its oil sales. This is not good news for Ukraine or NATO.

The UK has North Sea oil and gas reserves, but on which topic PM Sir Keir Starmer has been strangely quiet. Perhaps he is looking over his shoulder at another of his leadership rivals, Ed Miliband, who continues to sing the praises of renewable energy?

What have we been watching?

Events in the Middle East continue to overshadow risk assets and as we write this morning, market turmoil is showing no sign of easing. At one point, Brent crude prices were up another 2% to $105, building on their rise of over 40% during the past two weeks. European gas prices were up 4% early this morning and are now up 74% over the past month. 

The latest rise in Brent oil comes despite the release of a record amount of oil from the IEA strategic oil reserve. Up to 400m barrels of oil are to be released, which would be equivalent to between 20 and 25 days of lost oil production from the Gulf states. The latest spike follows US bombing raids on Iran’s Kharg Island, which is particularly significant because 90% of Iran’s crude oil exports are shipped from there. Trump said he had chosen not to destroy Kharg Island’s oil infrastructure but said he would consider it if Iran interfered with the passage of ships through the Strait of Hormuz. Meanwhile, Iran has continued to carry out missile and drone strikes on the oil and gas infrastructure of neighbouring Gulf states. Iran’s foreign affairs minister apologised to fellow Gulf states but was subsequently slapped down for doing so by members of Iran’s Revolutionary Guard.

The conflict in the Gulf now seems to be shifting to how the US opens the Strait of Hormuz with no vessels appearing to pass through it over the weekend. Trump is trying to co-ordinate an international response, although there appears to have been a mixed response so far. He has warned NATO it faces a ‘very bad future’ if it fails to assist and has said he could delay a summit with China’s Xi Jinping if China does not help unblock the Strait. Trump is also reported to have dispatched a US Marine expeditionary force to the Gulf, raising the prospect of some land-based attack.

Meanwhile, diplomatic efforts to end the conflict do not sound encouraging. Over the weekend, Trump said, ‘Iran wants to make a deal, and I don’t want to make it because the terms aren’t good enough yet.’ However, Iran’s foreign minister said, ‘We don’t see any reason why we should talk with Americans.’ Nevertheless, India’s foreign minister suggested that diplomacy may be one way to partially open the Strait of Hormuz. This followed news that Iran had agreed to allow two Indian-flagged gas tankers to pass through the Strait.

Aside from the conflict in the Gulf, markets will this week be watching central banks, with the Federal Reserve, European Central Bank, Bank of Japan and Bank of England all due to hold meetings. All of them have a very complex backdrop to deal with shaped by geopolitical risk, volatile energy prices and unclear inflation dynamics.

Finally, in a gold rush, always invest in picks and shovels! US private capital giant KKR is targeting a ten-fold return on a potential multibillion-dollar sale of a company that provides cooling equipment for datacentres. Nearly 3,000 datacentres are under construction or planned in the US, adding to the 4,000 existing sites. Cool IT Systems was set up in 2001 to produce cooling systems for gaming computers but then used this technology to support AI infrastructure. What a cool idea!

The post Dire Straits of America first appeared on Alpha Portfolio Management.

Are the knives out for PM Sir Keir Starmer?

On a weekend of heightened global geopolitical tensions, closer to home, political risk is on the rise.

Whilst domestic politics has been somewhat overshadowed by events in the Gulf, PM Sir Keir Starmer has recently been forced into making yet another embarrassing U-turn, this time on the delay to local council elections in May. The government was forced to cave in ahead of an imminent legal challenge from Reform UK.

Last week Labour lost the ‘safe seat’ of Gorton and Denton in a by-election. The decision by the Labour Party NEC to block Andy Burnham standing and the renewed scandal surrounding Peter Mandelson following a further release of Epstein files appear to have fatally weakened Starmer’s standing with MPs, the broader Labour Party and ultimately voters. When confidence is lost, it is hard to get it back and he may not survive the loss in the Gorton and Denton by-election followed by a poor showing in the May local elections.

Betting markets now price in over a 70% chance that he does not survive 2026 as PM!

If the party loses faith in Starmer, markets will have to consider the alternative candidates, including Wes Streeting, Angela Rayner, Andy Burnham and Ed Miliband, the majority of whom are more left-leaning. This might be a worse outcome for the UK economy and stock market. However, a new PM would find their room for manoeuvre constrained by having to stick largely to the manifesto that the party was elected on and, more importantly, by the steadying hand of the bond market.

While there is nothing to stop a new Labour PM coming back for more tax rises, this would not sit well with the UK electorate.

So, recent tax increases together with the constraints of the bond market may prevent a ‘worse case’ scenario for investors from a shift to the left. However, if there were to be a protracted leadership contest, then it would likely weigh on consumer, business and domestic market sentiment in the short term. Markets hate uncertainty, but politicians should have learnt lessons from PM Liz Truss and that ultimately bond markets tend to emerge as the winner.

Meanwhile, is the Gorton and Denton by-election also the nail in the coffin of Britain’s traditional two-party political system?

What have we been watching?

2026 is only two months old, yet more mayhem as markets have to contend with the latest crisis in the Middle East.

Markets generally had a strong February, and the FTSE 100 hit a record high, as did Japan ‘s NIKKEI index, although US equities edged lower on AI worries, concerns about the US regional banking system and the US Supreme Court striking down Trump’s IEEPA tariffs. Things have now been thrown up in the air by the US and Israeli airstrikes on Iran over the weekend and the killing of Iran’s Supreme Leader Ali Khamenei. Reflecting the uncertainty, gold hit a record high, government bond yields initially moved lower, while defence contractors and oil producers rose in value.

Trump has said that the US could keep up its campaign against Iran for ‘four to five weeks’ but said he is open to lifting sanctions against the country if its new leadership were pragmatic. However, the current message from Iran is that it will not negotiate with the US. Meanwhile, with US military fatalities, how will this sit with US voters ahead of the mid-term elections? What message will this also send to Putin over Ukraine and China regarding Taiwan? The world remains a dangerous place!

Oil prices have leapt this morning with Brent oil up 10% to $80. The Strait of Hormuz has been effectively closed by Iranian strikes on oil tankers. About 20% of the world’s oil supplies are shipped through the Strait of Hormuz and with shipping piling up on either side, traders have been scrambling for supplies of crude oil. OPEC+ has agreed to boost output by 206,000 barrels of oil a day, but the majority of this still needs to be shipped through the Gulf.

Of equal concern to markets is the disruption to LNG supplies. A halt in gas supplies through the Strait of Hormuz could be comparable in scale to the curtailment of Russian gas supplies to Europe. Both Asia and Europe are the main consumers of LNG. Airlines and energy-intensive industries have seen large share price falls this morning. Markets have no clear view yet of how long and how successful the US and Israeli air campaign against Iran will be and whether it will succeed in achieving regime change. How effective will it be in destroying Iran’s nuclear, ballistic missile and drone manufacturing capacity? Tourism-related sectors have also seen share price falls this morning as Iran continues to target neighbouring countries in the Gulf.

While the world is not as exposed to oil prices as in the 1970s, it is more dependent on LNG. Central banks will be wary of the impact of higher energy prices for the global inflation outlook should the Middle East conflict prove to be prolonged. UK and European gas prices have leapt over 24% this morning. Readers may recall that Ofgem lowered its April price cap by 7% for April following a mild winter, so how will events in the Middle East impact household energy bills beyond this?

Looking back at last week, which now feels like a long time ago, the main investment theme continued to be AI disruption. AI continues to overshadow markets, albeit this has been overtaken by events in the Middle East. Nonetheless, it remains a concern stoking irrational thinking in the US. For example, this was reflected in the now infamous memo from Citrini Research, which outlined a hypothetical scenario in which AI adoption drove the US unemployment rate into double digits by mid-2028! Meanwhile, AI chip giant Nvidia delivered quarterly earnings that once again failed to deliver the positive surprise that US investors have become accustomed to dragging down the Mag 7 and NASDAQ index.

Finally, talking of politics, UK youth unemployment recently rose above 16%. Almost 1 million youngsters aged between 16 and 24 are either not in education, employment or training.  A very sad statistic and not great for the UK economy. It’s also a hot potato for politicians!

The post Leaning to the left first appeared on Alpha Portfolio Management.

You can always rely on politicians to throw a spanner in the works.

Trump’s radical reversal of America’s climate policy has forced car manufacturers to make a U-turn away from EVs (electric vehicles). The cancellation of EV credits in the US and Trump’s determination to further roll back regulations to cut vehicle emissions have led carmakers to lower EV sales expectations to just 5% of new US car sales – about half the current level. 

At the same time, Western companies are facing increased competition from Chinese rivals such as BYD. China’s BYD moved ahead of Tesla last year in sales of EVs. However, BYD is now having to check in the rear-view mirror at a lesser-known domestic rival, Leapmotor, which is producing no-frills, low-cost EVs that are proving a hit with Chinese consumers. Ominously, Leapmotor is following BYD’s lead and is now turning to international markets with ambitions to sell 4 million cars globally. Last year it produced 600,000 cars, double that of 2024, which was four times higher than in 2023.

The reversal in EV ambitions is estimated to have resulted in a hit of at least $65bn for the western car industry last year alone. Stellantis, the owner of Peugeot and Fiat recently took a $26bn charge to scrap some EV models. Ford took a $19.5bn write-down as it cancelled its electric F-150 pickup truck while General Motors has taken a $6.7bn hit. Meanwhile, Honda has warned it is reassessing its EV strategy and has ended its EV partnership with General Motors in the US. Even EV star Tesla has suffered a significant fall in sales due to competition from China but possibly also due to a backlash against Elon Musk’s politics.

The shortcoming of Western carmakers has possibly been their failure to offer EVs that meet drivers’ price and range expectations, while investment in charging infrastructure has also been lacking. Some will no doubt be alarmed by Leapmotor’s no-frill EV offering. Stellantis has entered into partnership with Leapmotor in Europe. Will this prove to be a complementary EV offering within the Stellantis range, or could it lead to cannibalisation with customers potentially switching their cars to the Chinese brand?

The structural see-saw underway in the global car industry should be alarming for politicians, as it remains a very important part of the manufacturing sector and a substantial employer in many economies.

What have we been watching?

The US Supreme Court threw a spanner in Trump’s tariff strategy which, once again, leaves markets facing major uncertainties! Meanwhile, markets moved on from AI worries to fears about events in the Middle East. Despite this uncertainty, the equal-weighted S&P 500 index (which adjusts for the US mega-tech companies) hit a record high, as did European equities including the FTSE 100.    

The US Supreme Court ruled, by a 6-3 margin, that Trump’s use of IEEPA tariffs was unconstitutional. In the immediate aftermath, Trump had said he would pursue a 10% global tariff under Section 122 authority but over the weekend this increased to 15%. However, under Section 122 these tariffs can only remain in place for 150 days, so until the end of July, after which congressional approval would be required to extend them. The problem is that this would be just over three months before the US midterm elections and if a handful of Republicans in either chamber were reluctant to support these tariffs, which are in effect a consumer tax, then they would lapse. Would Trump then look to similar legal authorities such as Section 232 (national security) or Section 301 (unfair trade practices) to re-establish more durable tariffs? However, these would probably be narrower in scope and subject to legal challenge. In summary, nobody can really make sense of what is happening right now with growing uncertainty for America’s trading partners and how this will pan out, although it does feel as if the overall effective tariff rate will come down in 2026. Ironically, Brazil and China will be the big winners from Trump’s new 15% tariffs, while other countries he has in the past singled out for running huge surpluses with the US, such as Vietnam, Thailand and Malaysia, will also be better off. By comparison, American allies such as the UK, EU and Japan will be worse off.   

American military resources continue to build in the Middle East ahead of talks later this week between the US and Iran in Geneva. Trump is questioning why Iran has not yet ‘capitulated’ in the face of America’s military buildup according to US special envoy Steve Witkoff. American media suggest Trump is considering an initial targeted strike against Iran in the coming days, which could be followed by a larger attack if Iran does not give in to America’s nuclear demands.

In the UK, there was some good news for Chancellor Rachel Reeves as January tax receipts created a £30.4bn surplus. Meanwhile, UK unemployment climbed to 5.2% while youth unemployment reached 16.1%. However, the softness in the UK jobs market increased market hopes for further interest rate cuts by the Bank of England. The chances of a 0.25% interest rate cut in March increased to 79%.  

European markets were propelled to record highs by better than expected ‘flash’ PMI business activity data. The euro area composite PMI improved to 51.9 following three consecutive months of decline. Within the data, activity in Germany improved to 53.1 reflecting the fiscal stimulus package.

In the US, economic growth in the fourth quarter of 2025 was weaker than expected at 1.4%. Core PCE inflation was higher than expected in December. This has brought the annual rate of core PCE – the Federal Reserve’s (Fed) preferred measure of inflation – back up above 3% for the first time in ten months. As a result of this and concerns about America’s fiscal outlook given the US Supreme Court ruling on IEEPA tariffs, markets dialled back expectations for further interest rate cuts by the Fed in 2026.

Brent oil climbed above $71 as traders continued to study the US military build-up in the Middle East ahead of talks with Iran.

Finally, trouble brewing? Scottish craft beer company Brewdog, which was founded in 2007 has appointed AlixPartners to ‘support a structured and competitive process to evaluate the next phase of investment for the business.’ Last year, Brewdog lost £37m as it undertook a number of restructuring measures. Yet another sign, if one was needed, of just how tough it has been for the pub trade. Not good news either for those investors who participated in Brewdog’s earlier ‘Equity for Punks’ scheme. As Clint Eastwood, (Dirty Harry) said, ‘Do you feel lucky, Punk?’

The post A car-tastrophe first appeared on Alpha Portfolio Management.

Despite markets recently hitting all-time highs, concerns over the impact of artificial intelligence (AI) have sparked a sharp sell-off in computer software companies and data providers. This has been driven in part by the launch of new AI tools.

As a result of US technology disruptor Anthropic launching the smart business tool, Claude, SaaS (Software-as-a-Service) providers were initially hit. However, this has subsequently extended to wealth management companies with the launch of an AI financial planning strategy product from Altruist. Price comparison site operators were also hit last week as Insurify launched an AI platform in the US to find better car insurance deals.

Meanwhile, markets are having to consider the vast sums that many of the biggest US tech companies are having to invest in building their AI capacity. While some of these are sitting on enormous cash piles, the skyrocketing investment in AI is seeing capital spending outstrip cash flow even amongst some of the most profitable businesses. Alphabet, Google’s parent company, Amazon and Facebook owner Meta all recently surprised investors with the scale of their AI investment.

For example, Amazon announced plans to invest $200bn in 2026 alone in expanding its AI capacity, including AI chips and datacentres. The worry is that some of the world’s most cash-generative businesses could start to see their cash piles plummet towards negative territory. Amazon’s cash flow is expected to be lower than its capital spending, according to some investment analysts, in 2026.

This suggests that management teams will have either to reduce share buyback programmes, use current cash reserves up or tap bond and equity markets to raise fresh funds to invest in AI. Those companies with existing long-term borrowing are likely to see debt increase. With some analysts forecasting over $660bn of AI investment in 2026, it looks as if the pace of bond issuance is very likely to increase.

Given the concerns about the scale of AI capital investment and the effect of disruptive AI tools on existing computer software business models, it is no surprise that global tech companies have experienced volatility in recent weeks. For now, the payback on this AI investment remains uncertain just as the precise impact of potential disruption from the new AI product offerings from Anthropic on existing business models remains unknown.

We know the world is undergoing a very rapid AI industrialisation and there remains much uncertainty that is creating extreme volatility. AI is expected to increase global GDP and labour productivity. Data-rich sectors with repetitive, pattern-based tasks are most likely to be disrupted. This includes information technology and software together with finance given the rise of robot-advisers and the automation of back-office roles like data processing. The fact that even property companies have seen share price falls would suggest markets fear AI leads to a vast number of job losses amongst white-collar workers almost overnight, leading to a collapse in demand for offices! Yet, if so, what would this mean for the global economy?

Many businesses are already building AI into their product offerings, but only time will tell who the real winners are.

For now, markets have adopted a ‘shoot first and ask questions later’ policy and all we know for certain is that markets hate uncertainty! It may take some time for the dust to settle from the AI explosion!

What have we been watching?

AI-mageddon! In just 14 days, markets are estimated to have wiped over $1 trillion of value from numerous companies on fears that AI (artificial intelligence) could fundamentally reshape existing business models and pressure profitability. This has hit a wide range of sectors, including software, IT consulting, legal services, wealth management, insurance, price comparison, logistics and commercial real estate. In the US, the S&P 500 index, the NASDAQ and the ‘Mag 7’ all ended the week lower. By comparison, European markets posted gains last week, albeit those companies perceived to be at risk from AI disruption saw sizeable share price falls.

Further to last week’s Alpha Bites – TACO, the House of Representatives voted to end US tariffs on Canada as six Republicans voted with the Democrats. However, the vote is largely symbolic, as it still needs to be approved by the Senate. Meanwhile, markets are still awaiting a ruling from the US Supreme Court on the validity of Trump’s IEEPA tariffs. Large numbers of companies are reported to have already put in claims to get the tariff monies back that they have incurred so far to be at the top of the queue if the Supreme Court rules against Trump. He will no doubt fight back should the ruling go against him. However, if the US administration had to return tariff funds, what would this mean for government finances and US Treasury yields?

The global economic tectonic plates continue to shift. Apparently, China’s regulators have called on Chinese banks to scale down their holdings of US Treasury bonds over increasing concerns over the safe-haven status of US debt given the policy changes under Trump. Gold has been one of the beneficiaries of China’s diversification away from US debt. Meanwhile, Beijing confirmed there are talks over a US presidential visit to China in April which has raised hopes that the current trade truce between the US and China might be extended for a further year.

In the UK, economic growth in the final quarter of 2025 was just 0.1%.  The economy flatlined as expected due to budget uncertainty, but December manufacturing and construction were weak. However, business activity in the service sector picked up in January with a PMI reading of 54.0, which provides some grounds for optimism.

In the US, while the AI scare dominated sentiment, there was a mass of economic data releases. Early last week, the data pointed to softer activity as December retail sales were flat and slower fourth quarter economic growth expectations from the Atlanta branch of the Federal Reserve (Fed) saw US Treasury yields move lower. However, the mood improved after a stronger than expected January jobs report, which reinforced confidence that the US economy has carried its solid momentum into 2026. January CPI inflation also came in below expectations, which raised market hopes for more interest rate cuts by the Fed by the end of the year.

In Japan, PM Sanae Takaichi highlighted a ‘responsible pro-active fiscal policy’ approach in addressing bond market concerns. Markets are questioning the PM’s plans to cut the sales tax on food for two years while ramping up spending on defence and strategic industries.

Brent oil was unchanged at $67 as America sent a second aircraft carrier strike group to the Middle East as negotiations with Iran continue. Trump said, ‘Either we make a deal, or we have to do something very tough. Like last time.’

Finally, it’s no laughing matter. Young Brits are using so much ‘laughing gas’ recreationally that explosions of small nitrous oxide containers are increasingly shutting down plants that convert waste to energy. Suez, which operates ten energy-from-waste facilities in the UK, had to deal with 7,000 such explosions last year which cost it about £4.9m in business interruption costs.

The post AI-mageddon! first appeared on Alpha Portfolio Management.