Prioritize Defense Amid Rising War!
Chart of the Week:
Inflation Expectations Rise, Central Bank Shifts to Cautious Monetary Easing
Inflation expectations in major economies have risen amid Middle East geopolitical tensions and higher oil prices. In the United States, the correlation between inflation expectations and the annual growth rate of oil prices has reached 0.75, highlighting oil’s direct impact. The Reserve Bank of Australia (RBA), noting that domestic output is near capacity limits and that service and housing costs remain elevated alongside rising fuel prices, raised its policy rate from 3.85% to 4.10% at its March meeting—marking a second consecutive hike. Markets expect further tightening in May, as oil price shocks may spill over into the real economy.
Major Recap 1:
Strait of Hormuz Partially Reopened, Oil Prices Surge and Markets Fluctuate
The Strait of Hormuz, through which 20% of global crude oil shipments pass, remains largely disrupted. Although Iran has allowed limited exports to countries such as China and India, the escalation of the U.S.–Israel–Iran conflict has intensified market volatility. Israel’s strike on Iran’s South Pars gas field—the world’s largest—sent international oil and gas prices soaring. In retaliation, Iran attacked energy facilities in Gulf states, with no signs of easing tensions.
Major Recap 2:
Reserve Bank of Australia Hikes Rates, Other Central Banks Turn Hawkish, Gold Slumps
The U.S.–Israel–Iran conflict continues, keeping Brent crude above USD 100 per barrel. Markets expect high oil prices to intensify inflation risks, prompting central banks to adopt hawkish stances. As anticipated, the Federal Reserve held rates steady at 3.5–3.75%. Key points included: (1)Chair Jerome Powell noted Middle East tensions add uncertainty to the U.S. economy, emphasizing that rate cuts will not occur unless inflation declines. (2)Growth and inflation forecasts were revised upward, with core PCE inflation for this year raised from 2.5% in December to 2.7%, reflecting productivity gains. (3)Fewer officials now expect a rate cut this year, with the dot plot showing one cut each in 2026 and 2027.Rate futures suggest the Fed will not resume easing until next year, while U.S. Treasury yields and the dollar strengthened. The Bank of England and the European Central Bank also kept rates unchanged, signaling future moves will depend on war developments and oil prices.
What’s Trending:
NVIDIA GTC Conference Highlights Sustained AI Demand, Hardware in Focus
NVIDIA’s GTC conference opened with SK Group Chairman Chey Tae‑won participating for the first time, emphasizing the importance of high‑bandwidth memory (HBM) in the AI supply chain. He noted that global memory shortages are expected to persist until 2030, as the industry struggles to keep pace with demand growth. Companies tied to memory, such as SK Hynix and Samsung, generate revenues exceeding USD 200 billion—comparable to the profitability of fabless chip design firms like NVIDIA, AMD, and Broadcom.
In Focus 1:
Geopolitical Risks Rise, Market Volatility Intensifies, Defensive Stocks Resist Turbulence
The joint U.S.–Israel strike on Iran has heightened Middle East tensions, with Iran blocking the Strait of Hormuz and driving international oil prices sharply higher. Global equity markets plunged, while the VIX fear index spiked to its highest level since April last year, when Trump announced reciprocal tariffs, underscoring persistent market anxiety. Rising oil prices fueled inflation expectations, pushing government bond yields higher. High‑valuation stocks such as technology names came under pressure as higher yields reduced the present value of future cash flows. Elevated rate expectations also weighed on assets like Treasuries and gold, diminishing their safe‑haven appeal and redirecting capital toward defensive or low‑volatility equities. Historically, when the VIX surges, defensive stocks tend to attract stronger investor demand relative to the broader market.
In Focus 2:
Telecom and Utilities Provide Stable Demand, Less Exposed to Inflation and Cyclical Risks
Telecom and utility sectors share several key characteristics: (1)Stable cash flows regulated by policy and contracts, ensuring long‑term revenue and profit resilience. (2)Defensive industry traits—when broad market earnings are revised down and capital gains become uncertain, their high dividend yields provide downside protection. The free cash flow yield of S&P telecom stocks is far higher than that of the S&P 500. In a global environment clouded by war and uncertainty, investors seek stable income and capital preservation, making telecom and utilities prime destinations for safe‑haven flows.
