American stocks keep hitting records. But the gains are increasingly the work of a few big technology companies, trading at some of the highest valuations in history, while most other shares go nowhere. That makes the market more fragile than the headline figures suggest. Last week brought two fresh tests of those few names, a tougher new chairman at the Federal Reserve and a flare-up in the Gulf. Investors bought anyway.

## MARKET RECAP: Hope Springs Eternal

A preliminary peace deal between America and Iran cheered investors last week, more than canceling out a surprisingly tough debut by the Federal Reserve’s new chairman, Kevin Warsh. The pattern is now familiar: since the lows of late March, good news has been celebrated and bad news waved away, and global share prices have climbed to one record after another even as the risks have piled up. That tension turned real as we went to press. Iran has reportedly closed the Strait of Hormuz, the narrow waterway through which about a fifth of the world’s seaborne oil passes, after accusing Israel of breaking the ceasefire, a claim Washington disputes. Two things stood out in the week’s trading.

**The rally is all about technology.** So far this year America’s tech-heavy Nasdaq index has risen 14.1 percent, almost twice the 7.3 percent of the older-economy Dow Jones and well ahead of the broad S&P 500’s 9.6 percent. Yet beneath that headline gain, 43 percent of the companies in the S&P 500 are actually down on the year. The index is being pulled up by a handful of giant firms. The story is the same abroad, where the tech-dominated markets of South Korea and Taiwan have jumped 115 percent and 60 percent. The worry is the price. One widely used measure compares share prices with company profits averaged over ten years and adjusted for inflation, to smooth out the swings of the economy. It now stands at 41.3. The only time it has been higher was 44.2 in December 1999, just before the dot-com crash. Its long-run average is 17.4.

**The new Fed is saying less.** Mr Warsh’s first policy statement ran to just 132 words, less than half the usual length. The brevity looks deliberate, and it works: a shorter statement makes the main point harder to miss. Last week that point was the final sentence, “The Committee will deliver price stability,” about as clear a signal as a central bank gives that it is in no mood to cut interest rates. Fewer words may also mean fewer mistakes, since an odd decision that does not match what is happening in the economy is easier to spot. The exception is a genuine crisis, when staying quiet costs confidence rather than saving it.

**Key Takeaways**

- The US-Iran deal removes some of the near-term threat to the world economy, for now.

- Geopolitics is the weak point. A lasting global recovery is hard to build while the Gulf can erupt without warning.

- Share prices are high and interest rates are higher than markets would like, which leaves little room for disappointment.

**Stocks.** The prospect of a quick end to the standoff in the Gulf did most of the work. In a holiday-shortened week America’s S&P 500 rose 0.9 percent and the Nasdaq 2.6 percent. Asia led the way, with South Korea up 11.4 percent, and most European markets gained 2 to 3 percent.

**Bonds.** The Fed’s tougher tone hit short-term government bonds hardest, since their value depends most on the next few interest-rate decisions. The interest rate on a two-year US government bond rose to 4.18 percent, while the rate on a thirty-year bond slipped to 4.90 percent, having topped 5 percent only days earlier. (When the interest rate on a bond rises, the bond itself is worth less to anyone already holding it.) Borrowing costs also rose in Britain and the euro area. The exception was Brazil, where the rate to borrow for ten years jumped to 14.8 percent after its central bank cut rates even as the inflation outlook worsened.

**Currencies.** The dollar rose as nervous investors looked for somewhere safe, helped by the prospect of higher American interest rates. The most striking move was the Japanese yen, which weakened to 161.30 to the dollar even after the Bank of Japan raised interest rates, prompting fresh talk of government action to prop it up. The Indian rupee went the other way, firming on hopes the Strait would soon reopen, though it remains one of the year’s weakest currencies.

**Commodities and alternatives.** Anything that pays its owner nothing to hold had another poor week, squeezed by the peace deal and the strong dollar. Brent crude oil fell almost 8 percent, a second weekly drop in a row. Precious metals fell across the board, wiping out their gains for the year; gold, at $4,156 an ounce, is now 23 percent below the record it set in late January. Bitcoin stayed weak at around $63,000, less than half the $126,200 it reached last October.

## LOOKING AHEAD THIS WEEK

**Inflation, again.** The week’s most important number is the Fed’s favorite measure of inflation, known as core PCE, due on Thursday. Prices are expected to have risen enough in May to push the annual rate to 3.4 percent, the highest in two and a half years and an uncomfortable figure for a central bank that has just promised price stability. Surveys of business activity in America and the euro area on Tuesday, and in Japan on Monday, should show the economy still growing, if slowly. And Taiwan’s export orders on Tuesday, a good gauge of demand for technology, are expected to have jumped 49 percent on the year.

**Central banks drifting apart.** Mexico’s central bank is expected to hold rates at 6.50 percent on Thursday, ending the run of cuts it began in March 2024. Thailand should also keep rates steady, at 1.00 percent, on Wednesday. Hungary, going the other way, is likely to trim its rate to 6.00 percent on Thursday. The theme keeps recurring: the world’s central banks no longer move in step, and the gaps between them are where the opportunities in currencies open up.

**The Strait is the wild card.** The calm in markets assumes the trouble in the Gulf will be short-lived. If the Strait of Hormuz stays closed, oil prices will not stay down, and the inflation problem already worrying the Fed will get harder to solve. It is the clearest risk, in either direction, this week.

## HEARD THROUGH THE GRAPEVINE

**The Fed finds its voice by losing its words.** A 132-word statement is a small change with a big message. For years central bankers tried to guide markets with ever more language, until the guidance itself became something to worry about. The new approach bets that fewer words, clearly meant, are harder to misread. “The Committee will deliver price stability” does not leave much room for the hopeful reading investors tend to prefer. Last week they were still deciding whether to believe it.

**Oil’s calm faces a test.** For most of last week crude fell, as the US-Iran peace deal raised hopes that the Strait of Hormuz would soon reopen and the war’s supply shock would fade. Then, just as we went to press, Iran announced a fresh closure of the Strait, the most important bottleneck in the oil trade, a move Washington disputes. Markets have not yet had their say; the first real test comes when trading resumes. If investors treat the closure as a bargaining chip that will soon be reversed, the calm holds. If they do not, the cost shows up quickly, first at the pump and later in the inflation figures.

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*Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.*

**Sources:** Bloomberg; Federal Reserve (June FOMC statement); US Bureau of Economic Analysis (PCE); S&P Global and Institute for Supply Management business surveys; Bank of Japan; Banco de México; Bank of Thailand; Magyar Nemzeti Bank; Reserve Bank of India; Robert J. Shiller, Yale University (cyclically adjusted price-earnings data); Taiwan Ministry of Economic Affairs; Reuters; Financial Times; The Wall Street Journal; CNBC; John T. McCutcheon, “Taken for a Ride,” Chicago Tribune, 1929 (public domain).

*Copyright © 2026 CrossLight Global. All rights reserved.*

Some weeks the market argues over a tenth of a percent. This week it argued over war and peace. On Tuesday the White House promised new strikes on Iran and stocks sank. By Wednesday the Dow had shed 900 points in a day, and the morning’s inflation report showed consumer prices rising at their fastest pace in three years. Then the script flipped. Word spread that a peace deal was close, oil gave back its panic premium, and a market that began the week bracing for escalation ended it cheering the largest stock offering in history. Hold that sequence in mind as you read on, because it explains nearly everything below.

## Market Recap: Whiplash, Then Liftoff

Here is the week in order. Tuesday and Wednesday belonged to the war. Fresh threats against Iran’s oil facilities, including the Kharg Island terminal that ships most of the country’s crude, sent stocks down hard and pushed oil above $90 a barrel. Wednesday also brought the inflation report we flagged last week, and it crossed the line we expected: consumer prices were 4.2% higher than a year ago, the first reading above 4% in three years.

The detail mattered more than the headline. Energy alone accounted for more than sixty percent of the month’s increase. Strip out food and energy, which jump around the most, and the underlying rate was a much calmer 2.9%. In plain terms, this looks like a gasoline problem, not an everything problem, at least for now.

Thursday turned the week around. News that Washington and Tehran were close to a deal sent stocks surging, with the Dow up 930 points, almost exactly reversing the previous day’s drop. That same morning brought a second hot inflation number, this one measuring prices charged between businesses before they reach store shelves, and it ran at its fastest since late 2022. Markets shrugged it off, and the logic, if cold, holds up: if peace reopens the oil taps, the inflation everyone fears starts to fade on its own.

Friday delivered the finale. SpaceX began trading in the largest stock-market debut in history and jumped 19% on its first day, a striking show of nerve in a week that opened with a war scare. The mood lifted elsewhere too. Consumer confidence rose off its record low as gasoline prices eased, and the European Central Bank raised interest rates for the first time this cycle, a small step that nudges Europe further away from the cheap money of the past decade.

### Key Takeaways

- **The war premium came and went.** After a 900-point Wednesday drop and a 930-point Thursday recovery, stocks finished the week modestly higher on hopes of a signed peace deal.

- **Inflation is now two stories.** Headline prices rose 4.2%, a three-year high driven by energy, while core inflation stayed at a tame 2.9%. The new Fed chair’s first meeting on Wednesday is largely a referendum on which number to believe.

- **SpaceX answered last week’s question.** A 19% first-day gain in the middle of a war scare says the appetite for a great story is very much alive.

**Stocks.** SpaceX was the week. The rocket maker pulled off the largest stock-market debut in history, raising about $75 billion, and the shares jumped 19% on the first day to close at $161.11. That kind of welcome, in a week that began with a war scare, tells you the appetite for a great story is alive and well. The broad market was quieter than the headlines suggested: the S&P 500, the Nasdaq, and the Dow each ended up less than 1%, calm final numbers that hide a violent ride in between.

**Bonds.** The interest rate the US government pays to borrow for ten years eased to about 4.5%, down slightly from the week before as hopes of peace took hold. Read that closely, because it is the bond market’s verdict: even after a hot inflation report, lenders decided that peace, and the cheaper oil that comes with it, matters more for next year’s prices than this month’s number. The government’s regular debt auctions, the test of nerve we flagged last week, went off smoothly. Investors still expect the Fed’s next move to be a rate increase, most likely by December.

**Currencies.** The euro rose after the European Central Bank lifted rates. The Japanese yen, the subject of last week’s focus theme, stayed pinned near 160 to the dollar ahead of Tuesday’s Bank of Japan meeting, where a rate increase is widely expected. The dollar, which had climbed early in the week as nervous investors sought safety, gave up that ground on Thursday as the mood improved.

**Commodities and crypto.** Oil made a round trip: up toward the mid-$90s when the threats to Iran’s facilities landed, then back down by Friday as peace talk firmed, a swing that drove much of the week’s drama. Gold, which investors buy when they want a store of value in uncertain times, did its job, climbing to $4,215 an ounce even as stocks lurched and oil fell. Bitcoin steadied above $60,000, the level it had tumbled to in the prior week’s selloff.

## Looking Ahead This Week

**The peace deal watch.** The biggest story this week may be one that isn’t on any calendar: whether Washington and Tehran actually sign. A deal reopens the Strait of Hormuz and pulls oil, and the whole inflation outlook, lower. A collapse sends both the other way. Watch the oil price; it is the market’s live scoreboard on the odds.

**A new hand at the Fed.** The Federal Reserve meets Tuesday and Wednesday, and for the first time since 2018 a new chair runs the room: Kevin Warsh, at his first meeting. No rate change is expected, but the rest is wide open. With headline inflation at 4.2% and core at a tame 2.9%, the meeting is really an argument over which number to believe, and markets will weigh every word for how fast Warsh would move if the energy spike spreads.

**Japan’s turn.** On Tuesday, the Bank of Japan is expected to lift its rate to 1%, the highest in thirty years and the next step in the slow exit we described last week. The hike is a foregone conclusion; the real question for the yen, still stuck at 160, is whether the bank hints that more will follow. Call it the first test of the case we made for the currency.

**The consumer checks in.** Tuesday’s retail sales report will show whether costlier gasoline is crowding out other spending, the channel through which an oil shock becomes an everything shock. A short week: US markets close Friday for Juneteenth.

## Focus Theme: The Quiet Giant

Most Americans already understand bonds better than they think. A mortgage is a bond seen from the borrower’s seat: a bank lent you a large sum, and every month you send back interest plus a sliver of principal, on a schedule fixed years in advance. Investing in fixed income is simply the same arrangement seen from the opposite seat. Now you are the lender. The payments flow toward you, and when the loan runs its course, your money comes home.

Few people appreciate the scale of this market. The world’s stock markets, the ones that fill the evening news, are worth about $127 trillion. The bond markets are worth about $145 trillion. The largest market on earth is the quiet one, and it finances the noisy one.

So who owes $145 trillion? Start at home. America accounts for roughly 40 percent of the total, and the largest share belongs to Washington: more than $30 trillion in Treasury bonds, issued to cover what taxes do not. American mortgages come next, about $12.5 trillion of home loans bundled into bonds and sold to investors. Your own monthly payment is quite possibly in there, funding a pension somewhere. American companies owe another $11.5 trillion, and roughly $1.5 trillion of that is high yield, the market’s polite term for riskier borrowers who pay extra for the privilege. States, cities, and school districts have borrowed about $4 trillion through municipal bonds, often free of federal tax, to build the roads and water systems beneath your feet. Add it up and America owes close to $58 trillion. The rest of the world owes the other $87 trillion, and there, as in America, governments are the biggest borrowers. Step back from bonds to all the money governments owe, loans included, and public debt worldwide tops $110 trillion, nearly all of it with the G20, and America and China owe about half between them. Fastest-growing of all is the emerging world, where governments and companies together now owe close to $40 trillion. The heaviest borrowing is seen in countries such as Brazil, India, and Indonesia, whose bonds regularly appear in these pages.

Every lender asks the same question: will I get my money back? When the borrower is you, the answer arrives as a credit score, the three-digit number between 300 and 850 that decides what your mortgage costs. When the borrower is a company or a country, it arrives as a credit rating, a letter grade running from AAA down to D, handed out by agencies named Moody’s, S&P, and Fitch. Same machine, different alphabet. A homebuyer with a 780 score gets a better rate than her neighbor with a 620 score, and the logic carries straight up the food chain to Microsoft and Brazil. The grade is the market’s shorthand for how much doubt is in the room. The interest rate is the price of that doubt.

Watch the price climb as the doubt grows. The US Treasury, with the taxing power of the world’s largest economy behind it, pays about 4.5% to borrow for ten years, less than any other large borrower. Microsoft and Johnson & Johnson, the only two American companies still rated AAA (a grade Washington itself no longer holds), pay only a sliver more. A solid but unspectacular BBB company, at the bottom rung of what the market calls investment grade, pays about a point above the government. A high-yield borrower pays three points more, sometimes much more. And Brazil, whose finances we touched on last week, must offer nearly 15% to borrow in its own currency for a decade. That extra interest exists for one reason: it pays the lender for the added chance that something goes wrong. The bond market offers no free lunch.

The 10-year Treasury now pays about 4.5%. Treat that number as a hurdle, because every other investment you own is competing against it whether you asked it to or not. A stock has to beat 4.5% a year to justify the swings that come with owning it, and it makes no promise that it will. So ask the question plainly: of the stocks in your portfolio, how many are you confident will return more than 4.5% a year, every year, for the next ten? The government will put its 4.5% in writing.

That is the honest case for owning both. Bonds and stocks do different jobs. A stock is an ownership share of a business’s future, and its price swings with every change in the public mood. A bond is a promise with math you can check: this much interest, on these dates, money back at the end. That does not make bonds riskless. The past two weeks proved otherwise, as rising rates marked down the price of existing bonds across the board (rates and bond prices move in opposite directions). But a lender’s losses tend to run shallower than an owner’s, and the income keeps arriving whether the market is cheerful or not.

If you are still working and saving, that steadiness is ballast. An allocation to bonds will not make your 401(k) statement exciting. That is by design. The cushion it provides in the years when stocks fall is what lets you stay invested through them, and staying invested is where most of the long-run return gets earned. We have spent our careers in this market, and the investors we worry about are never the ones who own too many bonds. They are the ones who sell everything in a panic, and a panic does more damage to a retirement than any bear market ever has.

When the working years end, the job changes. A retiree no longer asks her portfolio to grow at all costs. She asks it to send money. A portion of savings shifted into bonds becomes something close to a paycheck: semi-regular payments that cover the groceries and the property taxes without forcing her to sell shares at whatever price the market happens to be offering that month.

None of this is sophisticated, and we mean that as a compliment. Fixed income is the part of investing that behaves most like the rest of your financial life. You have been making these payments for years. At some point, the plan is to start receiving them.

So here is the homework. We are not telling anyone to put 80 percent of their savings in bonds; yields today are fair rather than extraordinary, and the right mix depends on your circumstances and on how well you sleep when markets fall. But most managers we respect agree that stock valuations are stretched, and after the run equities have had, plenty of 401(k)s now hold far more stock and far less fixed income than their owners ever actually chose. Nobody decided that allocation. It built itself, one good year for stocks at a time. Pull up your statement this week and look at the split. If the number surprises you, that is a conversation worth having. You know where to find us.

## Heard Through the Grapevine

**A rocket answered.** Last week we wrote that the warmth of SpaceX’s welcome would say a lot about how much risk investors still have the stomach for. The answer arrived emphatically: up 19% on day one, amid a war scare, in the largest offering ever priced. Take the signal for what it is and no more. One spectacular debut proves the appetite for a great story survives higher rates. It does not prove that every story deserves the price it is asking. The hurdle we describe in this week’s focus theme did not move.

**A new conductor, same orchestra.** Kevin Warsh takes the chair at his first Fed meeting on Wednesday, the first change of leadership at the central bank in eight years. Chair transitions matter more than they should, because markets price not just policy but the person’s instincts, and Warsh arrives with a reputation for worrying about inflation. His opening act is a peculiar one: a 4.2% headline rate that argues for toughness and a 2.9% core rate that argues for patience, with a war that could resolve the difference either way before his second meeting. The polite phrase for this is a full plate.

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*Thank you for reading Crosslight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.*

*Sources: Bloomberg; US Bureau of Labor Statistics May CPI and PPI reports; University of Michigan Surveys of Consumers; Federal Reserve; European Central Bank; Bank of Japan; Japan Ministry of Finance; US Treasury auction schedule; SIFMA Capital Markets Fact Book and Research Quarterly; IMF Fiscal Monitor; Moody’s, S&P Global, and Fitch; Reuters; Financial Times; The Wall Street Journal; CNBC.*

*Copyright © 2026 Crosslight Global. All rights reserved.*

*A blockbuster jobs report sent stocks, bonds, gold, and Bitcoin falling together. Plus the contrarian case for the world’s cheapest safe haven, the Japanese yen.*

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A pilot will tell you the most unsettling moment in a flight is not the storm you can see building on the horizon. It is the air pocket on a clear day, the sudden drop when nothing on the instruments looked wrong. Markets hit one of those last Friday. The trigger was not a crisis or a scandal. It was good news. American employers added far more jobs in May than anyone expected, and a strong economy is supposed to be exactly what everyone wants. Last week it was what sent stocks, bonds, gold, and crypto tumbling together.

## MARKET RECAP: Hitting an Air Pocket

Here is how good news does that. The May jobs report showed employers added 172,000 workers, nearly double the 88,000 economists had penciled in. A strong job market gives the Federal Reserve little reason to cut interest rates and a fresh reason to raise them, and higher rates are the one thing this market cannot stand. The moment traders did the math, the interest rate the US government pays to borrow for ten years, the number that quietly sets the cost of mortgages, car loans, and company debt, jumped sharply in a single day. When borrowing gets more expensive that fast, everything bought with cheap money is suddenly worth less. The hardest hit were the things that pay their owners nothing to hold them: technology shares riding the promise of artificial intelligence, gold, and Bitcoin. Once a safe government bond starts paying you more, anything that pays you nothing looks worse by the hour.

The rest of the week told the same story. Two widely watched surveys of American business, one covering factories and one covering the service companies where most people work, both came in stronger than expected. A report from the Bipartisan Policy Center in Washington warned that the federal government will likely hit its $41.1 trillion borrowing limit sometime between late winter and the middle of 2027. And the standoff between the United States and Iran kept traders on edge about oil prices, and about whether inflation will fade or dig in. Put it together and the mood around the Fed flipped: investors now see a better than even chance of a rate increase as soon as October. A year that began with talk of rate cuts is now braced for the opposite.

**Key Takeaways**

- Good news turned into bad news. A strong jobs report convinced investors the Fed will not cut rates this year, and might raise them.

- When borrowing costs jump, the things that pay no income, technology shares, gold, and Bitcoin, fall together.

- This week’s government bond sales and the SpaceX market debut will show whether buyers are ready to step back in after the drop.

**Stocks.** The technology-heavy Nasdaq index fell almost 5% on the week, its worst stretch since the tariff shock of April 2025. The broader S&P 500 held up better, down 2.6%, helped by gains in energy and healthcare that offset the damage in tech. The worst performer abroad was Indonesia, where the main market dropped 8.7% to its lowest level since November 2020, as foreign investors pulled their money out and the country’s finances looked increasingly shaky.

**Bonds.** Government bonds had a rough week, and short-term ones fared worse than long-term ones. That is unusual, and it tells you the market is worried about the Fed’s next few moves rather than the distant future. The interest rate on the two-year US government bond, the one most sensitive to Fed decisions, rose to 4.15%, the highest in fifteen months. (When a bond’s interest rate goes up, the bond itself is worth less, so anyone already holding it loses money.) Developing economies fared worse still: the rates Brazil and South Africa must pay to borrow for ten years climbed to 14.9% and 8.9%.

**Currencies.** The US dollar rose as jittery investors looked for somewhere safe to park money, which is what usually happens in a nervous week. The currencies that move most with the global mood took the biggest hits, with the South Korean won and the New Zealand dollar each down more than 3%. The Japanese yen, despite repeated government efforts to prop it up, stayed stuck near 160 to the dollar, the subject of this week’s focus theme. The one winner was the Indian rupee, which held its ground after India’s central bank opened its bond market a little wider to foreign money.

**Commodities and crypto.** A brutal week for anything that pays no income while you hold it. Brent crude oil edged up about 1% after the previous week’s slide, but it was a lonely gain. Precious metals were hammered by the stronger dollar and the prospect of higher rates: silver fell nearly 10%, and gold dropped 4.7%, wiping out almost all of its gains for the year. Bitcoin was the biggest casualty, down 14% to just above $60,000, less than half the record $126,200 it hit only eight months ago.

## LOOKING AHEAD THIS WEEK

**The inflation tests.** Two American price reports will set the tone. On Wednesday, the cost of living is expected to come in more than 4% higher than a year ago, the first time it has crossed that line in three years, and an awkward number for a Fed already leaning toward higher rates. Thursday brings the prices businesses charge one another, which eventually flow through to store shelves and may reach a post-pandemic high. On Friday, the University of Michigan’s survey of how Americans feel about the economy is expected to tick up to 46.0 in June, a small bounce from May’s record low of 44.8 but still gloomy. The pattern to watch is the one that keeps repeating: prices up, mood down.

**What China is signaling.** China is expected to report on Tuesday that its trade surplus, the gap between what it sells abroad and what it buys, grew to a four-month high of $92.6 billion in May, with its own inflation figures due Wednesday. For an American investor, what matters is what these numbers say about global demand and the health of the supply chains that run through Asia.

**Central banks pulling apart.** The big event is Thursday’s European Central Bank meeting, where officials are expected to raise interest rates for the first time this cycle, a small step up to 2.25%. The same day, Turkey’s central bank is likely to leave its main rate at a steep 37%, though its unusual methods for defending its currency will draw fresh scrutiny. On Wednesday, Canada’s central bank is expected to hold steady while hinting it could tighten later. The thread we keep pulling holds: the world’s central banks no longer move together, and the daylight between them is where the opportunities in currencies tend to open up.

**The bond sales that matter.** After last week’s drop, the government’s regular sales of new debt, this time 3-, 10-, 20-, and 30-year bonds, turn into a genuine test of nerve. A weak showing would mean buyers are demanding higher interest to lend to Washington, which would push up borrowing costs for everyone. A strong one would settle things down.

**A rocket goes public.** SpaceX is expected to set its share price on Thursday and start trading Friday, one of the most anticipated stock-market debuts in years. It should join the Nasdaq-100 index within about two weeks, though it must trade for a full year before it can enter the S&P 500. In a nervous market, the warmth of its welcome will say a lot about how much risk investors still have the stomach for.

## FOCUS THEME: Yen for Strength

When fear sweeps through markets, the Japanese yen is supposed to rise. For decades it was the world’s reliable safe haven, the currency investors ran to when everything else looked dangerous. Last Friday, as global markets sold off, the yen did the opposite. It weakened, finishing the week near 160 to the dollar, roughly its lowest level in 34 years.

That reaction breaks an old rule. The rule held for a simple reason. For years, investors borrowed yen almost for free, thanks to Japan’s rock-bottom interest rates, and used the money to buy investments that paid more elsewhere. The move even had a name: the carry trade. When markets turned ugly, those investors had to sell what they owned and buy back yen to repay what they had borrowed, and the scramble to buy sent the yen shooting up. The clearest example came after the Tōhoku earthquake and tsunami in March 2011, when the yen jumped about 8% in the days after the disaster as money rushed home, even as Japan reeled.

So why is the safe-haven currency now stuck at a generational low? The answer is a tidy piece of economics with a name: the impossible trinity. In plain terms, a country can have two of three things, but never all three at once. It can hold its currency steady. It can let money move freely in and out across its borders. And it can set interest rates to suit its own economy. Pick any two, and the third has to give. Japan, which wants open borders for money and rock-bottom rates at home, has let its currency be the thing that gives.

For most of the past decade, that was a deliberate choice. Japan was fighting falling prices and carrying one of the largest government debt loads in the world, so keeping interest rates on the floor mattered more than a strong currency. To pull it off, the Bank of Japan reached for tools unusual enough to come with their own initials. It set interest rates at zero, then below zero, which meant banks were effectively charged to leave their money at the central bank. It also bought so many government bonds that it now owns close to half of all the debt Japan has ever issued. That spending spree did not come free. The bill shows up as a weak yen.

This is starting to change, but slowly. Since early 2024 the Bank of Japan has nudged its interest rate up four times, from below zero to 0.75%, and another small increase, to 1%, looks all but certain at its meeting on June 16. The problem is how far behind it remains. Even at 1%, Japan’s rate sits well below America’s 3.75% and Europe’s 2.25%. For comparison, the US Federal Reserve raised rates eleven times between 2022 and 2023, all the way to 5.50%, and Japan did not even start until eight months after the Fed had finished. And once you allow for Japan’s own inflation, lending money to the country still leaves you behind. As long as that gap stays this wide, money keeps draining out of yen and into currencies that pay more.

Tokyo is not sitting still. Between late April and late May, Japan’s finance ministry spent ¥11.7 trillion, about $73.5 billion, buying its own currency to slow the slide, the largest such effort on record. Since 2022 these rescues have cost more than $200 billion. The finance minister, Satsuki Katayama, has said the yen’s fair value is somewhere around 120 to 130 to the dollar, and the standard economic models agree the currency is far too cheap. Yet it keeps drifting back toward 160.

We see three reasons to favor the yen at today’s level. First, the government has made plain it will defend the 160 line, which makes this a lopsided bet: there is little room for the yen to fall much further, and real room for it to recover. Second, as Japan keeps raising rates while others eventually cut, the gap that has hurt the yen should slowly close. Third, Japanese companies are bringing profits and production back home, especially in industries tied to national security, a quiet but steady source of demand for the currency.

There is a price for all this. Japan’s foreign reserves fell by a record $77 billion in May. But with $1.3 trillion still on hand, Tokyo has plenty of room to keep playing this out on its own terms. For a patient investor, a currency this cheap, defended this firmly, by a country this able to defend it, is the kind of setup that usually rewards waiting.

## HEARD THROUGH THE GRAPEVINE

**The tide goes out on crypto.** Bitcoin’s 14% fall last week, to just above $60,000, is worth pausing on. Only eight months ago it traded at $126,200. Something that pays no dividend and no interest is worth exactly what the next person will pay for it, and that willingness dries up fast when a safe government bond suddenly pays more than 4% to do nothing. This is the same force, dressed up in louder clothing, that knocked gold and technology shares down last week. When money gets more expensive, the assets that promise the most and pay out the least are the first to crack. Crypto is just where you can watch it happen most clearly.

**A rocket the market can buy.** SpaceX’s stock-market debut this week will be a spectacle, and also a test. Most of the year’s hottest new listings arrived into rising markets that were hungry for a good story. This one shows up right after the worst week for stocks since last spring’s tariff scare. If investors pile in anyway, it tells us the appetite for a great story still beats caution. If the welcome is cool, it will be the clearest sign yet that higher interest rates are finally making investors pickier about what they will pay up for. Either way, a company famous for landing rockets will be telling us something about the ground.

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*Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.*

**Sources**

Bloomberg; US Bureau of Labor Statistics May employment report; Institute for Supply Management manufacturing and services surveys; Bipartisan Policy Center debt limit projection; Federal Reserve; Bank of Japan; European Central Bank; Bank of Canada; Central Bank of the Republic of Turkey; Reserve Bank of India; Japan Ministry of Finance intervention and foreign reserve data; University of Michigan Surveys of Consumers; China General Administration of Customs; Moody’s, S&P Global, and Fitch; Reuters; Financial Times; The Wall Street Journal; CNBC; National Gallery of Art (William Hogarth, “An Emblematical Print on the South Sea Scheme,” 1721; public domain).

*Copyright © 2026 CrossLight Global. All rights reserved.*

### KEY TAKEAWAYS

- Soaring asset prices alongside a rising cost of living point to a lopsided, K-shaped recovery

- A Middle East ceasefire may cheer markets, but the jump in prices it caused will linger…

- …leaving central banks far less room to cut rates and spur growth

### MARKET RECAP: May the Force Be with You

Risk assets rose for a second month running in May, carrying world markets to fresh highs. It is a lopsided rally. A handful of technology firms are doing the heavy lifting, even as household names such as Walmart and Whirlpool warn that their sales are sliding. And for all the on-again, off-again headlines about the Strait of Hormuz, investors are betting on a US-Iran peace deal: oil has slipped to a one-month low.

**Equities.** Shares climbed again as enthusiasm for technology drowned out the noise from the Gulf. North Asia set the pace, with South Korea up 28%, Taiwan 15% and Japan 13%, all riding their chipmakers. Closer to home, the tech-heavy NASDAQ (+8.4%) again left the broader S&P 500 (+5.2%) trailing – a reminder that, for now, a plain US index fund is largely a wager on a handful of technology names. The laggards had troubles of their own: Indonesia fell for a fifth straight month (-12%) as the index provider MSCI kept questioning the transparency of its market, while Brazil dropped 7.2% after a banking scandal caught up with the front-runner in October’s presidential election.

**Bonds.** Yields rose across the rich world – in plain terms, governments had to pay more to borrow. The number that matters most at home: the 30-year US Treasury yield finished the month at 4.97%, a post- pandemic high, and that feeds straight through to mortgage rates and corporate borrowing costs. Britain was the louder drama. Its 30-year gilt touched 5.85% in mid-May, the highest since 1998, as Sir Keir Starmer fought off challenges to his leadership, before cheaper oil pulled it back to 5.52% by month-end – still the steepest in the G7.

**Currencies.** The dollar firmed against the other big currencies as investors came round to the idea that the Fed’s next move is up, not down. The yen slipped 1.7% even after Tokyo spent a remarkable $73.6 billion between April 28 and May 27 trying to hold it up. The same taste for risk that lifted shares rewarded the racier currencies, led by the South African rand (+2.7%), the Hungarian forint (+2.4%) and the New Zealand dollar (+1.4%).

**Commodities.** A mixed month. Brent crude tumbled almost 20% as hopes of a US-Iran ceasefire revived – welcome relief for American drivers after a punishing spring at the pump. Silver did best of the precious metals, up 2%, though that still leaves it 35% below the record it set at the end of January. Gold found few buyers even as nerves steadied, slipping 1.7%.

### LOOKING AHEAD THIS MONTH

**Economic data.** America’s jobs report on Friday is the week’s main event; analysts expect hiring to have cooled to a three-month low of 89,000 in May. The ISM surveys of factory (Mon) and services (Wed) activity should hold roughly steady, pointing to a stable near-term outlook. In the euro zone, inflation (Tue) is thought to have edged up to 3.2% from a year earlier. In Asia, the activity surveys out of China, South Korea and Taiwan (Mon) are likely to stay healthy, while India’s first-quarter GDP (Fri) is forecast at a brisk 7.0%.

**Central bank watch.** The Reserve Bank of India will most likely keep its rate at 5.25% on Friday, while making clear it stands ready to act against rising inflation and a softer rupee. Poland’s central bank is expected to hold on Tuesday. The diary is thick with speeches, among them Bank of Japan Governor Kazuo Ueda (Wed), the ECB’s Christine Lagarde (Thurs) and a parade of Fed officials (Tue-Thurs).

**International trade.** Ahead of the July 1st review of the USMCA, North America’s trade pact, the first bilateral talks have begun, with America pressing for a rule that half of every car’s content be made in the US. China’s foreign minister, Wang Yi, paid a three-day visit to Canada, the latest effort to warm relations. And Washington has opened a third trade probe into Vietnam, this time over intellectual property.

### FOCUS THEME: Speed Bumps Ahead for the Global Economy

The gulf between booming markets and a flagging economy is a classic Dickensian contrast.

**”It was the best of times.”** After a wobble in March, global equities turned up again, driven by a seemingly insatiable appetite for technology and AI. America’s three big benchmarks – the S&P 500, the Dow and the NASDAQ – all ended May at record highs. South Korea’s KOSPI has risen an eye-watering 101% this year, though that owes much to two giants that tower over the index, Samsung Electronics (27%) and SK Hynix (25%). Nearby, Taiwan’s stockmarket, now worth $4.95 trillion, edged past India’s ($4.93 trillion) to become the world’s fifth largest. Its economy grew 14.6% in the first quarter, figures last week showed – the fastest since 1981, and a reminder of how thoroughly the island dominates the making of semiconductors.

**”It was the worst of times.”** Geopolitics and inflation, meanwhile, are making the global growth engine sputter. Canada has slipped into recession for the first time since the pandemic, its economy shrinking for a second straight quarter (by an annualized 0.1%). America is sturdier, though less than it first looked: first- quarter growth was revised down to an annualized 1.6%, from 2.0%. The Fed’s preferred inflation gauge, core PCE, rose 3.3% in the year to April – its quickest in two and a half years, and well above the 2% target. Consumer confidence, as measured by the University of Michigan, sank to 44.8, the lowest since the survey began in 1952. Whirlpool, which makes household appliances, warned of a “recession-level industry decline.” And the share of credit-card debt at least 90 days overdue hit 13.12% in March, a 15-year high. This K-shaped path leaves central banks with an awkward choice. Even if the Strait of Hormuz reopens, tangled supply chains will take time to clear, so tighter policy is needed to keep a lid on inflation. Yet easier policy – the obvious salve for a slowing real economy – sits uncomfortably beside asset prices that are already at record highs. For now the hawks have the louder voice. In the rich world, the central banks of Australia, the euro zone, Japan, New Zealand and Britain have all signaled a readiness to lean against inflation. Among emerging markets, Indonesia, the Philippines and South Africa have been raising rates since late March, and Turkey is expected to resume tightening in June. Even in Brazil, which has been cutting, a senior official insisted that “lowering rates does not mean” the bank has turned dovish – a hint that the easing is about to pause. Putting price stability ahead of growth points to speed bumps in the second half of the year. Nor can governments easily spend their way around them: debt loads are already too high almost everywhere. Oil importers are the most exposed, though snarled supply chains will pinch everyone. An outright recession is not impossible, but it looks unlikely – the wealth created by rising asset prices should cushion the blow. Step back, and a larger theme is coming into focus: the decades-long era of cheap money is ending. When borrowing was all but free – as it was ten years ago, when Japan and Europe ran negative rates – buying risky assets was easy money in itself. No longer. From here, returns will hinge far more on valuations, on how crowded a trade has become, and on the next surprise from policymakers. Both the Bank of Japan and the ECB have sharpened their hawkish language, and each is expected to raise rates by a quarter-point in June. In America, the market has swung from pricing in two Fed cuts this year to betting on a hike near year-end.

**What this means for portfolios.** We continue to favor allocating capital to select international assets. With interest rates higher abroad – especially across emerging markets – and the Fed likely on hold for the rest of the year, foreign currencies now offer a yield cushion against the dollar that they lacked for years. A fresh geopolitical flare-up could send investors scurrying back to the greenback for a time, but, in our view, the strategic drift is toward other currencies and precious metals.

### HEARD THROUGH THE GRAPEVINE

**The $1.776 billion question.** Our cover is not only history. This month, the Justice Department moved to establish a fund of exactly that size – styled the “Anti-Weaponization Fund” – to compensate people who say they were wrongly investigated by earlier administrations, funded by settling the President’s own lawsuit against the IRS. Supporters call it overdue redress; critics call it a slush fund for political allies. We take no view on the politics. The reason it earns the cover is narrower, and it is the thread running through this issue: it is an extraordinary use of public money at a moment when government balance sheets almost everywhere are already stretched. Bond investors price fiscal credibility for a living, and gestures like this are precisely what they notice.

**Tokyo’s $73.6 billion bill.** To stop the yen from sliding further, Japan spent $73.6 billion in a single month propping it up – an enormous sum, and a quietly important one for American investors. Interventions on that scale are funded by selling dollar reserves, and Japan keeps much of those reserves in US Treasuries; it is the largest foreign owner of US government debt. One month of yen-defending does not move a market the size of America’s. But it fits a pattern we keep flagging: when foreign central banks are forced to sell Treasuries to defend their own currencies, the natural buyer of US debt thins out – and that, over time, nudges American mortgage and borrowing costs higher.

**Sources**

Bloomberg; University of Michigan Surveys of Consumers; US Bureau of Labor Statistics; Institute for Supply Management; US Bureau of Economic Analysis; Statistics Canada; Eurostat; central-bank statements and minutes (Federal Reserve, Bank of Japan, European Central Bank, Reserve Bank of India, National Bank of Poland); Moody’s Investors Service and S&P Global Ratings; International Monetary Fund, World Economic Outlook; US Department of the Treasury TIC data; company filings and guidance (Walmart, Whirlpool); US Department of Justice; Reuters; Financial Times; The Wall Street Journal. Cartoon: Thomas Nast, “Who Stole the People’s Money? — ‘Twas Him,” Harper’s Weekly, August 19, 1871 (Library of Congress Prints & Photographs Division; public domain).

### MARKET RECAP: A Stable Disequilibrium

Markets and households are no longer reading from the same script. Stock indices sit at or near all-time highs, carried by faith in artificial intelligence. Bonds recovered from the prior week’s selloff. Oil slipped on hopes that the Strait of Hormuz would reopen. Read the screens, and the world looks fine.

Read anything else, and it does not. The University of Michigan’s monthly survey of how Americans feel about the economy fell to 44.8 in May, the lowest reading since the survey began in 1952. Business activity in the Eurozone and the UK softened, particularly in services, where most people in both economies work.

The strain is starting to show outside technology. Walmart warned that its shoppers are cutting back as gasoline prices bite. Minutes from the Federal Reserve’s last meeting revealed an unusually divided committee that has abandoned its earlier lean toward rate cuts. Traders entered the year betting on one or two cuts in 2026; they are now pricing in a quarter-point hike by December.

The strain shows abroad as well. In March, Turkey was forced to sell $14.2 billion of US Treasury bonds to defend its currency, leaving just $1.8 billion of its holdings intact. One country dumping its dollar reserves does not break a market the size of America’s. A pattern of them would.

#### Key Takeaways

- The stock market and the consumer are telling opposite stories. One of them is wrong

- Tech is no longer leading the rally; it is the rally

- Foreign central banks are quietly selling Treasuries, and the Fed has stopped promising to cut

### THE WEEK IN MARKETS

- **Bonds.** Long-dated government bonds rallied across the developed world, recovering most of the prior week’s losses. The 30-year UK gilt yield fell 28 basis points to 5.57%, a week after touching a 28-year high. The 30-year US Treasury closed at 5.07%. Emerging-market bonds followed, with Mexican yields essentially unchanged even after Moody’s downgraded the country’s credit rating. Turkey was the exception, its bonds selling off after a court suspended the leadership of the main opposition party.

- **Equities.** The global rally rolled on, led by Japan, South Korea, and Taiwan, the three economies that build the chips powering the AI boom. Europe gained 3 to 5%, and the S&P 500 added nearly 1%. The two losers told their own stories: Turkish stocks fell 4% on the political turmoil, and Indonesian stocks fell 8% after index providers signaled regulatory concerns and the government floated intervening in commodity exports. When markets punish a country, they usually punish its bonds, currency, and stocks together.

- **Currencies.** A quiet week. The South African rand gained 1.4% against the dollar on expectations the central bank will sound hawkish at its next meeting. When central banks pull in different directions, the currencies that win are those whose rate-setters appear most willing to fight inflation.

- **Commodities.** Mostly lower. Brent crude fell 5% but held above $100 as talks over reopening the Strait of Hormuz dragged on. Gold and silver each slipped 0.7%. Precious metals pay no interest, so when traders bet on higher rates, as they did after the Fed minutes, gold and silver look less attractive next to bonds that do.

### LOOKING AHEAD THIS WEEK

A quieter week, but two reports that matter. US markets are closed Monday for Memorial Day, and several Asian markets are closed too. When fewer people are trading, any surprise pushes prices around more than usual.

#### Thursday: growth and business spending.

Two reports land together. The first is the government’s updated estimate of first-quarter growth. The second tracks what American companies are ordering in big-ticket equipment: factory machines, airplanes, trucks. Businesses make those purchases only when confident. If both come in strong, a Fed cut this year becomes even less likely, which would push bond yields up and pressure every stock not named NVIDIA.

#### Friday: the inflation number the Fed actually cares about.

Most headlines track the Consumer Price Index, but the Fed pays closer attention to core PCE, which strips out food and gas. April’s reading comes Friday morning. A hot number confirms the Fed’s hawkish turn: good for the dollar, bad for gold, tough on any stock that relies on cheap borrowing. A cool number would be the first real piece of good inflation news in months.

#### Friday: Europe’s inflation reading.

If it runs hot, the ECB will almost certainly raise rates in June. For a US investor, watch the euro: when Europe raises and the US does not, the dollar weakens against the euro, which helps if you own international stocks or funds.

Three other central banks meet this week. South Africa is expected to raise, Hungary and South Korea to hold. None moves a US portfolio alone, but together they reinforce a theme we keep flagging: the world’s central banks used to move in step, and the gap between them is widening.

One number worth pausing on: Taiwan is expected to report Friday that its economy grew 13.7% over the past year. That is not a typo. It is what happens to an economy that builds the chips the rest of the world is fighting over. Own a US tech fund and you indirectly own a piece of that growth; own an international fund and you may own it directly.

### FOCUS THEME: Mexico at a Crossroads

A sovereign credit rating is a grade. Three big agencies, Moody’s, S&P, and Fitch, score countries on how likely they are to repay what they borrow, the way a bank scores a homebuyer. The grades run from AAA at the top, down through BBB- (still “investment grade”) and into the BB and B range (”junk”). The grade sets the price of borrowing: a high rating pays less, a slip into junk pays more. And because many of the world’s biggest investors, including pension funds and insurers, are legally barred from holding junk, a downgrade can force them to sell. That forced selling can become its own crisis.

Mexico just took two hits. On May 20, Moody’s cut Mexico one notch to Baa3, the lowest rung of investment grade. A week earlier, S&P had warned it might cut in the next 12 to 18 months. Mexico’s ratings are now back where they were in the early 2000s.

The story behind the downgrade is one company. Pemex, the state-owned oil company, owes more than $100 billion, the most of any oil company in the world. The government keeps propping it up, which prevents the country from putting its finances on firmer footing. Worse, Pemex pumps less oil every year: 1.64 million barrels a day last year, down from a 2004 peak of 3.38 million. The International Energy Agency expects Mexico to become a net oil importer by 2030. A country that was a major exporter a generation ago is on track to buy its own gasoline from someone else.

Twelve years ago the mood was the opposite. In 2014, Moody’s upgraded Mexico, betting that President Peña Nieto’s constitutional reforms would unlock faster growth. The bet did not pay off. Governments since 2018 have rolled back most of the reforms, and growth has been stubbornly mediocre: about 2% a year over three decades, against 8%-plus in China and 6%-plus in India. Even joining NAFTA in 1994, now USMCA, did not move the needle much outside autos.

So why own Mexican assets at all? Three reasons.

**One: the foundation is firmer than the headlines suggest.** Last Friday, Mexico signed a sweeping free-trade agreement with the European Union covering manufactured goods, agriculture, and services. Ahead of the USMCA renegotiation on July 1, it has been quietly meeting with Canada to protect supply chains. The IMF expects Mexican growth to accelerate to 2.2% in 2027, not impressive on its own, but a four-year high.

**Two: a slide into junk is unlikely in the near term.** Moody’s paired its downgrade with a “stable” outlook, meaning it does not expect to cut again soon. That matters: if Mexico did slip into junk, the forced selling described above would punish every existing bondholder, even the patient ones. A stable outlook takes that risk off the table for now.

**Three: the yield is hard to ignore.** Mexican 10-year government bonds pay 9.4%, among the highest in any investment-grade emerging market. For a US investor holding dollars, that is real compensation for the risk, and especially so if the dollar weakens, which would amplify the return when the bonds are converted back.

A country that has been here before. Mexico was the first to restructure under the Brady plan in 1990, and four years later it survived the Tequila crisis, when the peso collapsed and the country needed a US-led bailout. It has spent the three decades since becoming a country serious investors can own. The latest downgrades are a setback, not a reversal. For a long-term investor willing to look past the headlines, the mix of high yield, stable footing, and unloved valuations is the kind of setup that tends to reward patience.

#### Heard Through the Grapevine: The pump is the policy

AAA’s national average for gasoline hit $4.56 a gallon on Friday, the highest Memorial Day reading in four years and a 42% jump from a year ago. California is above $6; six states are over $5. By GasBuddy’s estimate, Americans will spend $2 billion more filling up over the four-day weekend than they did last year, roughly $22 million an hour. Brown University researchers put the cumulative cost to US households since the Iran war began at about $200 per household. This is the missing link between two numbers in this week’s recap: consumer sentiment at a record low and Walmart warning that shoppers are cutting back. Gas is the line item Americans see every week, the one that quietly reshapes the rest of the budget. Until the Strait of Hormuz reopens, every other piece of good news on inflation will land on a household paying more to drive to work than it has in four years.

#### Heard Through the Grapevine: Nvidia doubles down on a number that was already hard to believe

Last Wednesday, Nvidia reported quarterly revenue of $81.6 billion, up 85% from a year earlier, and guided higher. The headline was something else: CEO Jensen Huang reaffirmed his projection that demand for the company’s AI systems will reach $1 trillion through 2027, double what it was forecasting months ago, and said the figure understates the opportunity. “Demand has gone parabolic,” he told analysts. The company also authorized $80 billion in buybacks. The report does two things at once. It validates the rally that has carried the S&P 500 to record highs even as sentiment collapses, and it tightens the rally’s dependence on a single company. If a trillion dollars of chip demand is real, the bull case is intact. If it slips, the same concentration that powered the market up becomes the mechanism that takes it back down.

### Sources

Bloomberg; University of Michigan Surveys of Consumers; Federal Reserve Open Market Committee minutes; Moody’s Investors Service; S&P Global Ratings; Fitch Ratings; International Energy Agency; International Monetary Fund World Economic Outlook; US Department of the Treasury TIC data; AAA Memorial Day fuel price report (May 21, 2026); GasBuddy fuel demand modeling; Brown University Climate Solutions Lab; NVIDIA Q1 FY27 earnings release and conference call transcript (May 20, 2026); CNBC; Reuters; Financial Times; The Wall Street Journal; Axios; Library of Congress Prints & Photographs Division (Herblock cartoon, 1970, “But on the average, we’re doing okay”).

Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.

### MARKET RECAP: Sell in May and Go Away

Bonds sold off around the world last week as the reality of inflation began to sink in. In the United States, three back-to-back reports on consumer, producer, and import prices all came in hotter than expected. The economy itself looked sturdy: industrial production beat forecasts, and the Empire State manufacturing index reached a four-year high. Outside America, the picture was less reassuring, with inflation worries persisting while activity stayed soft.

The two-day US-China summit in Beijing produced little of substance. Both sides agreed to expand bilateral trade in certain sectors, including agriculture, and to set up trade and investment committees. China placed a 200-aircraft order with Boeing, though the news failed to lift the stock. No real progress was made on Taiwan, Iran, or Ukraine. President Xi Jinping will visit Washington in the fall.

Closer to home, federal prosecutors are reportedly examining valuation practices at a private credit fund managed by BlackRock TCP Capital. It is the first such inquiry into the asset class, and unlikely to be the last.

#### Key Takeaways

- Cyclical inflation and structural deficits are stoking volatility in bonds

- Growth still looks firm, particularly in the United States

- Risk assets are priced for perfection, leaving little room for the kind of shock bonds are already pricing in

### NOTABLE MARKET MOVES

*Performance in dollar terms.*

**Bonds.** The 10-year US Treasury yield rose 24 basis points to a one-year high of 4.59%. On Thursday the Treasury sold $25 billion of 30-year bonds at 5.046%, the first auction to clear above 5% since 2007. In Britain, doubts about Prime Minister Keir Starmer’s leadership sent the 30-year gilt yield up 27 basis points to 5.85%, its highest level since May 1998.

**Equities.** Stocks corrected after several strong weeks. Asia and Europe each fell around 2% on renewed inflation fears tied to the Middle East. US indices ended flat, with weakness in cyclicals offset by strength in energy and technology.

**Currencies.** The dollar firmed, with the DXY up 1.4%. The Brazilian real was the worst performer, falling 3.3% on a banking scandal involving Flavio Bolsonaro, a leading presidential candidate. The British pound, Swedish krona, and South Korean won all shed more than 2%.

**Commodities.** A bifurcated week. Crude rose around 10% as the Strait of Hormuz stayed closed. Precious metals tracked the broader sell-off in risk assets, with gold down nearly 4%.

### LOOKING AHEAD THIS WEEK

#### NVIDIA reports Wednesday after the close.

Wall Street expects $79 billion in sales and $1.78 a share in profit, up from $44 billion and 81 cents a year ago. The options market is pricing an 8% move in either direction. The real question is whether CEO Jensen Huang reaffirms his forecast of a trillion dollars in chip demand through 2027. If he does, the rally has fuel. If he hedges, the seven-week run in the S&P 500 faces its first real test. Huang was in Beijing with President Trump last week, so his commentary on China will get its own scrutiny.

#### The American consumer, in one week.

Home Depot reports Tuesday, Target and Lowe’s Wednesday, Walmart and Deere Thursday. Walmart has guided to sales growth of 3.5% to 4.5%; what management says about grocery prices and tariff costs being passed to shoppers will matter more than the headline. If higher prices are finally changing behavior, the evidence shows up this week.

#### Fed minutes (Wednesday, 2 pm).

The April meeting held rates steady. The minutes will reveal how seriously the committee considered hiking after last week’s hot inflation readings, and whether internal disagreement is sharpening. Any hint of hawkish dissent pushes Treasury yields higher.

#### Activity surveys and UK inflation (Wednesday and Thursday).

A monthly read on whether the US, UK, Europe, and Japan are still expanding. US manufacturing hit a four-year high in April on pre-tariff stockpiling; watch whether that fades. UK inflation on Wednesday could push 30-year gilt yields toward 6% if it runs hot, extending last week’s selloff.

#### Treasury auctions.

The US sells $16 billion of 20-year bonds on Wednesday and $18 billion of inflation-protected notes on Thursday. After last week’s 30-year cleared above 5% for the first time since 2007, weak demand here would signal the selloff has further to run. Strong demand would mark the bottom.

### FOCUS THEME: The Bonds that Blind

James Carville, Bill Clinton’s political strategist in the 1990s, once said that if he came back in another life he would want to be the bond market, because “you can intimidate everybody.”

UK gilt investors saw what he meant last week. The 30-year yield climbed to 5.85%, its highest in nearly thirty years. Among the seven largest developed economies, the UK now has the highest long-term borrowing costs. To put that in perspective, at the worst of the European debt crisis in late 2011, Italy was paying more than twice what Britain pays today. Britain has quietly traded places with the periphery.

This is not the first time British bonds have revolted. In September 2022, Prime Minister Liz Truss announced a budget of sweeping, unfunded tax cuts. Long-term yields jumped 120 basis points in three trading days. The backlash was severe enough that Truss reversed the policy and resigned less than a month later. The bond market had picked the prime minister.

The trigger last week was different, but the pattern was familiar. Keir Starmer is the UK’s fifth prime minister in ten years, and the leadership challenge brewing inside the Labour Party has stalled any serious plan to bring borrowing under control. Investors also fear a more left-leaning successor would borrow more, not less. So they sold.

The UK is not alone in carrying heavy debt. In the United States, federal debt crossed the size of the entire economy earlier this year for the first time since World War II. The natural question is whether a “Liz Truss moment” could hit the US Treasury market. Our answer is that it is unlikely, for three reasons.

**The US market is bigger and deeper.** The US Treasury market is more than twelve times the size of the gilt market. Treasuries are the world’s reserve asset, accepted everywhere as collateral and held in size by every major central bank and institution on earth. The buyer base is broader, and the market is harder to break.

**The US borrows shorter.** The average UK government bond matures in 10.5 years; the average US Treasury in 7.5 years. The UK has issued bonds maturing in 40 and 50 years, while the US caps issuance at 30 years. Longer-dated bonds fall harder when rates rise, because the rate change compounds over many more years of locked-in cash flows. The UK carries more of that exposure than the US.

**The US is less exposed to forced selling.** UK pension funds hold about a quarter of all gilts and use borrowed money to match their long-term obligations. When gilt prices fall sharply, those funds may be forced to sell more gilts to meet collateral calls, pushing prices lower still. It is the doom loop that nearly broke the gilt market in 2022 and required emergency Bank of England intervention. US pension funds hold only about 15% of their portfolios in Treasuries and use far less leverage, so the same self-reinforcing collapse is much less likely here.

That said, Treasuries are not invulnerable. With no end to the Gulf conflict in sight, energy prices are likely to stay elevated, keeping inflation sticky. Central banks have turned more hawkish in response. Last week’s US data, hotter inflation across the board, stronger industrial production, and a four-year high in the Empire State index, argues against rate cuts. The administration has been arguing for them anyway. That tension, between what the data says and what the White House wants, is exactly the kind of friction the bond market punishes. Carville’s line is older than most of the people now running US fiscal policy. It is no less true.

#### Heard Through the Grapevine: The DOJ wants a look at private credit valuations

Federal prosecutors are reportedly examining how BlackRock TCP Capital marks the value of loans in its private credit portfolio. This is the first formal inquiry of its kind, and it matters far beyond one fund. Private credit has grown from roughly $400 billion in 2015 to more than $1.7 trillion today, much of it held in vehicles that are not marked to market daily and that retail investors increasingly access through interval funds and BDCs. The industry’s defense has always been that loans held to maturity do not need market prices. The DOJ’s position, if it proves out, is that investors deserve to know what the loans would actually fetch. We have been cautious on the spread of private credit into retail-facing wrappers for two years. This is the first sign regulators agree.

#### Heard Through the Grapevine: How AI is being financed is starting to look familiar

The four largest US hyperscalers have committed roughly $700 billion in AI infrastructure spending this year alone, and a growing share is being financed off-balance-sheet through joint ventures, special purpose vehicles, and convertible debt at data-center operators. IREN raised $3 billion in convertible notes this month to fund its pivot from bitcoin mining into AI hosting. The plumbing is starting to resemble the structured-finance arrangements that powered the 2005 to 2007 housing build-out: real demand, real cash flows, but capital structures that depend on the underlying revenue continuing to compound at recent rates. We are watching the gap between Nvidia’s order book and the financing stitched together to fulfill it. Wednesday’s earnings call will be informative on the first half. The second half is harder to see, and it is where the next dislocation usually starts.

### Sources

Bloomberg, Reuters, Financial Times, Wall Street Journal, Barron’s, The Economist, US Bureau of Labor Statistics, US Treasury, Federal Reserve, Federal Reserve Bank of New York, Bank of England, Office for National Statistics (UK), company filings and earnings reports (NVIDIA, Walmart, Home Depot, Target, Lowe’s, Deere, BlackRock TCP Capital, IREN), Congressional Budget Office, and the Chicago Daily News (1947 cartoon by Vaughn Shoemaker).

Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.

### MARKET RECAP: Catch Me if You Can

Last week’s data showed an economy splitting in two. Hiring is holding up, but households are not, and the gap between them is widening. Economists call this a K-shaped economy: companies and consumers starting in the same place and heading in opposite directions.

Employers added 115,000 jobs in April, well above the 65,000 economists had expected. The services sector kept expanding, though more slowly than the month before, and corporate earnings were strong enough to push the S&P 500 and the Nasdaq to new highs.

Consumers are telling a different story. The University of Michigan’s monthly sentiment survey hit a record low of 48.2 in April, with a third of respondents blaming two things: gasoline prices and import tariffs.

On tariffs, a federal trade court struck down the 10% “Plan B” import tax the administration introduced in February. That tax was itself a workaround, put in place after the Supreme Court threw out an earlier round of tariffs that relied on a 1977 sanctions law. Importers get a break for now. Whether it lasts depends on what Washington tries next.

#### Key Takeaways

- Tech stocks are doing almost all the lifting in this rally

- The US economy is absorbing the oil shock, for now

- Central banks are moving in different directions, which makes investments outside the US more valuable

### THE WEEK IN MARKETS

- **Stocks.** The S&P 500 rose 2.3% and the Nasdaq jumped 4.5%, both to new highs. Spirit Airlines’ shutdown did not dent the mood. Strong corporate earnings did most of the work, and most of those earnings came from a handful of tech names. Asia ran even harder, with the chipmakers’ home markets leading: South Korea up 12.1% and Taiwan up 6.9%. European stocks were quiet, weighed down by tensions inside NATO.

- **Currencies.** The dollar weakened for a second straight week, slipping 0.3% against a basket of major currencies. Emerging markets did best. Hungary’s forint jumped 3.1% to its strongest level since mid-2021 on news that the new government wants to join the euro. Brazil’s real, Mexico’s peso, and South Africa’s rand each gained about 1.5%. The Japanese yen barely moved after Tokyo’s intervention to prop it up the week before.

- **Bonds.** Yields swung around all week on oil headlines, with the Strait of Hormuz still effectively closed, but ended slightly lower. The 10-year US Treasury closed at 4.35%, two basis points below the week before. Mexican and Brazilian bond yields fell 11 and 6 basis points respectively, after both countries cut interest rates.

- **Commodities.** Crude oil finished the week down about 6% after a wild ride. Precious metals climbed alongside stocks: gold gained more than 2% and silver leapt 6.6%, both within reach of three-week highs.

### LOOKING AHEAD THIS WEEK

#### US-China summit.

Trump and Xi meet in Beijing on Thursday and Friday for a high-stakes summit on trade, technology, and rare-earth metals. China arrives from a position of strength: April exports grew 14.1% from a year earlier, well above the 8.4% economists expected. Two smaller items in the background are worth watching. Indonesia plans to issue its first “panda bond” in June, a yuan-priced bond sold in China by a foreign government as a way to tap Chinese savings without going through the dollar. And Mozambique is exploring swapping $1.4 billion of debt it owes China into yuan loans. Quietly, more of the world is borrowing in something other than dollars. Meanwhile, the US sanctioned three Chinese satellite-imaging firms last week for helping Iran target American bases.

#### The Gulf war, month three.

The war grinds on with no clear off-ramp. A ceasefire is technically in place, but reports of strikes near the Strait of Hormuz keep coming, and Washington is waiting on Iran’s response to its latest peace proposal. Neither side will commit to a timeline. A CIA assessment last week put Iran’s staying power at another three to four months under the US-led blockade, with 70% of its pre-war missile stockpile still intact. The UK is sending a warship back to the region as part of a possible international mission to keep the strait open.

#### Economic data.

This week is about US prices. Consumer prices on Tuesday are expected at 3.7% from a year earlier, the highest reading in two and a half years. Producer prices on Wednesday, which track what businesses pay rather than what households pay, are expected at 4.8%, a post-pandemic high. And on Friday, Jerome Powell’s term as Fed chair officially ends. He will stay on as a governor, which means Trump cannot immediately reshape the seven-member board.

### FOCUS THEME: Eighteen Central Banks, Three Directions

If you have a mortgage, a car loan, a savings account, or any money in the stock market, a central bank is setting the price of all of it in the background. A central bank has one main job, to keep prices from rising too fast without letting the economy stall, and one main tool, the interest rate banks charge each other for short-term loans. That rate ripples out into business loans, mortgages, credit cards, and the value of the currency itself. Raise it, and the economy slows. Cut it, and it speeds up.

For most of the last twenty years, the world’s big central banks moved in the same direction at roughly the same time. When the Fed cut, others cut. When the Fed hiked, others followed within months. That pattern has broken. Over the past three weeks, eighteen central banks made rate decisions, and they did not agree.

The reason for the split is the same everywhere. Every central bank is wrestling with two problems at once: prices are still rising too quickly, and economies are starting to slow. The war in the Gulf made both worse. The banks that raised decided inflation was the bigger danger. The banks that cut decided slowing growth was. The ones that held are still making up their minds.

Take the Philippines, which buys almost all of its oil from the Middle East. When the Strait of Hormuz closed, pump prices jumped and April inflation came in at 7.2%, up from under 2% a year ago. The government declared a national energy emergency and the central bank raised rates. Australia and Norway raised too, even though both sell a lot of oil and gas and might be expected to benefit from high prices. They raised anyway because inflation at home is running hotter than they want.

Brazil and Mexico went the other way. Both economies are slowing, and the IMF just trimmed its growth forecasts for them to 2.0% and 1.4% this year. Their central banks cut to give businesses relief. The risk is that cutting too fast brings inflation back, and in emerging markets, once inflation climbs it can be hard to stop.

The thirteen that held are not as quiet as they seem. Most told markets they are more worried about inflation than growth, which is another way of saying they are likelier to raise next than cut. There is also more disagreement inside these committees than there used to be. The Bank of Japan voted 6 to 3, the closest it has come to a split decision in its modern history. At the Fed’s last meeting, eight voted to hold, one to cut, and three objected to language hinting at cuts later this year.

That makes the next Fed meeting on June 17 worth watching. It will be Kevin Warsh’s first as the new chair. Our view is that the Fed holds for the rest of this year. If Warsh moves to cut while the job market is still solid, the dollar will probably weaken: it has been strong partly because US rates sit above most other countries’, which makes holding dollars more attractive than holding euros or yen. If US rates fall while others hold or raise, that gap shrinks, and so does the dollar.

For most American investors, this matters in a specific way. The typical US portfolio holds about 10% in international stocks and bonds. That allocation made sense when the US was beating everyone and central banks all moved together. Neither is true now. International holdings used to be a polite hedge that did not do much; today they are starting to behave differently from American ones, which is the entire reason to own them. The case for closer to 20% is stronger than it has been in a decade. If you have not looked at your international exposure since 2020, this is the week.

#### Heard Through the Grapevine: The strait, the ship, and your gas tank

The Washington Post published a visual walkthrough on Friday tracing how a closed waterway 7,000 miles from Iowa ends up at an American gas pump. The Strait of Hormuz, the 21-mile passage between Iran and Oman that normally carries about a fifth of the world’s oil, has been effectively closed to commercial traffic for two months. The chain runs step by step: tankers that used to load in the Gulf sit idle or reroute around Africa, adding two weeks and several million dollars to each trip; insurance for ships willing to attempt the strait has roughly tripled, when underwriters will write it at all; refineries that depend on Gulf crude pay more and pass it on. Diesel, which moves nearly everything else in the economy, is up more than gasoline, which is why groceries are rising faster than fuel. It is the clearest explanation we have seen of why Tuesday’s inflation number will be uncomfortable and why the next few are likely worse.

#### Heard Through the Grapevine: The next bubble might be in the bonds, not the stocks

Oliver Wyman published a sobering note last week arguing that the real risk in the AI build-out is not the share prices of Microsoft, Nvidia, or Meta, but the debt structures financing the data centers behind them. The seven largest US tech stocks now make up 35% of the S&P 500, the same concentration as at the peak of the dot-com bubble. Unlike 2000, this cycle is being funded with asset-backed securities, private-credit deals, and off-balance-sheet vehicles that look more like the housing-finance plumbing of 2007 than the equity froth of 2000. The last time banks looked surprised by how much risk was on their books, it was because the risk had been moved off them.

### Sources

Market and currency performance: Bloomberg, April 30 to May 9, 2026. Central bank rate decisions: bank policy statements and Bloomberg, April 22 to May 7, 2026. Consumer sentiment: University of Michigan Surveys of Consumers, April 2026. Tariff ruling: US Court of International Trade decision, May 2026. China trade data: China General Administration of Customs, April 2026. Iran/Gulf assessment: reporting on declassified CIA briefing, May 2026. Grapevine items: The Washington Post, May 8, 2026, and Oliver Wyman, May 2026. Cartoon: “First the Bad News, Then the Worse News,” Herbert Block (Herblock), The Washington Post, July 22, 1973. (c) The Herb Block Foundation, used with permission.

Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.

### KEY TAKEAWAYS

- A handful of chip stocks are carrying the entire market

- Geopolitical risk has not gone away; it is being ignored

- This is not the moment to chase the rally

### MARKET RECAP: Defying Gravity

Financial markets hit new highs last week, shrugging off a closed Strait of Hormuz, a fraying alliance with Europe, and the gloomiest American consumers on record. The S&P 500 just had its best month since November 2020. The official reason is a strong economy. The real reason is chip stocks.

President Trump raised the tariff on European cars to 25% from a previously agreed 15%, and the Pentagon will pull 5,000 US troops out of Germany (about 15% of the total there) after the German chancellor said Iran had “humiliated” the United States. In a Florida speech, the President said the US would be “taking over Cuba” almost immediately. Jerome Powell, in his final press conference as Fed Chair, said he plans to stay on the board after his term ends on May 15. And Spirit Airlines shut down on Friday. Small details like that tend to look bigger in hindsight.

For equities, chip stocks did the work again. The S&P 500 gained 10.4% on the month, its best since November 2020, with Intel posting its strongest month in 55 years on continued AI spending. The trade extended overseas: South Korea (+30.6%) and Taiwan (+22.7%) led global markets, and South Korea overtook the UK as the world’s eighth-largest stock market. Mexico (-1.1%) lagged, with its economy shrinking 0.8% in the first quarter, the first contraction since late 2024.

In currencies, the dollar weakened for the first time in three months, with the DXY down 1.9%. Tougher talk from the European and British central banks lifted the pound (+2.1%) and the euro (+1.1%), while government intervention bid the yen up 1.25% on the final trading day. Higher-risk currencies led: the Hungarian forint (+6.8%), the Norwegian krone (+4.5%), the Brazilian real (+4.1%), and the Australian dollar (+4.0%).

Global bonds sold off on inflation concerns. The 10-year US Treasury yield rose 5 basis points to 4.37%, with US public debt above 100% of GDP for the first time since World War II. The UK remains the developed world’s problem child: the 10-year gilt yield climbed 10 basis points to 5.01%, the highest since 2008.

In commodities, Brent crude touched $144 a barrel in early April before settling near an 18-year high, with the Strait of Hormuz still closed and the UAE leaving OPEC after sixty years. Gold gave back 1.1% on the month but is still up roughly 7% on the year.

### LOOKING AHEAD THIS MONTH

**Jobs report (Friday).** US employers are expected to have added about 62,000 jobs in April, well below March’s 178,000. A weak number would raise the odds of a slowdown later this year. A strong one gives the rally another reason to run.

**Consumer sentiment (Friday).** The University of Michigan’s monthly survey is expected to hit a record low. When people are worried about gas, groceries, and jobs, they spend less. That eventually shows up as weaker sales at the companies most 401(k)s own: Walmart, Target, Home Depot.

**Factory surveys from emerging markets (Monday).** Reports from Mexico, Poland, Hungary, and South Africa offer the first read on how the closed Strait of Hormuz is hitting oil-importing countries. Weak readings would point to slower global growth.

**Earnings.** A heavy week. AMD and Palantir will test whether the AI rally still has fuel; a miss from either could trigger a sharp tech pullback. McDonald’s and Disney will show how willing Americans are to spend on dining and entertainment. Shell’s view on oil supply will matter more than its profits. Pfizer and Uber round out the week.

**For US retail investors.** With the S&P up 10.4% in a month and consumer sentiment at all-time lows, the gap between what stocks are saying and what people are feeling has rarely been wider. That gap usually closes, and not always gently. A good week to check whether your tech weighting has crept higher than you intended.

**Outside the data.** Iran-US ceasefire talks remain the biggest single factor for oil and gas prices. Spirit Airlines ceased operations on Friday, the first US carrier to fail amid high jet fuel costs. Expect fewer cheap fares this summer. Markets in China and Japan are closed for extended holidays (China May 1–5, Japan May 4–6), which can magnify any surprise news.

### FOCUS THEME: The Yen-pire Strikes Back

Last Thursday, Japan stepped into the currency market and bought yen with dollars to stop its currency from falling further. The yen had just slipped past 160 to the dollar, a four-decade low, and Tokyo had seen enough. By the end of the trading day, roughly $35 billion had been sold to push the yen back up 2.4%.

Why would a government care this much about the value of its own money? Because a weak currency cuts both ways. When the yen falls, Japanese exports like cars and electronics get cheaper for foreign buyers, which is good for companies like Toyota. But everything Japan imports (oil, food, raw materials) gets more expensive. Roughly 90% of Japan’s oil comes from the Gulf, and with the Strait of Hormuz closed and Brent near $144 a barrel, every yen of weakness adds to the bill at the pump and the grocery store. At some point, the pain to households outweighs the boost to exporters. That is where Japan is now.

This was Japan’s third intervention in four years. In late 2022, Tokyo spent over $60 billion defending the yen. In 2024, nearly $100 billion. Each time, the trigger was the same: the yen weakening past roughly 160 to the dollar. That number has become Japan’s unofficial line in the sand.

Here is the awkward part. Prime Minister Sanae Takaichi won February’s snap election, promising the opposite of what intervention requires. She campaigned on low interest rates and government spending to revive growth, policies that produce a weak yen. The Bank of Japan is now pulling the other way: three of nine board members, including Governor Ueda, voted last week to raise rates. Markets expect a hike in June. Japan’s government wants cheap money. Its central bank is starting to disagree. Its currency policy is trying to do both at once.

Economists have a name for this bind: the *Impossible Trinity*. A country cannot at the same time control its exchange rate, set its own interest rates, and let money move freely across its borders. It has to pick two of the three. Japan is trying to do all three, and the strain is showing.

Two forces will continue to pull on the yen. First, US interest rates are still far above Japanese ones, which means traders can borrow cheaply in yen and earn more by parking the money in dollars. That trade, known as the “yen carry trade,” pushes the yen down. Second, Washington is watching. President Trump has called yen weakness “a disaster for America,” and Japan sits on the Treasury Department’s currency watch list.

**Our view:** Japan will raise rates gradually over the next year, narrowing the gap with the rest of the world. As Japanese bond yields rise, Japan’s pension funds and insurers, long-term savers who have sent money abroad for years in search of better returns, will start bringing it home. That is bearish for the dollar over time, and supportive for the yen. For investors, two State Street bond ETFs offer broad international exposure with Japan as the largest country weight (above 20% in each): BWZ for short-dated bonds, BWX for longer maturities. For those willing to take equity risk, BlackRock’s EWJ offers direct exposure to Japanese stocks.

### HEARD THROUGH THE GRAPEVINE

**Warsh’s quiet trade-off.** Writing in the Financial Times on April 29, David Zervos, chief market strategist at Jefferies, pushed back on the idea that Kevin Warsh has flipped from inflation hawk to political dove. Zervos argues that Warsh believes today’s mix of strong growth and rising unemployment is a sign of productivity gains, not an overheating economy, which means lower, not higher, interest rates are the right response. Warsh has also hinted at a less-discussed idea: pairing rate cuts with a smaller Fed footprint in the bond market. The Fed currently holds trillions of dollars in bonds it bought during the pandemic, and shrinking that pile would tighten financial conditions even as lower rates loosen them. The combination, if he can get the rest of the committee on board, would mean cheaper borrowing for households and businesses without the inflationary risk that usually comes with rate cuts. A clever piece of policy if he can pull it off.

**The $725 billion check.** Four companies (Microsoft, Alphabet, Meta, and Amazon) reported quarterly earnings last week and told investors they plan to spend a combined $725 billion this year on the data centers, chips, and infrastructure that power artificial intelligence. That is a 77% jump from last year’s record of $410 billion, and it exceeds the annual economic output of Sweden or Belgium. Microsoft alone said roughly $25 billion of its budget is going to higher prices for memory and computer chips, a sign that demand for AI hardware is outrunning supply. On Alphabet’s earnings call, CEO Sundar Pichai told analysts the company is “compute constrained,” meaning Google Cloud could be selling more if it could build data centers fast enough. This is the engine behind the stock market’s run. It is why chipmakers like Nvidia and Intel keep posting record numbers, and why South Korea and Taiwan, where most of the world’s chips are made, were the best-performing markets in April. The risk for ordinary investors is concentration. When four companies are spending three-quarters of a trillion dollars chasing the same idea, any sign that the AI payoff is slower or smaller than expected would not just hit those four. It would ripple through every stock connected to the trade. And right now, that is most of the index.

Thank you for reading CrossLight’s Monthly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.

**Sources**

1. Big tech AI capital spending and hyperscaler capex figures: Financial Times Q1 2026 earnings compilation, April 30, 2026; Microsoft and Alphabet Q1 2026 earnings calls, April 29, 2026.

2. Warsh policy framework and Fed balance-sheet trade-off: David Zervos, “Warsh can bring a much-needed trade-off on rates to the Fed,” Financial Times, April 29, 2026.

3. Japan FX intervention, BoJ policy decision, and yen/USD levels: Bank of Japan policy statement and Ministry of Finance disclosures, April 30, 2026.

4. April equity, currency, bond, and commodity performance figures: Bloomberg market data, April 2026.

### KEY TAKEAWAYS

- Tech euphoria is doing a lot of work to mask real geopolitical risk

- The macro bill from higher oil is arriving, and oil importers will pay first

- A narrow rally leaves little margin for a macro surprise

### MARKET RECAP: Don’t Worry, Be Happy

A diplomatic mission collapsed, an Iranian military commander warned of retaliation, and the inflation data finally caught up with the oil price. The S&P 500 closed at a record. So did the NASDAQ. That is either remarkable composure or remarkable inattention. Both have been wrong before.

The Witkoff-Kushner trip to Islamabad was cancelled on Saturday with hours to spare; the President said the Iranian offer was not good enough and that the US “has all the cards.” March CPI showed energy up 10.9% on the month and gas-station spending up 15.5% on the month, a record. A handful of governments, the UAE included, have begun asking Washington about dollar swap lines. And two private loans, Medallia and Affordable Care, defaulted, the kind of small data point that becomes a large one in retrospect.

- **Equities:** tech did the heavy lifting again. The NASDAQ added 2.4% to a fresh record, the S&P 500 tagged along with a 0.8% gain to its own all-time high, and Intel, of all names, posted its best quarter in nearly forty years. Look beneath the surface, though, and the picture thins out: financials and healthcare continued to lag. In Asia, Taiwan (+5.8%) and South Korea (+4.6%) rode the same chip wave. Europe broke its four-week winning streak, with major bourses down 3 to 4%.

- **Currencies:** the dollar firmed as questions lingered over the Strait of Hormuz. The euro, yen, and Swiss franc each slipped 0.4%. The Norwegian krone was the outlier, up 0.7%, as oil exports and a hawkish central bank proved a useful combination. Emerging markets had a rougher week, with the Indian rupee (-1.4%) and South African rand (-1.2%) leading the declines.

- **Bonds:** global bonds sold off on the familiar mix of cyclical inflation worries and structural fiscal anxiety. The US 10-year yield rose 5 bps to 4.30%. The UK remains the problem child of the developed world, with 10-year gilts up another 15 bps to 4.91%, near levels not seen since the financial crisis.

- **Commodities:** crude snapped back hard, with Brent up 17% and back above $100. Precious metals took a breather after their recent run, as gold gave up 2.5% and silver, ever the amplifier, fell 6.4%.

### LOOKING AHEAD THIS WEEK

#### Central banks.

A busy week of policy meetings, all expected to hold steady: Japan (Apr 28), the Fed and Bank of Canada (Apr 29), the ECB and Bank of England (Apr 30). Brazil (Apr 28) is the exception, set to deliver its second 25 bps cut of the year.

#### Economic data.

First-quarter GDP and April inflation prints dominate the calendar. US GDP (Apr 30) likely came in around 2.2% annualized, with core PCE running at 3.2%, still well above the Fed’s 2% target. The Eurozone offers the usual contrast: Q1 GDP a tepid 0.9% year-on-year, with CPI accelerating toward 3%. Taiwan’s Q1 GDP (Apr 30), expected at 10.7% year-on-year, is on track for a second straight quarter of double-digit growth, the chip cycle in numerical form.

### FOCUS THEME: Fed Independence Back in the Spotlight

Last week’s nomination hearing for Kevin Warsh put Fed independence back on the table. Warsh said the right things: a commitment to independence and no rate-cut promises to the President. Trump, less restrained, repeated his view that America “should have the lowest interest rate in the world” and warned he would be “very disappointed” if a Warsh-led Fed failed to deliver.

On Friday, the Department of Justice dropped its criminal investigation into Jerome Powell, clearing one of the larger obstacles to a Warsh confirmation. US Attorney Jeanine Pirro left the door ajar, noting the probe could resume should the facts warrant. Whether the impasse is resolved before Powell’s term expires on May 15 is anyone’s guess; one workable scenario is for him to remain acting Chair until his successor is confirmed.

Why does this matter? Because American economic exceptionalism has rested, in no small part, on the Fed’s reputation. If the next Chair is seen to bend to political demand, markets will read it as a softening of the inflation-fighting mandate, an awkward signal at a moment of surging oil prices. Traders are not waiting for confirmation: front-end rates already firmed on Friday’s news, on the assumption that a Warsh Fed will cut.

The Iran spillover into the macro data has already arrived. The energy component of US CPI rose 10.9% month-on-month in March, the fastest pace in over two decades. Spending at gas stations climbed 15.5% month-on-month, the largest single-month jump since the series began in 1992.

Growth, for now, is holding up. The composite PMI surprised to the upside at a three-month high of 52.0 against a 50.6 consensus. The University of Michigan consumer sentiment index landed at a record-low 49.8, but was revised up from a preliminary 47.6, cold comfort perhaps, but better than feared. Put simply, an economy near full employment with inflation a full point above target is not obviously one that needs lower rates.

Lower short rates have fueled the rally in risk assets ever since the Fed began easing in late 2024, taking the funds rate down 175 bps to 3.75%. The President, for the record, would prefer 1%. But the long end, which is what most of the real economy borrows against, answers to markets, not to the Fed. If inflation persists, holders of 10-year and 30-year Treasuries will demand higher yields to compensate. Cutting at the front end while the long end refuses to follow gives you a steeper curve, not cheaper financing.

The equity expression of a steeper curve is long regional banks and life insurers, underweight office REITs and homebuilders. Business models that fund short and lend long win; those that refinance long lose.

Our base case has the Fed on hold for the rest of 2026. A cut under Warsh is not off the table, but it would be neither necessary nor wise. Two implications for portfolios follow. First, stay anchored at the front end of the US curve: inflation pressures look sticky, and Gulf-related fiscal outlays could rouse the bond vigilantes. Second, lean into non-dollar exposure: Fed easing erodes the dollar’s carry advantage over the yen and euro and sharpens the medium-term case for higher-carry emerging-market names such as the Brazilian real and the Mexican peso.

#### Heard Through the Grapevine: The Medallia receipt

A small detail sits behind one of last week’s two private-credit defaults. Thoma Bravo bought Medallia for $6.4 billion in 2021, a bet on customer-experience software during the era of near-zero rates. The lenders, Blackstone, KKR, Apollo, and Antares, now hold the keys, and $5.1 billion in equity is wiped out. Blackstone’s largest credit fund flagged Medallia and Affordable Care as the two names driving its non-performing ratio to a record 2.4%. UBS warns that an “AI SaaSpocalypse” could double private-credit default rates to 9 to 10%. The vintage matters: this is the 2021 cohort, financed at money-for-free rates, refinancing into a world where neither the rates nor the AI thesis cooperate. The first two names are almost never the only two.

#### Heard Through the Grapevine: The UAE’s other hand

While one hand reached for swap lines, the other was buying gold. The Central Bank of the UAE quietly added 12 tonnes in February. Small in absolute terms, but consistent with the broader pattern: 68% of central banks plan to increase gold holdings in 2026, and emerging-market reserves are tilting away from the dollar in a measured but unmistakable way. The swap-line conversation gets the headlines. The gold purchase is the hedge in case the swap lines do not come.

*Sources: Medallia restructuring and private-credit stress, Reuters and Bloomberg, April 2026, and Blackstone Secured Lending Fund regulatory filings, Q1 2026. UAE gold purchases and central-bank reserve trends, World Gold Council Central Bank Gold Statistics, February 2026, and WGC Central Bank Gold Reserves Survey, March 2026.*

Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.

- Hopes of a Gulf peace deal lifted markets broadly

- The longer-term effects on growth and prices have not fully played out

- Stretched valuations keep us on the sidelines for now

### MARKET RECAP: Peace and Pause, for Now

Markets rallied broadly this week on optimism that the US and Iran are moving toward a peace deal. Iran reopened the Strait of Hormuz for the 10-day Israel-Lebanon ceasefire, though mixed signals from both sides suggest differences remain. Talks resume this weekend.

- **Stocks rallied worldwide.** The S&P 500 (+4.5%) and NASDAQ (+6.2%) hit new highs, fully erasing losses from the US-Iran conflict. Falling oil lifted Asia’s importers, with South Korea (+5.7%) and Taiwan (+3.9%) leading. China gained 2% on stronger-than-expected first-quarter GDP of 5.0%, and Europe rose 2 to 3%, with Germany up 3.8%.

- **The dollar weakened for a third straight week.** Commodity-linked currencies outperformed, with the Norwegian krone and Australian dollar both up 1.6%. The standout was Hungary’s forint, which jumped 4.2% to a four-year high after Peter Magyar unseated Viktor Orban.

- **Bonds strengthened** as lower oil eased inflation concerns. European and UK 10-year yields fell about 10 bps, and the US 10-year ended at 4.25%, down 7 bps. Emerging-market bonds in Brazil, Mexico, and South Africa also rallied.

- **Commodities were mixed.** Brent crude fell 3% to around $90 a barrel on the Strait reopening, though it is still 24% above pre-conflict levels. Precious metals climbed, with silver up 6.6% and gold up 1.7%.

### MARKET DASHBOARD

### LOOKING AHEAD THIS WEEK

#### Economic data.

A wave of leading indicators will offer the first read on how higher crude prices are affecting activity. PMIs in Japan (Wed), the US (Thu), and the Eurozone (Thu) are expected to hover near the neutral 50 mark. In the UK, March CPI (Wed) will draw close attention after recent bond-market volatility.

#### Central banks.

Kevin Warsh, President Trump’s pick for Fed Chair, testifies before the Senate Banking Committee on April 21. The hearing comes amid Democratic objections, with some lawmakers arguing it should be postponed until investigations into Fed Chair Jerome Powell and Governor Lisa Cook conclude. On policy, central banks in Indonesia (Wed), Turkey (Wed), and the Philippines (Thu) are expected to hold steady as they await further clarity on the Gulf.

#### Middle East.

Despite ongoing indirect talks between the US and Iran, the two-week ceasefire announced on April 8 formally expires on April 22 (Wed).

### FOCUS THEME: Strait Talk

While the world’s attention has been fixed on the Strait of Hormuz since the US-Iran conflict began on February 28, another significant cross-Strait event occurred earlier this month. Li-wun Cheng, chairwoman of Taiwan’s opposition Kuomintang (KMT), visited China from April 7 to 12. Beijing has refused official relations with the pro-independence Democratic Progressive Party, Taiwan’s ruling party since 2015, which makes the timing notable. Touted as a “peace journey” across Beijing, Nanjing, and Shanghai, the trip culminated in a meeting with President Xi Jinping at the Great Hall of the People, the first formal meeting between leaders of the Chinese Communist Party and the KMT in over a decade.

The parallels between the two straits are uncanny. The Taiwan Strait carries 20% of global maritime trade and is a critical chokepoint for technology and energy. For Japan and South Korea, nearly a third of imports pass through it. The strait is roughly 110 miles wide, but the narrowest point, between Xiamen on the mainland and Taiwan’s Kinmen Islands, is just 1.3 miles.

The semi-official trip gave Taiwan’s financial assets a timely boost. By market capitalization, Taiwan’s bourse rose to a record $4.14 trillion this week, surpassing the UK as the world’s seventh-largest. Taiwan is also poised to be one of the fastest-growing economies in 2026, with the IMF projecting 5.2% GDP growth against a 3.1% global average, after a blistering 8.7% expansion in 2025 driven by demand for high-end semiconductors. Taiwan Semiconductor Manufacturing Company is the world’s largest dedicated chip foundry and ranks among the largest non-US companies by market value. Yet the economy's deeper strength lies in its small and medium-sized enterprises, which make up more than 95% of businesses.

The successful US military operation in Venezuela in early January fueled concern among analysts of a similar move by Beijing on Taiwan. In our view, such comparisons are misplaced, given the strong economic ties between the two. We do not dismiss cross-Strait tension as a risk, but from China’s standpoint a military operation is far from the policy of choice.

For US investors seeking exposure, several ETFs offer different routes to Taiwan at different costs.

#### Heard Through the Grapevine: How to Stop Iran From Winning the War

In a joint Free Press essay on April 9, Niall Ferguson, Richard Haass, and Philip Zelikow argue that the Strait of Hormuz must reopen, but not on Iran’s terms. Tehran’s demand to tax and regulate shipping would cement its role as toll-keeper of a waterway that carries a fifth of global oil, handing Iran a strategic win that offsets its battlefield losses. The authors propose a three-step response: credible military readiness to ensure safe transit, a backchannel understanding to restart commercial shipping, and a new Hormuz Convention modeled on the agreements governing the Black Sea straits (1936) and the Suez Canal (1888). Under it, a jointly owned Strait of Hormuz Company, with the eight coastal states and the US as principal shareholders, would manage the strait as a neutral waterway with regulated transit fees. The plan is designed to work with Iran rather than require regime change. The broader takeaway for markets is that the terms of reopening matter as much as the reopening itself.

Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.

### KEY TAKEAWAYS

- Markets rally as the threat of the annihilation of a civilization is averted

- The jury is still out if the current situation points to peace or a pause

- Stay high quality and accumulate cash as dry powder to deploy at cheaper levels

### MARKET RECAP: A Ceasefire Rally

Risk assets cheered after an eleventh-hour announcement by President Trump of a two-week ceasefire with Iran on April 7. The gains persisted despite immediate violations — military strikes between Israel and Lebanon, Iranian mines blocking the Strait of Hormuz, and attacks on Saudi Aramco’s Abqaiq facility hours after the ink dried. Markets chose to believe the headline. Then, on April 12th, JD Vance left Islamabad without a deal, citing significant gaps between the sides. The maze, it turns out, has no exit — at least not yet.

- **Stock markets had their best week in months**, which likely means your retirement account recovered some ground. American shares rose 3.6%, nearly erasing all losses since fighting broke out in the Gulf in late February. European markets gained 3–4%. The biggest winners were in Asia: South Korea, Japan, and Taiwan surged 7–9%, reflecting relief that the world’s most important oil shipping lane might reopen.

- **Bond markets told a more complicated story**, and one that matters if you are watching mortgage rates. Borrowing costs in Europe and Japan edged higher on inflation fears. In America, consumer prices jumped sharply in March — the biggest monthly increase in nearly three years — briefly rattling markets on Friday. Despite that, the ten-year US government bond yield ended the week essentially flat, and mortgage rates did not move meaningfully. For now.

- **Oil fell sharply** — down 13% — on hopes that a ceasefire would reopen the Strait of Hormuz. You may have noticed lower prices at the pump this week. At around $95 a barrel, however, crude remains nearly a third more expensive than before the war began. With the Islamabad talks collapsed and President Trump threatening a naval blockade, that relief may be short-lived. Fill up while you can. Gold rose for a third straight week to $4,750 an ounce.

- **The dollar fell alongside oil** — the two have moved in lockstep throughout the conflict. If you are traveling abroad this summer, the dollar will buy you a little less in Europe and Australia. More importantly for your daily finances: a weaker dollar pushes import prices higher over time, adding another layer of inflation pressure on top of what the war is already doing to energy costs.

### LOOKING AHEAD THIS WEEK

Three things to watch this week. Several Fed officials will speak publicly — listen for whether they sound worried or calm about war-driven inflation. If they signal rates stay higher for longer, mortgage costs follow. On April 14th, the IMF releases its updated global growth outlook; expect 2026 forecasts to be cut, which shows up in your investments and the cost of everything you buy, even if your job as a nurse is recession-proof. On Tuesday, US producer prices are expected to post their fastest monthly increase in four years — an early warning for what hits your grocery bill next. On Thursday, China reports first-quarter growth; a strong number supports markets, a weak one adds to an already nervous week.

**Election Watch.** Hungary votes today. Prime Minister Viktor Orbán — in power for 16 years — faces his toughest challenge yet from pro-EU challenger Peter Magyar in what polls show as a genuinely contested race. The US administration has backed Orbán. A Magyar upset would shift Hungary’s relationship with both Brussels and Washington, adding another variable to an already unsettled geopolitical backdrop.

### FOCUS THEME: Of Rockets and Feathers

*You felt it at the pump. Here’s why it’s not going away.*

Gas prices jumped 21% in March alone — the largest single-month increase ever recorded. That is not a rounding error. That is the war in the Middle East arriving in your driveway.

Here is what is happening and what it means for your money.

> **+21%** — March price change · *largest on record since 1967*

> **+30%** — Price vs pre-war · *still ~$95/barrel today*

> **+0.9%** — CPI monthly jump · *highest since June 2022*

#### Rockets and Feathers

There is an old rule in energy markets. When oil prices rise, gas prices at the pump go up fast, like a rocket. When oil prices fall, they come down slowly, like a feather. You have lived this every time you filled up your tank.

The war has supercharged that dynamic. The Strait of Hormuz, a narrow waterway between Iran and Oman that you could drive across in twenty minutes, is where 20% of the world’s oil supply flows every single day. It is essentially closed. Until it reopens fully and stays open, crude oil remains scarce and expensive. And when crude is expensive, everything that moves, grows, or gets manufactured costs more, too.

*The bottom line: do not expect gas prices to return to their February levels. The damage to Middle Eastern infrastructure alone makes that unlikely through at least mid-2026.*

#### What this means for your wallet

Higher gas prices do not stay at the pump. They travel. Truckers pay more to deliver groceries. Airlines pay more to fly. Hospitals pay more to heat their buildings and run their equipment. Eventually, those costs show up on your grocery bill, your utility bill, and your paycheck in the form of slower raises.

Economists call this a wage-price spiral. You can call it your budget getting squeezed from every direction at once.

#### What this means for your money

Two things worth knowing as an investor:

**Interest rates are moving in the wrong direction for borrowers.** The Federal Reserve is caught between fighting inflation and supporting a slowing economy. Consumer confidence just hit an all-time low. If the Fed keeps rates high to fight inflation, your mortgage rate stays elevated. If it cuts too aggressively, inflation gets worse. There is no easy exit. For now, assume rates stay higher for longer than anyone hoped six months ago.

**The dollar faces quiet pressure.** This one is subtle but important. Since the ceasefire, Iran has begun accepting Chinese yuan as payment for oil transit fees. It is a small shift today. But a group of major emerging economies — Brazil, Russia, India, China, and South Africa — are actively building alternatives to the dollar-dominated financial system. If that gains momentum over the next few years, the purchasing power of your savings faces a slow headwind.

### WEEKLY MARKET DASHBOARD — APRIL 12, 2026

#### The one thing to do right now

You cannot control oil prices, central banks, or the Strait of Hormuz. What you can control is whether your financial plan was built for exactly this kind of environment, because this kind of environment comes around more often than anyone expects.

If your plan hasn’t been stress-tested against inflation running at 4-5% over the next 18 months, that is the conversation worth having.

---

*Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.*

- Elevated uncertainty and mixed signals stoke market volatility

- Still early days to bottom-fish risk assets, despite the March drawdown

- Dollar rally reflects surging transactional demand, rather than safe-haven bid

### MARKET RECAP: Marching Disorders

The military conflict in the Gulf that began on the last day of February, along with further restrictions on private credit funds limiting investor withdrawals, has led to a broad-based sell-off in both stocks and bonds globally. While risk assets rebounded on the last trading day of March on renewed prospects of a ceasefire, conflicting statements from the US, Israel, and Iran suggest a near-term resolution is unlikely. **Going forward, asset prices may become desensitized to official statements if mixed signals test market participants’ patience.**

- **Equities:** The S&P plummeted 5.1% in March, its worst performance since March 2025. Consumer discretionary and technology were the worst performers, both declining by almost 9%. By region, Asia (-10.4%) and Europe (-8.6%) fared much worse, reflecting their economic vulnerability to high crude prices.

- **Bonds:** Global bonds witnessed an across-the-board selloff in March. The 10-year Treasury yield finished the month 38 bps higher at 4.32%. The UK was the worst performer, with 10-year gilt yields up 68 bps at 4.92%. China local rates outperformed, with its 10-year yield up just 2 bps at 1.82%.

- **Currencies:** Dollar strength was the overriding theme, with the DXY gaining 2.4%. Asian oil importers were among the worst performers, with the Philippine peso, Thai baht, and Indian rupee around 4% weaker. The Swiss franc lost 3.8% despite its safe-haven reputation.

- **Commodities:** Oil was the distinct outperformer, with Brent crude hitting an intra-month high of $110 before finishing at $104, 44% above the end-February level. Gold lost 12% for March overall, though price action stabilized in the latter half of the month.

### MARKET SUMMARY — MARCH 2026

*Month-to-date and year-to-date returns as of March 31, 2026.*

### LOOKING AHEAD THIS MONTH

#### Central bank meetings.

The ECB, BoJ, and BoE (all April 28-30) are expected to hike by 25 bps each. The US and Canada (both on April 29) will likely stand pat, as will India (April 8) and South Korea (April 10), despite their vulnerability to oil imports.

#### Global growth outlook.

On April 14, the IMF releases its World Economic Outlook and Global Financial Stability Report. Downgrades to 2026 GDP projections are expected. The market focus will be on the magnitude of change, given the uncertain trajectory of military operations.

#### OPEC+ meeting.

Eight OPEC+ member countries meet on April 5, their first gathering since the March 1 virtual meeting, held the day after the US strike on Iran.

### FOCUS THEME: What Is the Dollar Actually Telling Us?

The dollar was supposed to weaken in March. It had been doing exactly that for most of the past year. Then the US struck Iran, and everything changed. The DXY gained nearly 3% in a month, hitting a one-year high. Most analysts called it a safe-haven bid. We think that is only part of the story.

*Note: Monthly data points. DXY represents the US Dollar Index. Brent Crude in USD per barrel. Conflict zone shaded orange.*

#### Safe-Haven or Something Else?

There is a simple test for a safe-haven currency. When markets panic, investors rush into it, not because they need it for transactions, but because they trust it to hold value. The Swiss franc is the textbook example. It is barely used in global trade, but when things go wrong, everyone wants it. In January 2015, the Swiss National Bank surprised markets by removing its cap against the euro. The franc gained 23% in a single day. That is a safe-haven doing exactly what it is supposed to do. The yen works the same way. When Lehman collapsed in 2008, the yen gained 24% in three months. That had nothing to do with Japan being a safe place. It was about the unwind of carry trades. Investors had borrowed in yen for years to fund higher-yielding assets. When everything sold off, they had to pay the yen back. The currency surged not because anyone loved Japan but because the math demanded it. The 2011 US credit downgrade is the most paradoxical example. S&P stripped the US of its AAA rating. Logically, investors should have sold Treasuries and dollars. Instead, they bought both. Treasury yields fell 80 bps. The dollar gained 8% by October. The lesson is that the dollar benefits not just from trust but from incumbency. When the world is panicking, it reaches for whatever it already knows.

#### So, What Is Happening Now?

The dollar move in March looks a lot more like the 2011 scenario than a true safe-haven bid. Oil went up 44% in a month. Oil is priced in dollars. Every country that imports oil now needs more dollars just to keep the lights on. The Philippine peso, the Thai baht, and the Indian rupee were all down around 4%. That is not fear driving demand for dollars. That is a necessity.

> **The Swiss franc fell 3.8% in March. If this were a genuine flight to safety, that would not happen. The franc falling while the dollar rises tells you something important about what is really going on.**

#### The 3 to 6 Month View

For now the dollar has three things going for it. Oil transactions still run through dollars and that is not changing anytime soon. US interest rates are higher than most of the developed world which makes holding dollars attractive. And the US economy, while not immune to higher energy costs, handles oil shocks better than most of Asia and Europe. That is the near-term reality. It is not a ringing endorsement. It is more like the dollar winning by default.

#### The Longer View

Beyond 2026, the picture gets murkier. Prolonged military engagement puts pressure on the US fiscal position. Running deficits when unemployment is low is a political choice with costs. A Fed leadership transition next year opens the door to political interference in monetary policy. If the Fed is seen as compromising its inflation mandate, the credibility that underpins dollar dominance starts to erode. There is also a slower trend worth monitoring. Several European pension funds quietly sold off their dollar holdings earlier this year after the Greenland dispute. That is not a crisis, but it is a signal. Countries and institutions are

starting to consider what a world with less reliance on the dollar might look like. They are not there yet; the infrastructure for alternatives is not in place. However, the discussion is taking place in important forums.

**The bottom line is straightforward.** The dollar is strong right now for reasons that make sense in the short run. Most of those reasons are transactional rather than structural. The longer-term pressures are real, but they move slowly. For now, watch oil. If prices stabilize or fall, the transactional demand for dollars fades with them, and the currency will too.

Thank you for reading CrossLight’s Monthly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.

### KEY TAKEAWAYS

- Asset prices are pricing prolonged conflict; history says that’s the moment to stay in, not get out

- Central banks can’t cut and can’t hike; that policy paralysis is itself a market risk

- Cash and short duration are doing the job right now — gold is worth watching as it quietly reclaims its safe-haven role

### MARKET RECAP: Guns and Butter

A rollercoaster week. Hope gave way to skepticism as the data confirmed what markets feared — prices rising, activity slowing, especially in services. Central banks are stuck: ignore the oil shock or tighten and risk crushing growth. There’s no easy solution. Meanwhile, private credit continued making headlines for the wrong reasons — Apollo and Ares both moved to limit withdrawals this week.

- Equities: The U.S. finally gave back some ground after weeks of leading, with the S&P down 2% and the Nasdaq off 3%. The rest of the Americas had a better week — Canada, Mexico, and Brazil all gained 2–4%. Switzerland led Europe with a 2% gain. Asia was mostly lower on oil exposure, with South Korea the standout loser at nearly −6%.

- Bonds: Selling across the board. The 10-year Treasury rose 5 bps to 4.43% — a fourth straight week of moving higher. Asia was hit hardest, with long-end yields in Japan, Singapore, and South Korea up by 20+ bps, reflecting how exposed the region is if the Strait of Hormuz remains closed.

- Currencies: Dollar strength is back. The yen broke through 160 for the first time since mid-2024 — watch for intervention. The irony of the week: commodity currencies like the Australian dollar, ringgit, and krone were among the worst performers despite rising oil, down roughly 2% as growth fears won out.

- Commodities: Brent finished flat after fully recovering from Monday’s sharp drop. Gold, which has been quiet since the Gulf conflict began, showed signs of reasserting its safe-haven role late in the week. Crypto went the other way — Bitcoin closed at $66,000, down 11% from its intra-month high.

### LOOKING AHEAD THIS WEEK:

A shortened week due to Good Friday, but no shortage of things to watch.

**US-Iran.** Ground troops and the USS George H.W. Bush are now in the region. The Houthis have entered the conflict, putting the Red Sea shipping lane at risk on top of the Strait of Hormuz. The economic damage from disrupted energy infrastructure hasn’t been fully priced in yet — India, the Philippines, and Vietnam are already rationing energy. Expect markets to stop reacting to every statement and post from both sides. The noise is too high. Watch the oil price instead.

**Trade.** Trump’s China summit is now May 14-15 — pushed back six weeks. Beijing responded Friday by launching an investigation into U.S. tariffs on green products. Not a coincidence. Meanwhile, the EU is trying to play both sides — conditionally approving a U.S. trade deal while sending a delegation to Beijing next week. Spain’s Prime Minister heads to China in mid-April. Everyone is repositioning before the summit.

**Inflation and jobs.** The two numbers that matter most this week: Europe and Japan release March inflation data Tuesday — the first real read on how much the Gulf conflict is driving up prices. EU inflation is expected to hit 2.7%, a two-year high. Friday brings the U.S. jobs report. Payrolls are expected to come in around 60,000 — well below recent trends — with unemployment holding at 4.4%. A weak number confirms the slowdown. A strong one puts the Fed in an impossible spot with inflation already rising.

**The setup in one sentence:** Slowing growth, rising prices, an active conflict, and a shortened trading week — conditions where small surprises can move markets more than they should.

### FOCUS THEME: Markets, Conflict, and the Discipline to Stay Clear

> “There is nothing new under the sun.” — Ecclesiastes 1:9

This verse comes to mind every time a new conflict sends markets into a spiral. The playbook isn’t identical each time. But it rhymes closely enough to matter. This week’s focus is a look at how markets have behaved before, during, and after five U.S. military engagements in the Middle East over the past four decades. Not to predict what happens next but rather to keep perspective when the headlines are loudest.

**Markets don’t price war. They price uncertainty. Once the picture is clear, even when the news is bad, markets tend to find their footing.**

#### The pattern that repeats

- **Lead-up** — Equities drift lower, oil rises, and volatility builds quietly

- **Onset of engagement** — Choppy early, then stabilizes as visibility improves

- **1–12 months after** — If recession is avoided and oil normalizes, risk assets outperform

- **On rates** — Conflict alone rarely drives yields sustainably; the Fed, inflation, and the business cycle dominate

- **The rotation to watch** — Energy and defense lead early; broader equities take over once clarity arrives — most investors are late to this shift

#### What this situation looks like now

The U.S. has tens of thousands of personnel deployed across the Middle East — carrier groups, Marines, and rapid-response units. This is not a full mobilization. Based on scale and posture, this looks more like containment than the setup that preceded the Gulf War or the Iraq War.

- **Current footprint** — Low thousands of incremental troops

- **Posture** — Forward positioning, not mass invasion

- **Rates context** — The 10Y sits at 4.43% — well above every prior conflict except Lebanon. Bonds offer less cushion as a haven than history would suggest

- **Historical comparison** — Closer to the ISIS campaign than the Gulf War in scale — for now

That can change. But right now, we are not seeing the conditions that have historically preceded a large, binary market event.

#### What to do with this

- **Don’t sell into the uncertainty** — that’s typically when the damage is already priced

- **Watch the energy/defense rotation** — it’s already happening; the question is when broader equities follow

- **Be thoughtful on duration** — with the 10Y at 4.43%, bonds offer less cushion than in prior conflicts — cash and short duration make sense here

- **Stay selective** — not all risk assets respond the same way in this environment

**The investors who get hurt in environments like this aren’t the ones who stayed in. They’re the ones who moved at the wrong moment for the wrong reason.**

### MARKET DASHBOARD

Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.

### KEY TAKEAWAYS

- No place to hide for investors amid prolonged uncertainty, given the US-Iran deadlock

- Limited scope for stimulative policies hints at downgrades to 2026 global growth

- Keep bond exposure to the front end, given intensifying inflation fears

### MARKET RECAP: THE STRIKE PRICE

Portfolio derisking continued unabated for a third straight week. There was no place to hide as the Gulf conflict exerted a toll across asset classes. However, S&P futures rose 0.8% after Friday’s market close, as President Trump suggested a possible winding down of US operations against Iran. But continued military activities over the weekend cast doubt on an imminent resolution on both sides.

- US equities held up comparatively well, with the S&P down 1.9%. European bourses were the main underperformers — Germany fell nearly 5% on oil exposure. Asian markets were mixed: China and Japan lost 2%, while South Korea and Singapore gained 5.4% and 2.2%.

- Rising energy costs weighed on bonds globally. The 10-year Treasury rose 10 bps to 4.38% — an eight-month high — on the Fed’s hawkish hold and a hot PPI print. UK gilts bore the brunt: a 17 bp spike took the 10-year to 5%, a 17-year high and the highest in the G7.

- The dollar softened after two weeks of gains. The euro led, up 1.4% on the ECB’s hawkish hold; the Norwegian krone gained 2.1%. Asian currencies lagged — the rupee, peso, and baht each fell more than 1%.

- Commodities remained bifurcated. Brent gained nearly 9% vs. WTI’s 1.4%, widening the spread to $14. Precious metals continued to sell off despite war fears — likely technical after the November–January rally — with gold down over 10% and silver tumbling nearly 16%.

### LOOKING AHEAD THIS WEEK:

The main factor remains the Gulf conflict. Any change in diplomatic signals or new military escalation will influence oil prices first and everything else second. Markets end the week pricing in a 45% chance of a Fed hike by October, a sharp reversal from last week’s 70% probability of a cut. That re-pricing is how every data release this week should be interpreted.

**Flash PMIs (Tuesday — US, Eurozone, UK, Japan)** are the week’s most market-sensitive scheduled data. Forecasts cluster around 51.5–52.0 for the US composite, signalling modest expansion, but any reading showing manufacturing contracting under energy cost pressures will accelerate the growth-downgrade narrative and hit equities. European PMIs carry extra weight given the region’s exposure to oil.

**UK CPI (Wednesday)** arrives with gilts already at a 17-year high. A hotter-than-expected print would put the BOE in an impossible position — energy-driven inflation on one side, a slowing economy on the other — and push the 10-year yield toward 5.25%. Watch the services component closely.

**Japan CPI (Friday)** will determine whether an April BOJ hike remains on the table. The BOJ held at 0.75% in March but upgraded its inflation forecasts; a strong print reinforces the case for the next move and could strengthen the yen further.

**Fed Chair Powell speaks Sunday (already in play).** His tone on whether the Iranian energy shock is “transitory” or a durable inflation threat will set the tone for the week. Markets are listening for any signal that hikes are back on the table.

**Banxico (Thursday)** is a closer call than it appears. The bank paused its easing cycle in February at 7.00% as core inflation stayed stubbornly above 4%. Higher oil prices now complicate any resumption of cuts. A hold is more likely than the market expects.

**Private credit stress (ongoing).** BCRED’s $3.7 billion in Q1 redemption requests — exceeding its 7% quarterly cap — is the slow-moving story with potential for sudden acceleration. Blackstone is simultaneously marketing a new private credit CLO. Watch for further withdrawal announcements from other managers; Morgan Stanley and Cliffwater already moved this month. If retail contagion takes hold, the spillover to leveraged loan markets and HY spreads could be significant.

**US-China trade (background risk).** Trump’s postponement of the Beijing summit removes a potential catalyst for de-escalation. With markets already under pressure, the absence of any positive trade signal is itself a headwind.

### FOCUS THEME: THE LEVERAGE TRAP IN A VOLATILE MARKET

About $8.4 billion has moved into oil and energy ETFs year-to-date. XLE alone just posted its two largest monthly inflows on record in January and February. Retail is leaning into the conflict trade, and a meaningful portion of that is being expressed through leverage.

What’s getting far less attention is what happened just before this shift. In January, leveraged equity ETFs saw $7 billion in outflows, the largest monthly redemption on record. That wasn’t random. It was positioning. As the market we’ve been in since late 2022 began to change, institutions stepped back.

For most of the past three years, the environment rewarded leverage. Trends were steady, volatility was low, and buying dips worked. That backdrop is no longer in place. The transition has been subtle, but the behavior of more experienced capital has already begun to adjust. Retail, for the most part, has not.

The issue comes down to how these products actually work. Leveraged ETFs reset daily. They are built to deliver a multiple of each day’s move, not the move over time. In a trending market, that distinction doesn’t show up in a meaningful way. In a choppier market, it does, and it compounds.

That’s where volatility decay becomes real. If the market rises 10% and then falls 9.09%, it’s back to where it started. A 2x ETF isn’t. You’re down roughly 1.8%. Stretch that out over a few weeks of back-and-forth trading, driven by headlines and shifting expectations, and the drag adds up quietly.

No single move stands out. But the result is consistent erosion of capital.

*In a flat but volatile market, leverage does not amplify returns — it amplifies decay. A $100 investment subject to alternating ±2–4% daily swings over 40 trading days ends at $92.11 with no leverage, $82.07 in a 2x ETF, and just $70.68 in a 3x ETF, despite the underlying index going nowhere.*

That’s the setup today. Volatility is elevated. Direction is unclear. And a single headline — geopolitical or policy-driven — can reverse markets intraday. This is the environment where leverage works against you, not for you.

The more sophisticated money has already adjusted. The flows reflect that.

So the question for investors stepping into 2x and 3x energy products right now is straightforward: what exactly are you owning?

You’re not owning oil. You’re taking on daily exposure to it, with a structure that resets against you in volatile conditions.

If the underlying view is that markets recover as tensions ease, there are cleaner ways to express that. Standard index exposure does the job without introducing the same drag.

Leverage has its place. It works when the direction is clear and the time horizon is short.

Right now, neither condition is in place.

The Policy Backdrop

The current administration’s increasingly public tension with the Federal Reserve around interest rates introduces uncertainty around the future path of monetary policy. Markets have recently pulled back from pricing aggressive rate cuts, but the direction of policy still matters. If rates ultimately move lower while inflation remains sticky — a scenario markets have experienced before — investors historically begin shifting toward stores of value. Gold has often been one of the primary beneficiaries of that shift.

There is also a straightforward portfolio dynamic at work. When economic growth slows, dividends compress, or real yields decline, the opportunity cost of holding a non-yielding asset falls. In that environment, gold’s lack of income becomes less of a disadvantage relative to other assets. Lower interest rates also tend to weaken the U.S. dollar, which has historically supported higher gold prices.

Beyond monetary policy, a deeper structural trend is also emerging. Since the Russia/Ukraine conflict, central bank gold purchases have accelerated to near-record levels. The logic is straightforward. Gold remains one of the few reserve assets that sits outside the modern financial system and outside the direct control of any single government.

What Investors Actually Own

A second issue that receives less attention is the structure of the gold market itself.
The global gold ETF market is currently valued at roughly $559 billion. That sits on top of a physical gold market estimated at approximately $29 trillion in above-ground value. In other words, the ETF layer represents only a small fraction of the underlying asset.
More importantly, many ETF investors do not actually hold gold as they believe.
Consider the largest gold ETF, GLD, which holds roughly $147 billion in assets. The trust stores gold through HSBC as its primary custodian, with the potential for additional sub-custodial arrangements. Investors purchasing shares in the ETF are buying an interest in the trust rather than a direct title to specific bars of gold.
In normal market conditions, that structure functions well as a trading instrument. But it is important to understand the difference between price exposure and physical ownership. Most individual investors cannot redeem ETF shares for allocated bullion.
Below the ETF market sits something even larger: the futures market. COMEX in New York handles the majority of global gold futures trading. Open interest reached roughly $261 billion in late 2025. Yet fewer than three percent of those contracts ultimately result in physical delivery. Most are simply financial contracts tied to the price of gold rather than claims on the metal itself.
Periods of market stress occasionally reveal the difference between those layers. During the market disruption in March 2020, premiums on physical coins rose sharply while electronic gold prices remained relatively stable. When financial markets experience strain, paper claims and physical metal can move in different ways.
That possibility is not hypothetical. It is precisely the type of environment gold is meant to hedge.

Most investors access only the upper layers — price exposure, not physical ownership.

Perspective for Investors

It is important to be clear about what this note is and what it is not. This is not a recommendation to buy gold today. Markets move in cycles, and gold itself has experienced long periods of both strength and weakness.
The purpose of this note is simply to encourage investors to understand what they actually own in their portfolios.
Too often in our industry, conversations about assets drift toward buzzwords and narratives. Investors hear the same themes repeated across television, conferences, and publications like Barron’s, but the underlying structure of the investment is rarely examined closely.

For investors evaluating gold exposure, ownership structure matters.
Allocated physical bullion stored in segregated vault storage represents the most direct form of ownership. A bank safe-deposit box is frequently misunderstood; in certain bank failure scenarios, the holder may still be treated as an unsecured creditor.

For investors seeking exchange-listed exposure while maintaining a clearer claim to physical metal, the Sprott Physical Gold Trust (PHYS) offers a different structure. The trust stores allocated bullion at the Royal Canadian Mint and publishes serial numbers for individual bars. The structure avoids derivatives and allows for the redemption of shares for physical metal under defined conditions.

Exchange-traded funds such as GLD and IAU remain useful instruments for investors seeking price exposure. The challenge arises when those instruments are assumed to represent direct physical ownership.
Before allocating capital to gold, investors should ask several structural questions:

If those questions cannot be answered clearly, the investor may be gaining price exposure rather than the systemic hedge gold is often intended to provide.
Gold has always played a role in portfolios because it sits outside the financial system. But that protection only exists if what you own is actually gold. Understanding that distinction is where serious investing begins.

CrossLight Global Investments
This article is strictly for informational purposes only and does not constitute investment advice. CrossLight Global Investments is a registered investment adviser. Past performance is not indicative of future results.

Copyright © 2026 CrossLight Global. All rights reserved.

By CrossLight Global Investment Partners on March 16, 2026.

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Exported from Medium on March 23, 2026.

- Gulf War accentuates trade fragilities, posing downside risks to global growth

- Technical positionings and leverage unwind dominate as short-term market movers

- Elevated geopolitical uncertainties support the case for geographical diversification

*

Think political hardball is new? In 1903, a cartoon blasted Theodore Roosevelt for supporting Panama’s split from Colombia, paving the way for the Panama Canal. History has a longer memory than we sometimes do.

### MARKET RECAP

Global risk assets fell sharply due to military conflict in the Gulf, as the US-Israel strike on Iran expanded to affect neighboring countries, potentially causing significant disruption to global growth.

- Unsurprisingly, global equities were all down. The most notable decline was in stock markets outside the US, with Korea dropping 11.5% after a recent strong run, while Japan and Taiwan both fell 5%. European markets closed the week down by 6-7%, compared to a 2% drop in the S&P.

- The US dollar strengthened on safe-haven demand, with the DXY rising roughly 1% to a six-week high. Emerging market currencies underperformed, led by the South African rand (-3.7%) and the Mexican peso (-3.2%). Among major currencies, the euro and yen fell 1.6% and 1.1%, respectively, but the Canadian dollar rose 0.5% against the dollar.

- In the bond market, US Treasuries weakened across all maturities due to inflation concerns fueled by rising oil prices, with the 10-year yield ending the week 20 basis points higher at 4.14%. However, Friday’s weak jobs report provided some relief for short-term bonds with 1–2-year maturities.

- Commodities had a mixed week. Oil prices soared amid heightened risks in the Gulf: Brent crude jumped 23.5%, while WTI surged nearly 27% — the biggest weekly move since 2022. Gold and silver didn’t attract safe-haven buying, likely due to the unwinding of leveraged positions; gold fell 3.3%, and silver declined 5.5%.

### LOOKING AHEAD THIS WEEK

The Strait of Hormuz remains closed. That single fact changes everything this week. Brent above $85 is no longer a headline; it’s just part of the overall cost. Every day those shipping lanes stay shut, the damage grows. Refiners reroute. Insurers adjust prices. The impact on what consumers actually pay becomes harder to undo. The question has shifted from who controls Tehran to a harsher reality — how many weeks of disrupted oil flows before the economy starts to break down?

CPI drops on Wednesday. The consensus is 2.5%, but that’s a February figure — a snapshot from before the world changed. Nobody will trade based on what it says. Instead, they’ll focus on what March and April look like, with energy costs re-pricing underneath everything. Powell speaks on Thursday, and the conversation has shifted completely. We’re no longer debating when the Fed will cut; now we’re questioning whether they can cut at all this year. Retail sales on Tuesday offer one last clear look at the American consumer before the shock wave hits.

If you’re managing capital or running a business, this is the week when your planning assumptions start to fall apart. Gold isn’t just a hedge right now — it’s a bet on everything that’s unresolved. Geopolitical risk, policy paralysis, and real yields remaining flat. Credit spreads are widening, and it’s not speculation driving that. Energy isn’t just a sector call anymore; it’s the factor that revalues everything else. This week’s advantage goes to those who positioned themselves before the crisis, not to those still waiting for things to settle down.

### FOCUS THEME: Beware the Ides of March

The situation in the Middle East is moving fast, and the range of outcomes is wide. Rather than pretend to know how this ends, we’ve built our strategy around three working assumptions. If even one proves correct, the implications for portfolios are significant. If all three hold, we’re looking at a fundamentally different investment landscape for the rest of the year.

**The war drags on.** The administration initially talked about four to five weeks. That timeline is already under pressure. Khamenei was killed on day one, but the Iranian military has proven more durable than expected; a decentralized command structure and a cheap, effective drone arsenal have kept the regime in the fight. Talk of US ground troops changes the calculus entirely. Once boots hit the ground, the historical parallels shift from Gulf War I to Iraq and Afghanistan. Neither ended quickly. Neither ended well.

**The conflict spreads.** What started as a joint US-Israeli air campaign now touches more than a dozen countries. The UK, France, and Greece have pledged military support. Russia is reportedly feeding Tehran intelligence on US positions. An Iranian warship was sunk by a US submarine off the coast of Sri Lanka — a development that risks pulling South Asia into the equation. This is no longer a contained regional operation. It’s being drawn into the gravitational pull of a much larger conflict.

**The global economy tilts toward stagflation.** Energy infrastructure across the Gulf has sustained real damage. The Strait of Hormuz remains effectively closed, choking off roughly one-fifth of the world’s oil supply. Brent has crossed $90. These aren’t transitory disruptions; they’re structural until proven otherwise. The Fed, which entered the year expected to cut rates, may now have no room to act at all. In a worst-case scenario, central banks could be forced to hike into a weakening economy. That’s the textbook definition of stagflation, and it’s no longer a tail risk.

### HEARD THROUGH THE GRAPEVINE

**”Could This Be the Start of World War III?” (Niall Ferguson, The Free Press)**

Ferguson argues the U.S.-Israeli air campaign against Iran is best understood not as the opening of a world war but as the latest front in a broader cold war with China, one that makes strategic sense only in that global context. The critical variable is duration: a short conflict resembles Gulf War I, but if the Strait of Hormuz remains

closed for weeks, the resulting oil shock could rival the 1970s, inflicting serious economic damage on energy-importing allies in Europe and Asia while inadvertently benefiting Russia and testing U.S. weapons stockpiles needed for deterrence in the Indo-Pacific.

**Donald Trump Calls for More US Military Action in Latin America (Financial Times)**

Trump launched the “Shield of the Americas” coalition with a dozen Latin American nations, urging allies to invite US joint military operations against drug cartels within their borders. Mexico, Brazil, and Colombia were deliberately excluded. Since January 2025, the US has conducted military actions in seven countries, including Venezuela, Iran, Ecuador, and others, despite Trump campaigning on ending foreign entanglements. For investors, the expansion of US military operations across multiple theatres simultaneously has direct implications for defense budgets, fiscal deficits, and Latin American commodity flows.

**”Iran Conflict: Oil Price Impacts and Inflation” (Morgan Stanley Wealth Management, March 2026)**

Morgan Stanley frames the investor calculus around seven things to watch, noting that markets have historically posted double-digit gains during wartime, including both Gulf Wars, but warns that a prolonged conflict creating oil above $100 would be “qualitatively different.”

**”BlackRock Limits Withdrawals from $26 Billion Private Credit Fund” (Bloomberg)**

BlackRock gated redemptions at its flagship HPS Corporate Lending Fund after investors requested 9.3% of NAV in a single quarter, the third major private credit fund to restrict withdrawals in six weeks. The $1.8 trillion private credit market, built during a decade of low rates and loose underwriting, is now facing its first real stress test. The catalyst isn’t just rising rates or geopolitical shock; it’s AI eroding the business models of the software companies that dominate these loan books. When the world’s largest asset manager starts telling investors they can’t get their money back, it’s no longer an isolated incident.

**”China Sets Growth Target at 4.5%–5% for 2026” (Al Jazeera / NPR / Bloomberg, March 5–6)**

China set its lowest growth target since 1991, signaling continuity over stimulus as it navigates a property slump, tariff wars, and now an energy shock from the Middle East. The government also unveiled its 15th Five-Year Plan, committing roughly $4.3 trillion in public spending with a heavy emphasis on AI, semiconductors, and aerospace. Premier Li Qiang was blunt: “Rarely in many years have we encountered such a grave and complex landscape.” The lower target isn’t a weakness; it’s Beijing buying room to restructure without overpromising, while the Five-Year Plan doubles down on technological self-reliance in a world that’s fragmenting fast.

- US-Israeli strikes killed Iran’s Supreme Leader; Iran retaliates across the Gulf; Strait of Hormuz effectively closed — oil expected to gap 5–15% at Sunday’s open

- Bonds rallied hard despite hot inflation data, with the 10-year falling below 4% for the first time in four months. Stagflation risk is now the central debate

- Gold, silver, and Treasuries are catching the safe haven bid; equities, crypto, and credit are not

### MARKET RECAP

Markets were already in risk-off mode before Saturday’s events in Iran. Bonds rallied, US equities sold off, and credit stress emerged across multiple corners of the market.

- The 10-year UST yield fell 14 bps to 3.94%, a 17-month low despite a January PPI print that came in far hotter than expected (core +0.8% vs. 0.3% consensus). That disconnect tells you where the fear is: not inflation, but growth. For the month, the 10-year dropped roughly 25 bps, its strongest February rally in a year. Mexico’s 10-year MBONO hit its lowest level since mid-2023.

- The S&P 500 slipped 0.4% on the week, finishing February down about 1%. The Nasdaq lost over 3% for the month, its worst showing since March, dragged down by AI disruption fears after Block announced plans to cut nearly half its workforce, and by CoreWeave’s guidance, which sent shares down 20% on Friday. The tech-software ETF (IGV) is now down 23% year-to-date. Meanwhile, non-US markets outperformed decisively: the UK gained 2.1%, and South Korea and Taiwan each surged over 7% to new all-time highs after the Lunar New Year break.

- In commodities, gold rose 3.4% and silver surged 10.8%, both on safe-haven demand. Brent crude closed Friday at $72.87, up 2.2%, already pricing in elevated Gulf risk. Bitcoin fell to roughly $64,000, now down 21% on the year.

**Iran**

Late Saturday, the United States and Israel launched coordinated strikes on Iran, killing Supreme Leader Ali Khamenei. The US deployed B-2 stealth bombers and sank nine Iranian naval vessels. An interim three-person leadership council, President Pezeshkian, judiciary chief Mohseni Ejei, and cleric Alireza Arafi, has been appointed to govern until the Assembly of Experts selects a successor. Iran retaliated with missiles and drones targeting Israel and US bases in Bahrain, Kuwait, and Qatar. Most were intercepted; one struck near Jerusalem, killing at least nine. Three US service members were killed. Iran’s navy has reportedly closed the Strait of Hormuz to commercial shipping, the passage that carries a fifth of global oil supply. Dozens of vessels are clustered at the Strait’s entrance, and Middle Eastern airports in Abu Dhabi, Dubai, and Doha have suspended operations. Analysts expect Brent to open 5–15% higher Sunday evening, putting the $77–84 range in play. OPEC+ announced a 206,000-bpd output increase from April, but the math is straightforward: if oil can’t move through Hormuz, incremental supply doesn’t matter. War-risk insurance premiums are spiking, and some underwriters may refuse cover for US- and Israel-linked vessels altogether. The UN Security Council convened an emergency session. Guterres warned of an uncontrollable escalation. Rubio speaks with G7 counterparts on Sunday.

### LOOKING AHEAD THIS WEEK

The Iran conflict will dominate this week. The immediate questions: will the Strait of Hormuz reopen, will Iran’s interim leadership escalate or stabilize, and will Congress move to constrain presidential authority for further military action? On the macro calendar, the main US releases are non-farm payrolls (consensus 60k, Friday) and ISM Manufacturing (consensus 51.5, Monday). Both will be read through the stagflation lens: inflation running hot, growth softening. In China, the annual National People’s Congress begins on March 5, focusing on economic targets and the five-year plan through 2030. For allocators, the convergence of geopolitical shock, energy disruption, sticky inflation, and weakening growth creates a uniquely difficult environment. The Treasury rally may extend as safe-haven flows accelerate. Gold is positioned to benefit from compounding tailwinds: dollar weakness, geopolitical risk, and compressed real yields. The oil risk premium, which had been building gradually, now faces a step-change.

### FOCUS THEME: Japan - The Land of the Rising Yields

For decades, Japan was the place where interest rates went to die. The Bank of Japan held rates at or below zero for much of a generation, and Japanese government bonds yielded so low that global investors largely ignored them. That era is ending, and the implications extend well beyond Tokyo. The catalyst is political. Prime Minister Sanae Takaichi, fresh off a landslide election win in February, nominated two pro-growth academics to the BOJ’s nine-member board, a signal that she intends to keep fiscal policy loose even as the central bank inches toward tighter money. It’s a familiar tension: a government that wants to spend versus a central bank that wants to normalize. Friday’s Tokyo CPI surprise (1.6% YoY vs. 1.4% consensus) only sharpened the debate. The numbers behind this story are striking. The BOJ currently owns roughly half of all outstanding Japanese government bonds — up from just 12% in 2000. By comparison, the US Federal Reserve holds about 14% of outstanding Treasuries. No major central bank in the world is this deeply embedded in its own sovereign debt market.

After ending its sub-zero rate regime in 2023, the BOJ has raised rates four times to 0.75% — the highest in 30 years. But that’s still well below the US (3.50–3.75%) and Europe, which is why the yen remains weak despite two rounds of currency intervention in 2022 and 2024. Market chatter of a coordinated US-Japan intervention in January 2026 kept the yen from breaching 160, but the pressure hasn’t gone away.

Three things to watch as Japanese yields continue to rise:

**The money is coming home.** Japanese banks, pensions, and insurers spent the past decade buying foreign bonds, particularly US Treasuries, in search of yield they couldn’t find at home. Higher domestic yields will reverse that trade. As offshore holdings mature, expect a gradual repatriation into JGBs. The good news for currency markets: most of those foreign positions are hedged, so the yen impact should be muted.

**Foreign investors are paying attention again.** After years of apathy, overseas investors poured JPY 6 trillion ($39 billion) into JGBs in January alone, the second-largest monthly inflow on record. New cross-border collateral agreements with Southeast Asian nations have made JGBs more useful as financial plumbing. The trade-off: more foreign ownership means more volatility when global sentiment shifts.

**The interest bill is getting expensive.** Japan’s debt-to-GDP ratio stands at 240%, the highest in the world, roughly double that of the US (120%) and nearly four times that of Germany (64%). Rising yields on that debt pile translate directly into higher servicing costs, which makes Takaichi’s fiscal expansion plans harder to sustain. The market will eventually demand a credible plan for medium-term debt sustainability. Whether this government delivers one is an open question.

**The bottom line:** Japan’s bond market is waking up after a long sleep. For global investors, that means a new source of yield, a new source of volatility, and a potential catalyst for capital flows that could ripple across Treasury markets, currency pairs, and portfolio allocations. We’ll be watching this closely.

### HEARD THROUGH THE GRAPEVINE

**Niall Ferguson: Khamenei Joins Saddam in Hell, but Iran 2026 Is Not Iraq 2003 (The Free Press)**

Niall Ferguson argues that the joint U.S.-Israeli strikes on Iran, including the reported killing of Ali Khamenei, are fundamentally different from the 2003 invasion of Iraq. He contends that the objective is “regime alteration,” not full-scale regime change or nation-building, and that there is no plan for a prolonged ground war. While acknowledging risks such as regional escalation and oil shocks, Ferguson believes the operation is designed to be short, heavily concentrated, and strategically limited, though it unfolds against the broader pressures of Cold War II with China and Russia.

**America’s trade chaos is just beginning (The Economist)**

The article argues that although the Supreme Court struck down Trump’s use of emergency powers to impose sweeping tariffs, the practical effect may be prolonged uncertainty rather than relief. By pivoting to other statutory tools such as Section 122—and potentially Sections 301 and 232—the administration is set to keep tariffs in flux, triggering further legal battles, refund disputes over roughly $180bn in duties, and continued policy whiplash for businesses and trade partners. Even if some refunds and marginally lower rates act as short-term stimulus, the deeper impact is sustained uncertainty that deters investment and hiring, ensuring trade turbulence persists through Trump’s term and likely beyond.

**Markets are churning furiously beneath the surface (The Economist)**

The S&P 500 may appear stable near record highs, but beneath the surface, markets are experiencing an intense rotation as AI forces investors to reassess business models across sectors. Software and tech borrowers have been hit hard, credit spreads in tech have widened sharply, and private credit and leveraged loan markets are showing signs of stress, while “HALO” stocks and AI hardware firms have rallied. With stock dispersion near decade highs and uncertainty about AI’s true economic impact unresolved, the article warns that volatility could intensify—especially if credit conditions tighten or AI expectations prove either overly optimistic or deeply disruptive.

**China piles pressure on Japan after Takaichi Sanae’s triumph (The Economist)**

The article describes a deepening standoff between China and Japan following Prime Minister Takaichi Sanae’s hawkish stance on Taiwan and defense policy, prompting Beijing to impose targeted curbs on rare-earth exports and to exert pressure on tourism. Takaichi has leveraged the confrontation to strengthen her domestic position and push military reforms, while China has framed her as a nationalist threat and signaled economic leverage without triggering full-scale retaliation. With both sides escalating cautiously through trade restrictions, military posturing, and maritime activity, the dispute risks becoming a prolonged strategic rivalry with significant supply-chain and regional security implications.

**Trump’s Doctrine in Iran and Beyond (The Wall Street Journal)**

Seth Cropsey argues that the U.S.-Israeli strike on Iran crystallizes a coherent “Trump doctrine” that applies tailored, overwhelming force against exposed partners of Russia and China to strengthen deterrence. He contends that targeting Iran after similar pressure on Venezuela and Cuba undercuts rival great powers while reinforcing U.S. credibility and military primacy. Cropsey maintains that sustained sanctions, precise strikes, and regional leverage could trigger systemic collapse in Tehran, framing decisive action as the surest path to long-term peace through restored deterrence.

### MARKET DASHBOARD

Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.

- Ambiguity in the US tariff policy could restrain the economic outlook

- Cyclical trajectories globally are less synchronized due to trade fractures

- Incipient private market dislocations warrant monitoring

### MARKET RECAP

Global financial markets had a mixed week.

- In equities, the S&P finished +1.1% on the week, as the SCOTUS ruling on IEEPA tariffs on Friday offset private credit worries stemming from Blue Owl’s decision to suspend redemptions. Non-US equities continued their outperformance, with European bourses gaining as much as +2.9% (Spain). In Asia, while most markets were closed for the Lunar New Year holidays, South Korea hit a new high on Friday, up a blistering +5.5% from a week ago.

- In currencies, the US dollar advanced against the majors, with the Japanese yen (-1.5%) and the British Pound (-1.3%) among the main losers. The notable exception was the Chinese yuan, which gained half a percent against the greenback.

- Global bonds had a mixed week. US Treasuries gave back some of the prior week’s gains in response to the hawkish tilt in the January FOMC minutes and a higher-than-expected December core PCE print (+3.0% YoY). The 10-year yield closed at 4.08%, +3 bps from a week ago. By contrast, Japan extended its post-election rally on foreign buying, with the 30-year JGB yield ending the week at 3.32%, the lowest since late November.

- In commodities, crude oil rose 6.1% amid growing fears of US-Iranian military action. Precious metals also had a strong week, with silver outperforming, advancing +9.3%. A safe haven bid pushed gold +1.3% to close above $5,100 for the first time since January 29. However, cryptocurrencies remained sluggish, with Bitcoin ending the week down 1.6%.

### LOOKING AHEAD THIS WEEK

Next week’s key US data releases include February consumer confidence and January producer price index. Markets will be looking for further clarity on tariff developments, particularly as it relates to the refund process following the SCOTUS ruling on IEEPA tariffs, as well as the 10% global tariff (raised to 15% early Saturday) under Section 122 of the Trade Act of 1974 that was signed by President Trump late Friday. Investors remain wary of a potential US military strike on Iran, although Congress members are reportedly preparing for a vote this week to block President Trump from launching attacks on foreign countries without congressional approval.

### FOCUS THEME: Cyclical Growth Paths Turn Less Synchronized

US economic momentum decelerated sharply toward the close of the year. GDP grew a paltry 1.4% QoQ (consensus 2.8%) in Q4, down from an average 4.1% QoQ in the preceding two quarters. The outturn largely reflected a one-off drag from the 43-day government shutdown, spanning nearly half of the October–December period. Household consumption cooled but remained sturdy, while IT capex continued to hold up.

The Q4 disappointment in the US stands in stark contrast to impressive Q4 GDP prints in Taiwan, Hong Kong, and Singapore. Despite their openness, the impact of heightened global trade tensions on all three economies has not been as significant as feared, suggesting that idiosyncratic factors are steering their cyclical paths.

**Taiwan.** The economy finished the year on a high note, with Q4 GDP up a staggering 12.7% YoY (consensus 8.8%), the fastest pace in nearly four decades. Full-year 2025 growth reached a 15-year high of 8.7%, led by insatiable demand for high-end semiconductors. TSMC recently guided its AI accelerator revenue CAGR to the mid-to-high 50% through 2029. With 2026 projections near 8%, Taiwan is poised to remain one of the fastest-growing economies.

**Hong Kong.** Q4 GDP growth accelerated to a two-year high of 3.8% YoY (consensus 3.0%), lifting full-year growth to 3.5%, the fastest annual expansion since 2021. Financial services provided a strong boost, driven by a blockbuster year of IPO listings from new energy and tech companies. Policymakers are stepping up efforts to establish Hong Kong as an international gold trading hub.

**Singapore.** GDP expansion hastened to a five-quarter high of 6.9% YoY in Q4, buoyed by AI-led electronics manufacturing and trade flow shifts from supply chain adjustments. The government recently upgraded its 2026 growth forecast to 4%.

Despite Q4 weakness, the US economy grew by 2.2% in 2025, topping the G7 GDP league table for a sixth consecutive year. Nevertheless, the narrative of US exceptionalism may face greater scrutiny given persistent policy uncertainty. The twists and turns surrounding US tariffs, culminating in the Supreme Court ruling last Friday, pose real challenges for long-term business capex. For a global investor, desynchronized growth paths support the case for active country diversification.

### HEARD THROUGH THE GRAPEVINE

Beneath this week’s headlines, the market quietly reprices a new world order. These five pieces capture the forces driving that shift: a tariff regime thrown into legal limbo, a nuclear standoff with no clear off-ramp, a historian’s Cold War warning, a new case for active management, and a slow-motion entitlement reckoning heading toward your retirement income.

**The Court Strikes Down Trump’s Tariffs — Then He Raises Them Anyway (Bloomberg / Reuters)**

In a 6-3 ruling on Friday, the Supreme Court held that IEEPA does not authorize the president to levy import duties, invalidating over $160 billion already collected and triggering a refund process expected to take 12 to 18 months. Hours later, Trump signed a new 15% global tariff under the Trade Act of 1974, and Treasury Secretary Bessent insisted collections would remain “virtually unchanged.” The ruling shifts the tariff era toward a slower, patchwork set of legal mechanisms, adding months of uncertainty ahead of Trump’s Beijing summit in late March.

**Iran: “Guiding Principles” Agreed, but Two Aircraft Carriers Are Parked Nearby (Axios / Al Jazeera / The Soufan Center)**

The second round of U.S.-Iran nuclear talks concluded in Geneva, with both sides claiming agreement on “guiding principles” for a deal framework, a modest step forward from the opening Oman session. The U.S. has also deployed two carrier strike groups to the region, with more than 50 advanced fighter jets within striking distance of Iranian territory. With Trump pressing deadlines and Iran holding firm on enrichment rights and missiles, diplomacy and military escalation are running in parallel, and the outcome will move oil markets and defense equities.

**Welcome to Cold War Two: Niall Ferguson on AI, Geopolitics, and the New Competition (Hoover Institution / World Economic Forum / Free Press)**

Hoover Institution historian Niall Ferguson argues that the U.S.-China rivalry is a genuine “Cold War Two,” more economically entangled than its predecessor and, because of AI, more dangerous and unpredictable. He draws a parallel to the printing press, which similarly redistributed information and destabilized existing power structures across Europe. His core warning: the technological arms race is accelerating, and the outcome of the U.S.-China AI contest will determine which capital markets lead for the next generation.

**The “Smart Money” Is Back: Active Management Finally Outperforming Passive (Bloomberg)**

In a market rattled by tariff whiplash, AI disruption fears, and stretched valuations, tactical active management is outperforming passive strategies in ways rarely seen over the past decade. Nearly 30% of S&P 500 companies have risen or fallen by more than 20% over three months, creating the dispersion that rewards research-driven stock selection, with chipmakers rallying while legacy software firms fall. After years of index fund dominance, the case for selective, actively managed strategies across equities and fixed income is re-emerging, backed by real data.

**The Social Security Clock Is Moving Faster Than Congress (CBO / Fortune / Committee for a Responsible Federal Budget)**

This week’s CBO outlook moved the Social Security insolvency date up a full year to fiscal 2032 and raised the projected automatic benefit cut from 24% to 28%, meaning a retiree receiving $2,000 per month could face a reduction of roughly $560 monthly without congressional action. The drivers are converging tariff-driven inflation, lifting cost-of-living adjustments, slower payroll tax growth from reduced immigration, and a retiring generation drawing benefits faster than workers can replenish them. For families with multigenerational wealth plans, the 2026 midterms represent the last realistic legislative window before this deadline turns imminent.

- Downside inflation surprise and strong payroll report bolster US cyclical stability

- Price volatility in alternative assets persists, but no sign of market contagion

- Concerns over long-term debt sustainability on the back burner, for now

### MARKET RECAP

Financial markets ended the week mixed across asset classes.

- Global equities saw Asia-Pacific leading the pack, with outsized weekly returns in Korea (+8.2%), Japan (+5.8%), and Thailand (+5.6%). In the US, the S&P shed -1.4%, led by financials amid fears of AI-induced disintermediation.

- In currency markets, a weak-dollar theme resumed after a one-week hiatus. The Japanese yen and the Thai baht gained +3.0% and +1.8% respectively, buoyed by post-election optimism. The Norwegian krone (+1.7%) was the distinct outperformer in Europe, given diminished prospects of a rate cut following an upside CPI surprise.

- Global bonds had a uniformly strong week. US Treasuries overcame a solid January employment report, as a downside CPI surprise pushed the 10-year bond yield down to 4.05%, the lowest since last November. In Japan, long-dated bonds closed -12 bps as investors digested Prime Minister Sanae Takaichi’s fiscal expansion plans.

- For precious metals and cryptocurrencies, market action remained choppy, with silver plummeting by 10.7% on Thursday. For the week, silver retraced its losses to finish -0.5%, but gold showed tenacity, gaining +1.6%. Bitcoin traded below the $70,000 level for most of the past week.

### LOOKING AHEAD THIS WEEK

Despite a shortened week due to Presidents’ Day, a slew of data releases (Q4 GDP, durable goods, industrial production, flash PMIs, and FOMC minutes) will provide further clues on the state of the US economy. Major markets across Asia are closed for the weeklong Lunar New Year holidays.

### FOCUS THEME: Quick Thoughts on the Dollar’s Exorbitant Privilege

Last week, Chinese regulators reportedly urged domestic banks to reduce Treasury exposure, citing volatility and concentration risk. This is consistent with China’s decade-long shift away from Treasuries, with holdings down from a $1.3 trillion peak in 2013 to $682 billion today. Separately, pension funds in Denmark, the Netherlands, and Sweden have also reduced or exited Treasury positions over the past year.

Meanwhile, the Congressional Budget Office’s (CBO) annual report last Wednesday warned that the U.S. fiscal path is unsustainable, echoing similar concerns raised by Fed Chair Powell in January. The agency projects a $1.4 trillion increase in deficits over the next decade, driven by tax and immigration policies. As a share of GDP, the deficit is expected to rise to 6.7% by 2036, up from 5.8% this year and well above the long-term average of 3.8%.

These developments have raised questions about the dollar’s status as a reserve currency and its role in financing persistent deficits. In our view, those concerns may be overstated in the near term for two reasons.

First, relative to other G7 countries, U.S. reliance on foreign investors is not unusually high. Foreign ownership of Treasuries has declined from nearly 50% in 2008 to about 30% today—roughly in line with Germany and the UK, and well below France’s 54%.

Second, while the U.S. net international investment position has deteriorated sharply to -90% of GDP from -10% two decades ago, much of this reflects valuation effects. Strong outperformance of U.S. assets and dollar appreciation have increased the dollar value of foreign-held liabilities, mechanically weakening the NIIP.

*Source: Federal Reserve Bank of St Louis*

Not surprisingly, bond markets showed little reaction to either headline. Instead, a softer-than-expected CPI print drove a Treasury rally, with the 30-year yield falling to 4.70%, its lowest level since November.

That said, medium-term risks remain. Running deficits at full employment postpones fiscal adjustment, political pressure on the Fed could complicate policy, and geopolitical tensions may gradually weaken foreign demand for Treasuries, particularly from central banks.

Over the next 3–5 years, the dollar may gradually decline as global portfolios rebalance, though likely in an orderly fashion. Its dominant role should remain intact, supported by deep, liquid U.S. financial markets and strong network effects, even as competition from currencies such as the yuan intensifies.

### HEARD THROUGH THE GRAPEVINE

Beneath calm index levels, markets are undergoing a quiet but meaningful repricing. These five pieces highlight the forces driving that shift, from AI’s impact on business models and capital allocation, to rising geopolitical risk, evolving financial infrastructure, and the broader societal changes shaping the next generation.

**Why Stocks Are Making Gigantic Moves All Over the Place (Barron’s)**

Individual stocks are making unusually large moves even as overall market volatility remains subdued. Nearly 30 percent of S&P 500 companies have risen or fallen by more than 20 percent in the past three months, as AI reshapes profit expectations across industries. Chipmakers, data center suppliers, and commodity producers are rallying, while many software firms are falling on fears that their business models may be disrupted. Hedge fund inflows and momentum-driven strategies are amplifying both the upside and downside.

**Investors reluctant to ‘buy the dip’ after AI scares (Financial Times)**

Investors are no longer stepping in to buy stocks that fall on AI disruption fears, reflecting deeper uncertainty about which business models will endure. Even sharp declines in sectors like wealth management, trucking, and real estate have failed to attract the usual bargain hunters, as traditional moats are being reassessed. Institutional capital is shifting toward hardware and infrastructure and away from vulnerable software models. The hesitation reflects a growing recognition that AI is not just another cycle, but a structural shift in profit pools.

**Donald Trump says regime change ‘the best thing that could happen’ in Iran (Financial Times)**

President Trump publicly suggested regime change in Iran would be desirable while deploying a second aircraft carrier strike group to the Middle East, signaling a sharper escalation in posture. The military buildup, including advanced ships, aircraft, and missile defenses, increases US leverage as nuclear negotiations with Tehran continue. The move reflects both preparation for potential military action and an effort to pressure Iran into concessions at the negotiating table. Markets will view this as raising geopolitical risk, particularly for oil, defense spending, and broader regional stability.

**Don’t ban teenagers from social media (The Economist)**

The article argues that banning teenagers from social media would likely cause more harm than good, despite widespread concern about mental health and safety risks. Evidence linking social media to widespread psychological damage remains limited, and bans would be difficult to enforce, potentially pushing teens toward less safe or less regulated platforms. Social media also provides meaningful benefits, especially for isolated or marginalized teens who rely on online communities for support and information. The better solution is stronger regulation, improved safety features, and more transparency from tech companies rather than outright prohibition.

**Asia is turning stablecoins into banking infrastructure (The Economist)**

Stablecoins are rapidly becoming a core part of financial infrastructure across Asia, especially for remittances, freelance payments, and cross-border business transactions. Workers and businesses are using dollar-pegged tokens to avoid high banking fees and delays, with global stablecoin transfers exceeding $4 trillion in recent periods. Adoption is strongest in countries with large freelance populations and remittance flows, where stablecoins offer faster settlement and lower costs than traditional banks. The shift suggests stablecoins are evolving from speculative assets into practical payment rails that could reshape cross-border finance.

Thank you for reading CrossLight's Weekly Perspectives… This note is strictly for informational purposes only and does not constitute investment advice for the reader.

Silver isn’t a commodity. It’s a risk asset — just ask the IMF.

KEY TAKEAWAYS

● Consumer resilience continues to be supportive of US growth

● Rotation by sector and geography reflects theme of defensiveness and diversification

● Deleveraging concerns in risk assets are a key market factor to watch

MARKET RECAP

Financial markets ended a volatile week off the lows after a sharp Friday rebound in risk assets.

● Precious metals and cryptocurrencies had another roller-coaster week, marked by key price breaks amid concerns about deleveraging. Silver plunged -20% on Thursday, ahead of a COMEX hike in margin requirement to 18% from 15%. Bitcoin briefly touched a 15-month low of $60,000 and finished the week down 12%.

● Bonds were mostly firm amid a retreat in risk assets. The 10-year Treasury yield closed at a 10-day low of 4.21%, as weak labor market data offset solid consumer sentiment. Markets are pricing in two rate cuts this year, despite Fed Chair nominee Kevin Warsh’s reputation as a balance sheet hawk.

● Equities saw flows rotate out of technology into defensive and value plays (consumer staples, industrials, and energy). The Dow Jones Index advanced +2.5% to print above the 50,000 level for the first time, while the S&P ended flat on the week. Outside the US, Europe, India, and Japan rallied, while Australia, China, and South Korea consolidated.

● Major currencies took a breather from the weak-dollar theme. The Japanese yen lost -1.6% ahead of this weekend’s snap elections, while the Euro pared losses by 0.3%. However, EM FX generally outperformed, led by the Indian rupee (+1.5%) and the Mexican peso (+1.1%).

LOOKING AHEAD THIS WEEK

The upcoming week is relatively quiet on the data front, except for the delayed release of the January non-farm payroll report (consensus +69k) on Wednesday, due to the brief government shutdown, and the January CPI (consensus +2.5% yoy) on Friday. The annual Munich Security Conference takes place on February 13–15, providing a timely forum for discussing global security issues, including military conflicts and cybersecurity.

FOCUS THEME: Every Rout has a Silver Lining?
Silver volatility recently spiked to its highest level since 1980. After reaching an all-time high of $121.65/oz on January 29, the price of silver plummeted 26% the next day, marking the largest single-day decline. After a brief respite, silver dropped a further 20% on February 5. These drastic corrections coincided with a similar pullback in cryptocurrencies and other precious metals.

Like gold, spikes in silver volatility are usually a symptom of underlying market stress, as seen during the 2008 credit crisis and the 2020 pandemic (see chart below). However, unlike gold, which primarily serves as a store of value, silver is used as an essential input in a wide range of manufacturing processes. Additionally, for the same dollar value, storage costs are much higher for silver than for gold. Furthermore, the silver stockpile tends to be inelastic, as most of its supply is a byproduct of mining other base metals. In fact, demand has consistently outstripped supply since 2021. Consequently, silver has historically been more volatile than gold and is not classified by the IMF as a reserve asset.

Source: Bloomberg; XAGUSD 3 month at-the-money implied volatility

Some commentators point to the January 30 announcement of Fed Chair nominee Kevin Warsh, previously known as an inflation hawk, as the cause of the rout. However, we believe the latest bout of silver volatility has been fueled by a confluence of market factors — asset reallocation, animal spirits, and national strategy — that led to the severe price dislocations.

First, a buildup of geopolitical anxiety over the past year has bolstered the secular appeal of precious metals, an asset class long overlooked. Given stretched equity valuations, tech bubble fears, and weak-dollar expectations, strategic year-ahead allocations from both institutional and retail investors likely fueled the inordinate price gains in December and January.

Second, silver has drawn momentum-based flows. Surging leveraged plays in China have led to new price breaks during Asian hours. However, the market frenzy has unintended consequences. In the past week, a Shenzhen-listed silver futures fund suffered multiple trading halts as staggering inflows drove its premium well above its underlying assets.

Third, silver has emerged as a strategic resource for the modern economy. Its use has increased in the production of electric vehicles, solar panels, and consumer electronics. Similarly, AI data centers and defense supply chains have boosted silver consumption. Last November, the US declared silver a critical mineral. China has tightened restrictions on silver exports through the end of 2027.

In the longer term, a combination of industrial demand and supply bottlenecks should underpin silver prices. Nevertheless, from an investment perspective, our view is that silver will remain prone to boom-bust price swings, given its smaller market cap, the absence of a central bank bid, and the dominance of footloose investors. Accordingly, silver should be allocated only to high-risk portfolios and not treated as a safe-haven asset.

HEARD THROUGH THE GRAPEVINE

This week’s Heard Through the Grapevine reflects a market that looks stable on the surface but feels less certain underneath. Fewer recessions, greater policy intervention, and longer cycles have pushed asset prices higher, leaving less margin for error. That strain is starting to show in the dollar, in cross-border capital flows, and in how investors are reassessing concentrated exposure to US tech and AI. Add in a geopolitical backdrop that markets are largely discounting, and the common thread is not panic but growing sensitivity to credibility, diversification, and downside risk.

The Downside of Staving Off Recessions (Financial Times): Modern economies have experienced fewer recessions as governments and central banks have become more aggressive in stabilizing growth. That stability has come at a cost: it has encouraged excessive leverage, inflated asset prices, and weaker productivity, as inefficient firms are kept alive. The danger is that with debt already high and policy tools stretched, the next downturn may be harder to contain and more damaging when it arrives.

U.S. Dollar Rebound to Be Cut Short by Rate Cut Bets, Doubts Over Fed Independence (Reuters): A Reuters poll of FX strategists suggests the dollar’s recent rebound is temporary, with most expecting it to weaken again later this year as markets continue to price in US rate cuts and question Federal Reserve independence. Despite inflation remaining above target, investors largely expect easier policy under political pressure, which would push real yields lower and weigh on the dollar. Strategists see choppy trading in the near term and a gradual depreciation over the medium term, with net-short dollar positioning likely to persist.

Europe, Asia Lead Global Equity Fund Inflows as Investors Cut U.S. tech exposure (Reuters): Global equity funds attracted $31.5bn in inflows, led by Europe and Asia, as investors diversified away from volatile U.S. technology stocks. European equities saw their strongest demand since April as markets hit record highs, while tech funds experienced net outflows amid sector rotation. At the same time, investors increased allocations to bonds, money markets, and gold, signaling a broader shift toward diversification and risk management rather than outright risk-taking.

How to Hedge a Bubble, AI Edition (The Economist): As massive AI spending revives fears of a tech-led bubble, investors are seeking protection without sacrificing upside. Traditional hedges, such as government bonds, may no longer be effective if inflation or policy instability causes stocks and bonds to move in tandem. Options-based hedging can be costly and erode long-term returns. Historical evidence suggests that the most effective hedge may be to remain invested and shift toward lower-volatility, higher-quality equity strategies, rather than attempting to time an exit or relying on traditional safe havens.

China Warns US Arms Sales to Taiwan Could Threaten Trump Visit in April (Financial Times): The US is preparing a major new arms package for Taiwan, potentially worth up to $20bn, prompting Beijing to warn that the move could jeopardize a planned Trump–Xi meeting in April. US officials view the warning as a pressure tactic and cite long-standing legal obligations under the Taiwan Relations Act. China’s unusually blunt stance highlights rising tensions as Washington signals continued support for Taiwan’s defense.

MARKET DASHBOARD

Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.