Key Points
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Oil and gas prices have risen sharply following the attack on Iran. Equity markets declined, while yields and the US dollar strengthened at the beginning of March.
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The US Supreme Court ruled that the tariffs introduced by Trump last year were unlawful, but the administration has found alternative ways to maintain tariff pressure.
- So-called “Software and Services” companies are being negatively impacted by the launch of new AI products.
Read the full Market Outlook for March (PDF)
Oil price spike following Iran attack
Shortly after the Venezuela attack, the United States joined Israel in launching strikes against Iran following a period of attempted negotiations. Iran’s Supreme Leader was killed in the attacks, and retaliatory strikes were carried out against US military bases, neighbouring countries, and Israel. Iran also announced plans to close the Strait of Hormuz, through which approximately 20% of global oil exports pass. This triggered a sharp increase in oil prices, which had already risen since January in anticipation of a potential attack after the US moved substantial military capacity into the region. Brent crude increased from around USD 70 per barrel to just under USD 85 per barrel. Since the start of the year, oil prices are therefore up nearly 40%, or more than USD 20 per barrel. Gas prices have also risen sharply.
Should the conflict prove prolonged, this would weigh on global growth prospects while simultaneously lifting inflation expectations. This is where the main uncertainty lies, despite President Trump indicating the conflict could last up to four weeks. Equity markets — sensitive to growth expectations — have declined, while bond yields — sensitive to inflation expectations — have risen. At the same time, the US dollar has strengthened amid renewed uncertainty.
Tariff setback without tariff removal
In February, the US Supreme Court ruled that several of the tariffs introduced last year under the International Emergency Economic Powers Act (IEEPA) were unlawful. In practice, these tariffs must therefore be reimbursed, representing a significant setback for the Trump administration’s trade policy. However, tariffs as a policy tool have not been removed. Immediately following the ruling, Trump introduced new tariffs under a different legal authority (Section 122 of the Trade Act of 1974), imposing a 10% rate. One key difference is that these tariffs are time-limited and require Congressional approval for extension beyond 150 days. The administration also retains alternative legal avenues (Sections 232 and 301) to implement tariffs. Nevertheless, the court ruling makes trade policy more complex and less predictable than under IEEPA. On one hand, the ruling demonstrates institutional independence and limits to executive authority. On the other hand, uncertainty surrounding tariffs persists. Some estimates suggest the effective tariff rate may now be somewhat lower under Section 122 — and potentially even lower after 150 days.
Broadening out of the AI boom
Beyond geopolitics, trade policy and earnings season, market focus in February shifted toward Anthropic’s launch of new Claude products. This marked, in many ways, a new phase in the AI boom, negatively impacting several “Software and Services” companies, as AI solutions may render parts of their products and services cheaper or redundant. This can be viewed as the disruptive and “negative” aspect of the broadening out of AI adoption. The positive effects thus far have included increased investment in data centres and energy infrastructure, as well as sector rotation.
Global Equities – Neutral
Global equities, as measured by MSCI World in local currency terms, rose nearly 1% in February, marking the tenth consecutive month of gains — prior to the Iran attack, which subsequently pushed markets lower. Earnings season has progressed constructively. However, the sharp rise in oil prices in March has led to downward revisions in growth expectations and future earnings forecasts. A prolonged conflict in Iran would have tangible real economic consequences. We are moving back to a neutral weight in global equities.
Norwegian Equities – Overweight
The Oslo Stock Exchange rose more than 7% in February, reaching a new all-time high — significantly outperforming global equities. The increase was partly driven by the rise in oil prices ahead of the Iran attack. Equinor gained 10% and DNB 9% in February. Together, these two companies now account for just under one-quarter of the OSEBX index. Oil and gas prices rose further in March following the Iran attack, and the Oslo market has held up relatively better. We have taken some profit but remain overweight Norwegian equities overall.
Emerging Markets – Overweight
Emerging market equities in local currency terms continued to rise in February, extending their outperformance versus developed markets. In particular, South Korea and Taiwan have posted strong gains, with the former up 56% year-to-date in local currency terms. Attention has centred on how a potential closure of the Strait of Hormuz could impact China’s oil imports, including purchases from Iran. In the short term, this is likely manageable given China’s oil inventories. We remain overweight emerging markets.
Global Government Bonds – Underweight
Global government bonds (JPM GBI) rose nearly 2% in February. The decline in long-term yields was broad-based across regions, despite solid macroeconomic data prior to the Iran attack. Some of the move likely reflected positioning ahead of a potential escalation. Following the rise in oil and gas prices in March, part of February’s yield decline has reversed. The longer the conflict persists, the greater the upward pressure on inflation expectations and the more significant the implications for central banks. We remain underweight duration in global government bonds.
Norwegian Government Bonds – Neutral
Norwegian government bonds (NOGOVD3) rose modestly by 0.3% in February. Norwegian inflation data surprised significantly to the upside, prompting many to revise interest rate expectations. The entire yield curve shifted higher by approximately 20–25 basis points. Core inflation came in at 3.4% year-on-year, with broad-based price pressures. On the other hand, the Norwegian krone has appreciated markedly year-to-date, which should dampen imported inflation going forward. We remain neutral duration and neutral Norwegian government bonds.
Swedish Equities – Overweight
Swedish equities, as measured by OMXS30G, rose another 7% in February, marking the eighth consecutive month of gains before the Iran-related sell-off. Most of the February gains were erased in early March. Alongside broader European equities, Sweden has been among the markets most negatively affected by the rise in energy prices, which is particularly challenging for Europe. We realized some profits in mid-February but remain overweight Swedish equities overall.
Swedish Government Bonds – Neutral
Swedish government bonds (OMRX) rose 1.4% in February. Swedish yields largely followed international and German yields during the month, before reversing higher in early March due to rising inflation expectations. Swedish inflation data came in slightly below expectations, while the Swedish krona has weakened. We remain neutral duration and neutral Swedish government bonds.
Credit – Overweight
Credit spreads, as measured by the Barclays Global Credit Index, widened in February. However, spread levels have merely returned to those seen in November. Risk appetite declined ahead of the Iran escalation, likely reflecting expectations of military action. Some uncertainty related to AI developments may also have contributed. We remain overweight credit and corporate bonds overall.
Read the full Market Report here (PDF)