Written by Naomi Rovnick
LONDON, June 9 (Reuters) – Turmoil in global markets this past week shows the economy is on a knife’s edge, investors say, as the possibility of AI boosting growth or oil panic over the US-Iran war pushing stocks and bonds.
World stocks hit an all-time high on June 3, suffered their worst day since October two days later, and spent the week pulling back the course in line with US President Donald Trump’s volatile rhetoric on Iran and rapidly shifting bets on whether the Strait of Hormuz shipping lane could be reopened.
“Most investors have been thinking that in less than three months we will reach the reopening of the road,” said the head of Lombard Odier Investment Managers’s macro and multi-asset portfolio manager Florian Ielpo.
“If we continue to expect oil prices of $95 or more for many months, that would be a complete change of perspective and a downward trend,” he added. “The market is moving on a thin line.”
ALL IN COOPERATION
As interest rate and inflation markets, the outlook for oil and technology investment bets have become more closely related, many apparently uncorrelated assets have moved together in recent months.
AI-driven optimism has boosted Wall Street stocks and US domestic treasuries, raised official growth forecasts for the coming years, fueled a strong expansion in Asian exporters and lifted sentiment in assets around the world from global stocks to Greek debt.
Taiwan is expecting its best economic growth in 16 years by 2026 thanks to blockbuster semiconductor exports, while global tech consumption has sent imports and exports soaring to China, the world’s largest consumer of goods.
This is one of the reasons why the British index FTSE 100, which is full of energy producers and miners, stopped its usual tendency to go against the so-called growth stocks in the technology industry and started to rise alongside them.
THE FLIPSIDE
This technology-driven correlation will also make it more difficult to find safe havens if fears about inflation and rate hikes slowing the use of AI begin to drive global markets, investors have warned.
After markets hit 70% of the US rate hike on Friday, South Korea hit a 17-year low and the country’s tech-heavy share index Kospi fell nearly 9% in a few hours.
Alessia Berardi, global head of macroeconomics and emerging markets at the research arm of Amundi, Europe’s largest asset manager, said she was still in favor of equity, and that markets were not pricing in the closure of Hormuz for a long time.
“But policy cuts (interest rates) and high oil prices and shortages will mean the risk of inflation, and some countries are entering recession,” it warned.
Energy supply shocks are already creeping into non-tech economies such as Germany and India.
BUY A DIP?
Professional asset managers have become accustomed to short-term political shocks that cause rapid sentiment swings since Trump’s so-called Liberation Day tariff blitz in April 2025 hurt US stocks before retail investors entered a dramatic recovery trade.
“If you think the Strait is going to stay closed for a long time and that we’re going to get demand destruction and inflation, that’s a period of stagflation in your portfolio,” said Invesco’s global head of research Ben Jones.
“History has taught us that these global risks will pass and when they do, they tend to cause markets to rally quickly,” he said.
In the days after Trump’s tax announcements sent shockwaves through global markets, Wall Street’s S&P 500 share index plunged sharply, then unleashed a swift and brutal rout. Equity and bond prices have also risen significantly since the COVID-19 pandemic.
COMBINATION
Michael Nizard, head of Multi-asset at Edmond de Rothschild Asset Management, said he was adding to the other benefits of stock market volatility.
Some asset managers said they are now buying more insurance products instead of more equities.
Carmignac investment committee member Kevin Thozet said he is increasing US inflation-linked debt because market forecasts for US consumer prices are not taking into account. Building a data center will cost a lot of money and increase electricity prices, he said.
Lombard Odier’s Ielpo said it is hedging its market bets by holding stocks while reducing government debt, which would be a safe bet but consistent with inflation forecasts.
The German Bund yield neared a 15-year high as the price of debt fell amid the Iran war, while Japan’s 10-year yield touched a ten-year high.
The average volatility of the bond market is about 5% above its pre-war level. Stock market volatility is close to its long-term average, but 35% higher year to date.
(Reporting by Naomi Rovnick; Editing by Jan Harvey)
