Geopolitical deal optimism and ECB policy (with Tom, Jamana)

Ludovic Subran discusses the market's pricing of a potential US-Iran deal, noting equity markets have already rallied on AI and fundamentals, but bond markets may see a relief rally. He expects the ECB to hike twice but warns of recession risks in Europe later in the year, and highlights the risk of a 'cliff effect' from concentrated AI-driven market gains.

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Geopolitical deal optimism and ECB policy (with Tom, Jamana)

dxy

Subran mentions the dollar is a big question and many expect it to get a dent on a ceasefire.

yields

Subran expects a rally on the bond side as financing costs have gone up, but also notes the ECB will hike, pushing yields up in the short term.

Jamana

Questions whether a relief rally is still possible given how much optimism is already priced in regarding a US-Iran deal.
Ludovic Subran

Equity markets have already rallied on AI and strong fundamentals, so a further relief rally is less likely. A bond rally is more probable as government financing costs have risen.
Ludovic Subran

The impact of a ceasefire on the real economy will be felt two quarters later, potentially causing volatility in inflation prints.
Tom

Asks if Subran still buys European fixed income given expected higher CPI prints.
Ludovic Subran

Yes, because the curve is still steep enough to play. The main concern is a recession in Europe in the second half of the year, not inflation.
Jamana

Asks if the market pricing of two ECB hikes this year is justified, or if it risks a policy mistake.
Ludovic Subran

The ECB can hike to 3-3.5% without a policy mistake due to high savings rates and resilient corporate margins. Beyond that would be walking a tightrope.
Jamana

Asks about the tech play in Europe.
Ludovic Subran

Europe is a price receiver in the AI story. European companies are worried their market caps will be dented by dependence on US AI actors.
Tom

Asks if the upcoming mega IPOs (SpaceX, Anthropic, OpenAI) could cause the AI trade to stall.
Ludovic Subran

The market's narrowness (entropy) will become massive. These IPOs will create another accumulation point, leading to even more concentration on a few volatile stocks.
Jamana

Suggests a new paradigm for investing is needed if all these IPOs come through.
Ludovic Subran

There is not enough thinking about the systemic implications of passive investing force-feeding these stocks. Governance is also a key risk, as success is linked to a single visionary person.

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