Summary: We remain positive. Global markets are weathering the complex backdrop of geopolitical tension in the Middle East, balanced against surprising resilience in US corporate fundamentals.
- Fed Transition: Kevin Warsh’s path to the Fed Chairmanship has cleared following recent political shifts in Washington. While seen as dovish on inflation measurement, his desire to shrink the Fed’s balance sheet could introduce volatility into long-term interest rates. Confirmation is expected by 15 May 2026.
- Energy Risks: Oil risks remain skewed to the upside. While the base case assumes a mid-May reopening of the Strait of Hormuz, a ‘severely adverse’ scenario involving production scarring could see Brent significantly exceed current forwards. Crucially, refined product shortages (diesel/jet fuel) currently pose a larger macro threat than crude prices alone.
- Equity Markets: US Q1 earnings have been robust, with 60% of companies exceeding expectations. The AI hardware sector continues to lead, rising 40% over the last month. Corporate confidence is reflected in record-level buybacks and M&A activity, despite cautious consumer sentiment.
- Private Credit: Private credit woes continue to make headlines, primarily related to structures designed for wealth management clients and sold with an expectation of 5% liquidity per quarter. Despite headlines regarding retail redemptions, institutional fundamentals remain healthy. A technical supply-demand imbalance has created an attractive entry point for patient capital, with new deal yields increasing by 15–20%.
- Asia Perspective: A stagflationary ‘split’ is emerging; South and SE Asia are under pressure from energy imports, while North Asian economies (Japan/China) are utilising substantial reserves and subsidies to cushion the shock.
NJR Partners — Implications for Portfolio Construction
- Asset Allocation: We remain underweight; however, our 1.5% commodities weighting may require protection or expansion if the ‘severely adverse’ oil scenario ($100+ Brent) becomes more probable.
- Private Credit: We have no exposure to retail structures, and allocations to private markets are funded within our 40% ‘illiquid’ limit. We currently hold an overweight position and are unlikely to add further.
- Portfolio Construction: Defensive assets (gold, bonds, cash, tail risk) remain critical. The inflation outlook may be tested as the transition from Powell to Warsh introduces unpredictability into FOMC meetings. Australian longer-dated inflation-linked bonds are currently offering a real yield of ~2.75%. We intend to reduce our underweight government bond position.
26 Apr 2026