Geopolitics, Policy And Earnings

Standard Chartered expects the latest escalation in the Middle East to keep energy markets volatile in the near term but believes political and economic constraints will prevent the conflict from spiralling into a prolonged global energy crisis. In its latest global market outlook, the bank said renewed hostilities involving the United States, Iran and Yemen’s Houthi movement have disrupted shipping through the Red Sea, pushing oil and gas prices higher while driving government bond yields sharply upward. Despite the geopolitical risks, Standard Chartered believes US crude oil (WTI) is likely to trade within US$70 to US$90 per barrel over the coming months, limiting the broader economic fallout. According to the bank, Iran has shown restraint by avoiding attacks on major Gulf oil producers such as Saudi Arabia and the United Arab Emirates, while political considerations in the United States could discourage further escalation ahead of the November mid-term elections. “Any meaningful rise in US gasoline prices would place significant political pressure on President Donald Trump to resume negotiations,” the report noted. Central Banks Expected To Hold Rates Standard Chartered expects most major central banks to leave interest rates unchanged this month as policymakers assess whether higher energy prices will have a lasting impact on inflation. The bank noted that the European Central Bank’s decision this week to maintain its deposit rate at 2.25% reflects a cautious approach, although it believes another 25-basis-point increase later this year remains possible should elevated energy prices feed into broader inflation. In the United States, Standard Chartered maintained its view that the Federal Reserve is likely to keep interest rates unchanged for the rest of the year, supported by moderating wage growth and easing services inflation. The report said softer-than-expected US inflation data for June reinforced expectations that inflation peaked during the second quarter. However, the outlook differs in Japan, where the Bank of Japan could face increasing pressure to tighten monetary policy as a weaker yen fuels imported inflation and stronger wage growth. Bond Yields Rising The renewed geopolitical uncertainty has also triggered a sell-off in global bond markets. Standard Chartered highlighted that the US 10-year Treasury yield has climbed above 4.7%, increasing by almost 35 basis points since late June. The bank believes the two- to five-year segment of the US Treasury market offers attractive investment opportunities, particularly if oil prices stabilise and expectations for additional rate hikes begin to ease. It also favours US inflation-protected securities, noting that real yields have risen above 2.4%, approaching their highest levels since the 2008 global financial crisis. Equities Face Short-Term Pressure Higher bond yields and rising oil prices have weighed on equity markets in recent weeks, particularly technology stocks. Standard Chartered estimates that every 25-basis-point increase in bond yields can reduce global equity valuations by approximately 3% to 4%, reflecting the higher discount rates used to value future earnings. Nevertheless, the bank remains constructive on global equities, supported by robust corporate earnings and continued investment in artificial intelligence. It expects earnings growth of between 15% and 20% during 2026 and 2027 to offset much of the pressure from higher interest rates. AI To Drive Earnings Growth Standard Chartered expects large technology companies to deliver another strong earnings season, driven by continued commercialisation of artificial intelligence. The report noted that the technology sector has accounted for more than half of global earnings upgrades since February, with AI adoption still in the early stages of what it describes as a multi-year growth cycle. As a result, the bank continues to favour US technology and communication services companies while maintaining an overweight position in Asian equities excluding Japan, where earnings visibility remains comparatively stronger. The report was authored by Rajat Bhattacharya, Global Head of Investment Strategy at Standard Chartered.