MARKETS IN BRIEF
Markets sent a mixed and unsettling message this week. Energy surged, Brent oil up over 9%, natural gas up nearly 14%, while Asian equities reversed sharply after a strong month, and bonds fell across the board with yields rising. The overall mood is best described as inflation anxiety: the dollar rose, but gold fell, and safe havens offered no comfort, suggesting markets are more worried about the cost of the war.
TOP THEMES THIS WEEK
1. Oil is back above $100 — and it is not going away soon The Strait of Hormuz disruption knocked roughly 6 million barrels per day out of global supply in Q1, and while a handful of tankers have been allowed through, freight analysts warn that new vessels are not entering the waterway. This matters because energy prices are already up roughly 78% this year, are now feeding directly into US producer price data, and are keeping inflation expectations at their highest since 2022–23, which constrains what central banks can do next. Can Kevin Walsh cut rates?
2. The AI trade is borrowing its way forward — and the cracks are showing The big tech companies are raising extraordinary sums to fund AI infrastructure. Alphabet alone raised nearly $60 billion in four months, and tech now accounts for close to 40% of all high-grade US corporate bond issuance this year. At the same time, AI-related job cuts are up 33% year-on-year, Chinese tech giants are struggling to turn AI spending into profit, and the Apple–OpenAI partnership is fracturing. The investment implication is that the AI trade is increasingly dependent on continued debt appetite and hardware earnings delivery, both of which are now under scrutiny.
3. AI hardware euphoria hit a wall in Asia South Korea, the year’s biggest equity market winner at nearly +84% year-to-date, fell almost 6% this week. Semiconductors and Taiwan have been the central engines of this rally, fuelled by AI hardware demand, but valuations have become extreme and local retail investors are borrowing heavily to chase further gains. When a market that has risen 84% in five months falls 6% in a single week, it is worth paying close attention — this is how crowded trades begin to unwind.
4. Private credit is showing its first real stress signals KKR’s flagship private credit fund for retail investors reported a $560 million loss in Q1, with default rates rising to 8.1%. Separately, Apollo launched a new financial structure that bundles loans and fund stakes — observers have drawn comparisons to the CDO structures that preceded the 2008 financial crisis, though Apollo disputes the comparison. The broader signal is that while private credit has been presented as a stable, high-returning alternative to public bonds, the quality of underlying loans is now deteriorating in ways that are becoming hard to ignore.
WATCH THIS NEXT WEEK
South Korea (EWY) and the semiconductor trade. This is the sharpest reversal of the year’s strongest trend. EWY is up 84% year-to-date but fell nearly 6% this week alone — the biggest single-week drop in the entire watchlist. The Kospi’s concentration in electronic equipment (over 50% of the index) and the explosion of retail margin trading among local investors are classic late-cycle signals in a crowded trade. If EWY continues lower, expect the weakness to spread into semiconductors globally, then into QQQ and US tech. If it stabilises, the broader AI hardware rally likely has more room. Either way, this is the clearest signal of what comes next.
INVESTMENT IMPLICATIONS
The combination of surging energy prices, rising bond yields, and a stronger dollar — all at the same time — is a stagflation signal, not a straightforward growth or recession one. This is the most difficult environment for a balanced portfolio because neither equities nor bonds are offering reliable protection simultaneously. Investors heavily exposed to Asian tech and semiconductors after a remarkable YTD run should be asking whether their gains reflect earnings reality or euphoria — the price action and the private credit stress both suggest the latter is increasingly present. The more durable positioning in this environment points towards shorter-duration bonds, selective exposure to energy, and genuine diversification away from single-country or single-sector concentration.
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