Energy shortages trigger new round of global market volatility - Nomura
Global interest rates and cross-asset markets are waking up to an "energy / petrochem shock 2.0" as crude shortages become increasingly "terminal," according to Nomura strategist Charlie McElligott. Once again, crude oil is proving to be "the straw that stirs the drink" of the current global macro risk regime, he wrote in a note published Tuesday.Unlike the initial conflict phase during the Iran war, China is no longer depleting emergency stockpiles to ease supply tightness. Instead, McElligott noted, China is aggressively rebuilding crude inventories—"more than likely in coordinated conjunction with Iran to 'turn the screws' on the U.S." The result: crude prices pushing to new war highs, crunching cross-asset markets and pressuring already fragile equities sentiment while jacking up interest rate risk.The macro fallout is spreading. Bonds , stocks , gold , credit, and crypto are all "slowly bleeding out," while the U.S. dollar , energy equities , commodity carry, rates trend, and long volatility () positions remain favored uncorrelated hiding places, McElligott said. Central banks face an impossible policy bind—stuck with what McElligott called the "useless 'demand-side' tool of 'policy rate hikes'" to sort out what is fundamentally a supply shock.Meanwhile, tail risks are mounting. With U.S. President Donald Trump "backed into a corner of his own making," McElligott warned of a potential "left-tail bomb" on the global economy: a hypothetical U.S. energy export curb or ban that would devastate energy-dependent European and Asian economies.Both Iran and China, he argued, are incentivized to keep the crisis simmering—and that scenario gains probability the longer the mess continues.Content provided by Seeking Alpha is intended for information purposes only, and that Seeking Alpha does not offer any personalist investment advice and is not a licensed securities dealer, broker, US investment adviser or investment bank.