Iran – Operation epic fury unfolds
Last Saturday, after weeks of escalating tensions, the US and Israel launched coordinated strikes against Iran, targeting senior leadership and key strategic military facilities. In a subsequent speech, President Donald Trump described the operation as aimed at regime change and indicated that military actions could extend for more than a month. Within hours of the first strikes, Iran’s Supreme Leader, Ali Khamenei, was declared dead, ending his 36-year tenure. In response, Iran launched missile attacks across the region, including against US military bases. So far, reported damage appears limited. Market reaction has been relatively contained. Energy-sensitive assets underperformed, though moves remain orderly, as markets had already begun pricing the risk of military action in the preceding week. However, tail risks are now being reassessed. Oil prices surged by roughly 10%, approaching USD 80/bbl. The key risks for markets and energy prices hinge on the disruption of the Strait of Hormuz, through which around 20% of global oil supply transits, and the possibility of Iranian strikes on regional refining infrastructure. Either scenario would likely put further upward pressure on oil prices, potentially triggering broader inflation repricing across the global economy.
AI – Jobs vs Growth
Last week, the debate around AI’s impact on labour markets continued to intensify, with the focus increasingly shifting from equity valuations to employment dynamics. While AI is expected to boost productivity and growth over the longer term, the near-term macro outlook will be shaped by the balance between labour substitution risks and the cyclical demand impulse from accelerating AI investment. The evolution of productivity growth and unemployment will be critical in determining which force dominates, with stronger productivity gains helping offset to labour substitution effects, while a sudden rise in unemployment could complicate the macro outlook by weighing on consumer confidence and reinforcing downside risks to demand. Market reaction has remained contained so far, with the US 10-year yield falling back below 4% and equity weakness concentrated in sectors most exposed to automation.
Hungary – Orban under pressure
As the April elections approach, political uncertainty in Hungary is rising, with the opposition party Tisza mounting a credible challenge to Prime Minister Orbán and the ruling Fidesz party. A recent poll by Median, one of the most respected independent pollsters, showed Tisza leading by a significant margin, reflecting growing public dissatisfaction and the impact of recent scandals affecting the ruling party. The election outcome could significantly reshape Hungary’s policy trajectory, as Tisza’s platform includes a clear path towards euro adoption and a foreign policy more closely aligned with the EU. This would likely unlock EU funds over the medium term, supporting much-needed investment and improving access to financing for small and medium-sized enterprises. However, the outcome remains highly uncertain, with the campaign expected to intensify, potential new scandals on both sides, and risks of institutional manoeuvres by Fidesz that could influence the electoral process, including delaying elections or shifting toward a presidential system, while it retains its parliamentary supermajority.
Algebris Investments’ Global Credit Team
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