The past week was a win for our "Go Global" pivot at the end of last year, as foreign equity markets mostly outperformed the "Stay Home" alternative, i.e., the US stock market. Most of the move came in anticipation of lower oil prices on a possible deal between the US and Iran to end their war. This evening, both sides confirmed that a memorandum of understanding will be signed on Friday in Geneva.
Oil prices fell sharply on Friday in anticipation of a weekend deal and are continuing to decline this evening on the news. As we anticipated, the price of gold held support just north of $4,000 per ounce last Thursday and is currently over $4,300 (chart). We also expected that the end of the war, the opening of the Strait of Hormuz, and lower oil prices would benefit many foreign economies and stock markets more than the US. This evening, the Nikkei and Kospi are up 4.91% and 5.48%, while the S&P 500 and Nasdaq futures are up 0.95% and 1.59%.
The logic of a peace dividend is simple. Lower oil prices reduce inflation worldwide, give central banks room to ease if necessary, allow bond yields to fall, and weaken the dollar (chart). Those are especially positive developments for oil-importing countries, particularly emerging economies (EMs).
Here's more:
(1) Global stocks. Go Global outperformed last week in anticipation of a peace deal and lower oil prices. Korea (12.7%), Indonesia (9.9), Chile (7.5), EM ex-China (6.2), and Poland (5.3) led the way (chart). The US ranked near the bottom at 0.6%. EM ex-China is the standout among the regions, consistent with our call at the end of last year. We expect Go Global to outperform again after the war interrupted its momentum.
