“Rising energy prices and inflation expectations”
- The year started strongly, supported by favourable developments in the U.S. labour market and the U.S. economy. That strong start faded into the background at the end of February due to the attack on Iran by Israel and the United States.
- Equities had a weak quarter, mainly as a result of the war in Iran.
- Interest rates initially fell during the first two months, but rose again in March because of the war in Iran. As a result of the war, oil producers in the Middle East significantly reduced their production. Exports of oil and gas from the Gulf region through the Strait of Hormuz largely came to a standstill, leading to sharp increases in both oil and gas prices. Inflation expectations rose due to higher energy prices. As a result, speculation about interest rate hikes by central banks increased.
- The sentiment surrounding U.S. software and logistics stocks was negative during this quarter. Investors took into account the potentially disruptive effects of AI on parts of the services sector.
- In addition, there were doubts as to whether the very large AI investments made by several mega-cap companies would ultimately prove profitable.
- Concerns about the private credit industry resurfaced during this quarter, in part due to the bankruptcy of the British lender Market Financial Solutions (MFS) and the closure of a private credit fund managed by Blue Owl Capital.
- In January, the diplomatic conflict concerning Greenland reached a low point. Trump suggested a possible takeover of Greenland and did not rule out the use of military means. He also threatened additional import tariffs on countries that oppose the United States. The prospect of European countermeasures led to fears of a resurgence in trade tensions. During the NATO talks at the World Forum in Davos, the countries eventually reached an agreement that was acceptable to Trump.
- In February, the U.S. Supreme Court declared last year’s import tariffs unlawful. According to the Court, under current legislation the president does not have the authority to unilaterally impose import tariffs without Congressional approval. Trump shifted to alternative legislation to restore the tariffs to around 15%. It remains uncertain whether these tariffs will be sustainable in the long term. In this context, Trump will ultimately also need approval from Congress.
- In January, Japanese Prime Minister Sanae Takaichi dissolved the lower house of parliament and also called early general elections for 8 February. These elections resulted in a very large victory for Takaichi and her Liberal Democratic Party (LDP). Together with coalition partners, she secured a two-thirds majority.
- The U.S. Federal Reserve (Fed) left its policy rate unchanged this quarter at 3.5%-3.75%. In January, Trump nominated Kevin Warsh as Fed chair. He will succeed Jerome Powell whose term expires in May. Warsh is regarded as a candidate who is more independent and credible than the other nominees. Powell is considering staying on at the Fed to safeguard its independence.
- Like the Fed, the European Central Bank (ECB) also left its main interest rate (the deposit facility rate) unchanged. The reason for this is uncertainty about the duration and impact (inflation) of the war with Iran.
This quarterly report has been carefully prepared. The final figures for 2026 will be published in the anual report. You cannot derive any rights from this report.