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Matthias Knab, Opalesque for New Managers:

The conflict in the Middle East and the subsequent closure of the Strait of Hormuz are pushing the global economy out of its "goldilocks" state of steady growth and falling inflation and toward stagflation, where growth slows and inflation rises. According to the just published Hedge Found Outlook from UBS, the recent rebound in risk assets, while welcome, may prove short-lived. Supply chain disruptions are already underway as energy prices and shipping costs climb and global inventories are drawn down.

Higher food prices are expected later in 2026, as today's fertilizer shortages feed through to crops. A prompt reopening of the Strait of Hormuz could shorten any inflation surge, but the episode has once again showcased the weaponization of physical resources - a dynamic that could intensify hoarding behavior and price volatility well into the future.

There are offsets. Supply-driven inflation could be cushioned by a commensurate decline in demand. Artificial intelligence (AI) may also act as a deflationary force, materially lowering prices for "information goods" such as software while replacing labor. The decisive variable, UBS argues, is how far governments are willing to go to support basic consumption. With so many moving parts, the outlook for global growth remains uncertain - and that uncertainty is driving risk premia high......................

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