Market take
Weekly video_20250421
Glenn Purves
Global Head of Macro, BlackRock Investment Institute
Opening frame: What’s driving markets? Market take
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We have argued for a few years that mega forces are transforming the world. Two have collided recently: geopolitical fragmentation and the future of finance.
Title slide: Big questions about global markets
This transformation is raising big questions about global markets.
1: Bond yields: A big question
Where will long-term U.S. bond yields settle? We argued in 2021, that the combination of higher inflation, higher interest rates and large U.S. debt creates a “fragile equilibrium,” one vulnerable to investor confidence.
The recent unusual surge in Treasury yields as U.S. stocks and the dollar fell has brought that fragile equilibrium into sharp focus.
It is almost impossible to predict the end state of a transformation. Unpredictable trade talks make it even harder.
2: Economic laws limit possibilities
Yet, immutable economic laws limit the possible outcomes. One such law? The current account deficit can’t be reduced without the same fall in foreign financing. So, reducing the trade deficit could hurt the U.S.’s ability to finance its debt, especially if it dents the confidence of foreign investors. They currently hold about a third of U.S. debt. That risks higher bond yields.
Another law? Global supply chains cannot be rewired quickly without disruption. We expect supply shocks to slow growth and push up inflation – just like in the pandemic. That limits what central banks can do to support growth.
3: Economic laws governing U.S. policy
We have already seen these two laws spurring U.S. policy adjustments. The recent Treasury selloff was swiftly followed by a 90-day pause on most tariffs, while supply chain worries seemed to prompt quick exemptions for electronics.
Outro: Here’s our Market take
In a world where many outcomes are feasible, we remain nimble and track the economic laws that will govern the U.S. policy mix. We focus on themes more than asset classes. For now, we see the AI mega force driving returns, mostly in the U.S. We find selective opportunities in Europe and stay underweight long-term Treasuries.
Closing frame: Read details: blackrock.com/weekly-commentary
