This has stabilised global supply and offset restrictions on Russian exports.
Despite conflict in Ukraine and Gaza, and OPEC production cuts, oil prices are little changed from the eve of the Israel-Hamas conflict, while European gas prices are 80 per cent lower than their peak, after Russia’s invasion of Ukraine.
Yes, there are risks today, particularly in the aftermath of the attack on the Iranian consulate in Damascus this month.
Encouragingly though, non-OPEC production continues to rise; Canada, Brazil and Guyana, alongside the US, have all increased output.
Secondly, supply chains that were severely disrupted by the pandemic have healed remarkably quickly.
Even with today’s challenges in the Red Sea – Suez Canal traffic is down 50 per cent year-on-year – measures of transport costs, delivery times and supply chain stress remain at or close to pre-Covid levels.
This has helped suppress inflation and underpin corporate profits.
Thirdly, sharply higher interest rates have been a lot less destructive than commentators initially feared.
Households in the US and UK have been shielded by fixed mortgage rates while global corporations have already locked in much of their financing at lower rates.
The large technology stocks in particular have unprecedented cash reserves and so actually benefit when rates rise.
Sticking with equities and right-sizing risk
To us, equities continue to be the most attractive asset class.
Robust earnings and dividend growth, combined with the prospect of lower interest rates from mid-year, continue to be supportive, even after this year’s rally.
Yes, US valuations are high but there is no shortage of other opportunities.
Global dividend portfolios are attractively priced, as are many international markets that are trading at near-record discounts to the US.
Corporate activity too is re-accelerating.
Our climate change theme looks particularly interesting, as de-carbonisation gains impetus after world temperatures again hit new highs in 2023.
To stay the course with our global equity exposure we do need to de-risk other areas of our portfolios.
Bond yields, in particular, are trending higher as governments seek to raise near-record new borrowings. A recent OECD report forecasts that debt issuance by 38 industrialised countries will rise by 12 per cent to $15.8tn (£12.6tn) this year.
This has been exceeded only once, in 2020, when governments were scrambling to support economies at the height of the pandemic.
Whatever the result of the presidential election, the US – already home to half of OECD sovereign debt – will likely see even higher issuance.
A Biden administration will tend to keep spending elevated, while a Trump administration will try to cut taxes (or make previous cuts permanent).
Against this backdrop most central banks will no longer be natural buyers of government bonds; instead, they will be actively selling the government debt they accumulated via quantitative easing programmes to support the economy and markets.
