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Thought of the day

Geopolitical developments continue to inject volatility into global financial markets, even as stocks remain at all-time highs. Oil prices slid to the lowest level in three weeks after US President Donald Trump said Venezuela will relinquish up to 50 million barrels of oil to the US, while progress on security guarantees for Ukraine paves the way for an end to the war as well as curbs on Russian oil exports. Heightened tensions between Japan and China also supported the US dollar, which is trading near its highest level since mid-December.

But while investors should brace for further volatility, we maintain the view that oil prices should recover this year, supporting our preference for broad commodity exposure. We also expect US dollar weakness to persist in the first half of 2026, and recommend investors align their currency allocations with their liabilities and spending plans.

A narrowing market surplus should push up oil prices later this year. Venezuela possesses significant oil reserves with relatively low geological risks. But its current level of production, at around 1 million barrels per day, accounts for less than 1% of global oil production. Any expansion in output would require substantial investment given the neglected infrastructure resulting from years of mismanagement and underinvestment. While media reports suggest oil chief executives are expected to visit the White House this week to discuss investments in Venezuela, it remains unclear which companies would commit capital at current oil prices, particularly since a stable regulatory framework and political continuity are still elusive. We also believe peace between Russia and Ukraine is unlikely to add much crude oil to global supply in the near to medium term. We therefore expect improving demand and stalling supply growth to support Brent crude prices. Our year-end target is USD 67/bbl.

Supply challenges should keep industrial metals supported, while gold demand is likely to stay elevated. Potential further price gains in industrial metals also underpin our Attractive view on commodities. Copper prices rose above USD 13,000 a metric ton this week as markets focus on supply-side risks, and we expect a widening deficit to keep copper prices on an upward trajectory. More broadly, we expect fiscal stimulus across the US, Europe, and Asia to support demand for industrial metals this year, while enduring structural demand from electrification should add further tailwinds to the segment. In fact, we now forecast global spending on power and electrical infrastructure to exceed USD 32tr over the next decade, boding well for key metals such as copper and aluminum. Meanwhile, central bank buying, lower real yields, and (geo)political uncertainty should continue to support gold prices.

We see room for additional US dollar weakness as the Federal Reserve’s policy rates inch lower. With both manufacturing and services activities showing signs of weakness, jobs data due later today and Friday could further cement market expectations for additional Federal Reserve easing. We expect the labor market to remain weak, allowing the US central bank to cut policy rates by 25 basis points this quarter. In our view, this erosion of the US rate advantage over its peers, together with persistent fiscal and current account deficits, and ongoing efforts by global investors to diversify away from the US dollar, should continue to weigh on the greenback.

So, we recommend investors manage their currency exposure to ensure they match future liabilities and spending needs, favoring the euro, the Australian dollar, and select high-yielding currencies. We also see value in tactical exposure to commodities, and view gold as a valuable portfolio diversifier.