Latest / Markets with Megan: A Quick Financial Markets Update / Downgrade Parade: Conflict Is Hitting the Forecasts | S3 E141 | 04-27-26

Transcript

Downgrade Parade: Conflict Is Hitting the Forecasts | S3 E141 | 04-27-26 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: The downgrade parade is starting due to the ongoing conflict in the Middle East.
• 0:04
  Megan Horneman: It is Monday, April the 27th, and this is Markets with Megan.
• 0:08
  Megan Horneman: If you like this podcast, you can subscribe, hit the alarm bell, share it with your friends, family, colleagues, anybody who's interested in the economic data that you see, those headlines that drive the market activity on a regular basis.
• 0:20
  Megan Horneman: Today we wanted to discuss some of the economic downgrades that we're getting from major agencies that have highlighted the fact that because the conflict in the Middle East has gone on longer than expected and it has created this ongoing disruption in the Strait of Hormuz, that there is a downside risk to economic growth and an upside risk to inflation.
• 0:42
  Megan Horneman: Let's start with the IMF, the International Monetary Fund.
• 0:45
  Megan Horneman: They came out to release their April outlook and compared to their January forecast, they downgraded global growth to 3.1% this year from 3.3%, but they upgraded global inflation for this year to 4.4 versus 3.8.
• 1:03
  Megan Horneman: That's a pretty big move.
• 1:05
  Megan Horneman: It's interesting to note that they were in, they were actually ready to increase global growth expectations for this year because of the ongoing spend in AI, because of the accommodative monetary policy, as well as the easing trade tensions.
• 1:21
  Megan Horneman: But because this conflict has gone on, they've actually flipped that and now downgraded economic growth and increased inflation.
• 1:30
  Megan Horneman: It has all to do with the fact that energy prices are much higher, they've continued to stay higher, and this ongoing supply chain issue is going to put central banks in a situation where they actually may have to raise interest rates.
• 1:43
  Megan Horneman: They did outline a very adverse scenario, which, if this continues into the second half of this year, we could see that global growth could go down to you know two and a half percent and inflation up as high as 5.4%.
• 1:57
  Megan Horneman: It gets a little bit more um dire if you if this continues into 2027, which is not our expectation.
• 2:04
  Megan Horneman: The United Nations Economic and Social Commission for Asia and the Pacific, they also put out some warnings because remember, Asia and the Pacific is very subject to this supply chain disruption in the Strait of Hormuz.
• 2:18
  Megan Horneman: The China specifically gets a lot of their energy products from Iran and through that strait.
• 2:23
  Megan Horneman: So they downgraded growth for those economies in that region from 4.6 last year to 4% this year, and they increased inflation from 3.5 to 4.6 this year.
• 2:36
  Megan Horneman: Germany's economic ministry also cut their expectations for growth basically in half for both 2026 and 2027, and they expect inflation to rise from 2.2% last year to 2.7% this year, and then 2.8% next year.
• 2:55
  Megan Horneman: So again, this is just some initial signs we're seeing.
• 2:58
  Megan Horneman: The biggest concern we have on this prolonged impact is the fact that the Strait of Hermuz still remains shut.
• 3:06
  Megan Horneman: We are still seeing energy prices elevated.
• 3:08
  Megan Horneman: We have seen some initial reports in the economic data we've gotten from ISM.
• 3:14
  Megan Horneman: When you look at the services and manufacturing and the prices paid component being very elevated, we do think this can filter into and spill over into the other inflation reports that the Fed's taking a close look at.
• 3:26
  Megan Horneman: But it's not always going to happen right away.
• 3:29
  Megan Horneman: This does have a lagged effect.
• 3:30
  Megan Horneman: So this could be an issue we have for the next couple months.
• 3:33
  Megan Horneman: That's why we're still cautious with this equity rally, equity sitting at a record high.
• 3:38
  Megan Horneman: They haven't changed any expectations for earnings and they didn't price in that this would be a prolonged um effect.
• 3:43
  Megan Horneman: So we do think there is some room.
• 3:45
  Megan Horneman: Once we get out of this earnings season euphoria, there could be some downside for equity.
• 3:50
  Megan Horneman: So stay tuned.
• 3:51
  Megan Horneman: Be ready for some volatility, and we have cash to put to work when we see that time.
• 3:55
  Megan Horneman: Thank you very much.
• 3:56
  Megan Horneman: And if you want a history of our podcast, you can do marketswithmegan.fm.
• 3:59
  Megan Horneman: Thank you.