In the coming months, inflation in major global economies may rise significantly, while growth faces downside risks, presenting new challenges for global assets. Compared to the 2022 Russia-Ukraine conflict, current global supply chain pressures are lower, economic demand is weaker, and absolute inflation levels are lower. Therefore, it is predicted that this round of stagflation shock will mainly manifest as a temporary disturbance, with inflation peaks significantly lower than 2022 levels, and global asset performance will not be as poor as in 2022. Based on oil futures forward contracts, the peak of U.S. inflation in this cycle is expected around June, approaching 4%. It is forecasted that U.S. inflation will decline again in the second half of the year, coupled with growth pressures and financial risks, the Federal Reserve may continue to cut interest rates in the second half of the year. In the medium term, expectations for Fed easing are likely to return, providing new support for the performance of assets such as stocks, bonds, and gold, with particular optimism for the medium- to long-term performance of Chinese stocks. In the short term (next 1-2 months), the market faces three uncertainties, and it is recommended to maintain a certain cash position. From a probability perspective, gold's short-term allocation value is superior to other non-cash assets.
Inflation in major economies may rise significantly in the coming months, posing stagflation challenges for global assets. Last year, while looking ahead to 2026, a key divergence from market consensus was a higher forecast for U.S. inflation. It is predicted that U.S. inflation will rise significantly in the first half of 2026, leading to a temporary cooling of Fed rate cut expectations, which may exert phased pressure on assets such as gold, stocks, and bonds.
After the escalation of the Iran situation, the direction of inflation and market trends aligns with previous projections, but the magnitude exceeds expectations. Looking ahead, U.S. inflation is expected to surge significantly in the coming months, potentially as early as this week.
The main drivers of rising inflation come from three aspects: First, the Iran conflict caused energy prices to rise more than seasonally in March, directly pushing up U.S. energy and transportation service CPI components, and indirectly transmitting to core goods and food components. Second, the compensatory effect of rent sample rotation. The U.S. government shutdown in October-November 2025 resulted in a 0% month-on-month increase in rent CPI for October. After six months, the rent sample rotates back to the October 2025 sample, and the compensatory effect of sample rotation will double the month-on-month increase in rent CPI (accounting for about 34%) in April, boosting inflation readings for that month. Third, tariff cost pressures will continue to transmit downstream in the short term, pushing up core goods prices. The U.S. PPI trade services component has risen significantly recently, with the January month-on-month increase matching the pandemic peak of 2.2%. High-frequency data also indicates that used and new car prices may strengthen, both exerting upward pressure on core goods inflation.
The February PCE data released on April 9 may already be high, and the March CPI data released this Friday will provide key clues for market trends after the escalation of the Iran situation. It is predicted that the month-on-month growth rate of nominal CPI in March will be about 90 basis points, with the year-on-year rate jumping from 2.4% to around 3.3%. Market consensus is more pessimistic, expecting a 1.0% month-on-month increase in nominal CPI and a year-on-year rise to 3.4%. The rise in nominal CPI mainly reflects the oil price shock, but the transmission effect of oil prices to core CPI is weaker and relatively lagged. It is forecasted that U.S. core CPI month-on-month will be close to 30 basis points in March, roughly flat compared to the previous month.
While inflation rises, U.S. growth will also face downward pressure, leading the U.S. economy into "temporary stagflation." At the beginning of 2026, the U.S. government restart was expected to boost Q1 growth, but with rapid downward revisions in goods consumption and a widening trade deficit, the Atlanta Fed's GDPNow model has significantly revised down its forecast for U.S. economic growth in 2026Q1 from 3.1% on February 20 to the latest 1.6%. Looking ahead, factors such as rising inflation and geopolitical uncertainty may continue to weaken U.S. growth prospects.
Outside the U.S., inflation forecasts for Europe and Japan for the next 1-2 quarters have also risen significantly recently, coupled with weak growth, stagflation risks in major overseas economies are simultaneously increasing. As upward pressure on inflation increases, markets have also significantly revised their policy expectations for overseas central banks. Futures market-implied Fed rate cut timing has been delayed to the second half of 2027, with expectations for 2026 even reversing to rate hikes. Rate cut expectations for the ECB and the Bank of England have also reversed to hike expectations. China is in a weak recovery stage, with ample supply and low absolute inflation levels; the magnitude of inflation increase may be lower than in Europe and the U.S., and strictly speaking, it will not enter "stagflation." However, supply shocks may impact growth and inflation to some extent, and with the "good start" effect fading due to the "Spring Festival timing mismatch," Q2 economic growth may slow down.
Paradigm shift in stagflation trading: After the 1980s, asset volatility decreased, and gold's ability to hedge inflation weakened. Reviewing four historical periods of U.S. economic stagflation triggered by geopolitical conflicts, the general pattern is stock market declines, strength in the U.S. dollar and commodities. Within stocks, performance diverges, with oil and energy, food, pharmaceuticals, and daily chemicals sectors relatively outperforming, while automotive, durable consumer goods, metal products, and transportation sectors often underperform.
However, gold's performance showed significant divergence before and after the 1980s. During the stagflation periods after the two oil crises in the 1970s, because major economy central banks had not yet established policy credibility, short-term inflation increases led to higher long-term inflation expectations, and gold significantly benefited from its anti-inflation properties, with its price center noticeably rising. But after entering the 1980s, Volcker suppressed high inflation with aggressive tightening, central bank credibility was gradually established, inflation expectations were effectively anchored, and the global economy entered the "Great Moderation" period. Whether it was the Gulf War or the Russia-Ukraine conflict, although they periodically pushed up oil prices, they did not bring long-term stagflation pressure, and the volatility of various assets significantly decreased compared to before the 1980s. Because investors expect central banks to suppress inflation through tightening monetary policy, short-term inflation increases no longer change long-term inflation expectations but instead form expectations of short-term policy tightening. Therefore, gold's performance is no longer one-sidedly beneficial but tends to fall first and then rise. After the escalation of the Iran situation, the performance of various assets conforms to the market operation rules after central banks established credibility in the 1980s. Therefore, predicting the market outlook under this round of stagflation environment关键在于在于 predicting the future inflation path and central bank policy responses.
This round of stagflation is likely to be a "temporary" shock. U.S. inflation may decline again in the second half of the year, and coupled with growth slowdown and financial market risks, the Fed may continue to cut interest rates in the second half of the year. Compared to the macro and policy background at the time of the Russia-Ukraine conflict, current global supply chain conditions are significantly improved, economic demand is relatively weaker, and initial inflation levels are lower. It is expected that the peak of U.S. CPI in this cycle will be significantly lower than the 2022 level, and asset performance will not be as bad as in 2022. If priced according to oil futures forward contracts, the peak of inflation in this cycle will occur around June, close to 4%. In an extreme scenario, if oil prices surge to $140/barrel and maintain this high level until the end of the year, the inflation peak would be about 4.5%.
If the Iran situation does not significantly deteriorate, factors such as reciprocal tariff refunds, declining market rents, and cooling economic and labor markets may push U.S. CPI to decline again in the second half of this year, opening space for the Fed to restart rate cuts. Compared to 2022, although upward pressure on inflation has relatively decreased, downward pressure on growth and recession risks have increased, further raising the probability of Fed rate cuts. In terms of growth, after the 2022 Russia-Ukraine conflict, U.S. stagflation did not end in recession because fiscal expansion was rapid, unemployment was low, and the household sector had high excess savings. But currently, U.S. economic growth is relatively weaker, fiscal expansion力度 is smaller, and recession risk is relatively higher. If the Fed significantly increases easing力度, the economy can avoid realized recession risk, and recession trading would then evolve into easing trading. In terms of financial risks, current U.S. stock valuations, especially in the AI sector, are high, potentially resonating with risks in private credit. Financial market fragility has significantly increased, further raising the probability of the Fed turning to easing.
Combined with the understanding of the policy framework of the new Fed Chair Warsh, the future monetary policy paradigm may shift from the posterior "data dependent" to "forward looking," also increasing the possibility of rate cuts. It is judged that Warsh is unwilling to engage in QE or expand the balance sheet but will also find it difficult to shrink the balance sheet in the short term. A more likely path is for the Fed to increase the magnitude of rate cuts and relax financial regulation, with the Treasury cooperating by issuing more short-term debt, forming a new fiscal-monetary coordination mechanism. In summary, although futures markets (and market consensus) have recently stopped predicting Fed rate cuts this year and even priced in the possibility of hikes, it is still predicted that Fed policy will slow the pace of cuts in H1 2026 and re-accelerate cuts in H2 2026.
Wait for the return of easing trading in the medium term; use probability thinking to cope with uncertainty in the short term. In the medium term (second half of this year), as the Fed is expected to restart rate cuts in the second half of the year, optimism is maintained for non-cash assets, expecting Chinese and U.S. stocks and gold to return to an upward trend. Geopolitical changes make the industrial chain advantages of major countries more prominent, and combined with China's leading position in industries such as AI and green transformation, there is particular optimism for the long-term performance of Chinese stocks.
In the short term (next 1-2 months), the market faces three uncertainties: First, the evolution of the Iran situation remains full of variables, with possibilities for both escalation and de-escalation. Second, overseas inflation may surge significantly in the coming months. The market could continue to correct under the influence of stagflation concerns, or it may have already priced in high inflation expectations relatively fully (e.g., current market expectations for a 1% month-on-month U.S. nominal inflation in March are more pessimistic than our forecast). It is currently difficult to determine. Third, if the new Fed Chair takes office as scheduled in May, although Warsh is expected to lean dovish, the change in the new Chair's communication style carries the risk of market misjudgment and overreaction.
Therefore, in the short term, cash is still considered to have allocation value, while the absolute return uncertainty of non-cash assets is high, and relative allocation value can only be assessed from a probability perspective. Future market developments can be roughly summarized into three scenarios: Under Scenario 1, if the conflict gradually de-escalates through third-party mediation and Hormuz Strait transportation returns to normal, it corresponds to "Risk-on + liquidity trading." Under Scenario 2, if the U.S. and Iran continue to exchange fire, and Iran implements limited strikes on the Strait and the Middle East, but oil transportation and supply are only partially disrupted, it corresponds to "stagflation trading." Under Scenario 3, if the U.S. is directly involved in a larger-scale conflict, the Strait is closed, and global energy supply suffers stronger impacts, the market will shift to "recession trading."
Gold can rise in both Scenario 1 and Scenario 3, and in Scenario 2, it would fall first and then rise. U.S. Treasuries rise in Scenario 1 and Scenario 3 but fall in Scenario 2. Chinese and U.S. stocks rise in Scenario 1 but fall in the other scenarios. From a probability perspective, gold has higher allocation value, while stocks are relatively behind.
Even in extreme scenarios, if major overseas economies fall into sustained stagflation (Scenario 2), according to market patterns during the Russia-Ukraine conflict, the inflation top also corresponds to the gold bottom. If the inflation path in this cycle is consistent with predictions, gold will most likely confirm an upward inflection point at the latest around June-July when inflation peaks. If geopolitical risks ease, Fed easing expectations升温, or financial risks are exposed earlier, gold's upward inflection point will be confirmed sooner. Over the past three years, there has been a firm bullish view on gold, and since the end of 2025, clear warnings were issued about gold adjustment risks. After gold has significantly corrected, the view is more optimistic, believing that gold is gradually entering an accumulation zone.
A review shows that after geopolitical conflicts, Chinese stocks generally take about 1-2 months to digest negative shocks. In the face of geopolitical uncertainty, it is still recommended to control position risks for Chinese stocks in the short term.
U.S. stocks face multiple constraints of high valuations, slowing growth, and rising financial fragility, with potentially greater risks and lower attractiveness.
Although the U.S. dollar has recently benefited from safe-haven sentiment and stagflation trading, because Europe and Japan's energy external dependence is higher than that of the U.S., and their monetary policy stances are relatively more hawkish than the Fed's, under the global monetary policy divergence pattern, it is believed that a strong U.S. dollar is难以持续. From a medium- to long-term perspective, the weak dollar trend under monetary order restructuring has not changed.
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