Two Major Overseas Developments Emerge Suddenly

Recent weekend reports indicate that the United Arab Emirates and Kuwait have initiated cuts to their oil production. Goldman Sachs suggests that if no signs of a resolution appear by next week, oil prices could surpass $100 per barrel. Should maritime traffic through the Strait of Hormuz remain subdued throughout March, oil prices, particularly for refined products, are highly likely to exceed the peaks seen in 2008 and 2022.

The development Wall Street feared most appears to be materializing. Kuwait Petroleum Corporation stated on Saturday that it is reducing output at its oil fields and refineries following "Iranian threats to the safe passage of vessels through the Strait of Hormuz." Abu Dhabi National Oil Company also confirmed in a statement that it is "managing offshore production levels in response to storage needs," though it provided no specific details.

Ongoing conflict in the Middle East has nearly completely shut down the Strait of Hormuz, a narrow channel connecting the Persian Gulf with open seas. Disruptions to exports from this critical oil-producing region have pushed global benchmark Brent crude to close near $93 per barrel this week, its highest level in over two years. This forces consumer nations to seek alternative energy sources and could drive up global inflation.

Natasha Kaneva, Chief Commodities Strategist at JPMorgan, noted that driven by export bottlenecks and refining constraints, the market is now counting down to the next wave of production cuts. On the current trajectory, reductions of approximately 1.5 million barrels per day could rise to 3 million barrels per day by this weekend. By next weekend, cuts might exceed 4 million barrels per day, potentially approaching 6 million barrels per day if refined product storage tanks reach capacity.

Kaneva pointed out that until confidence is restored, the oil market faces significant price asymmetry: prices could drop by $10 on reassuring headlines, but once production cuts in the Gulf region are implemented and ripple through the market, prices could surge by up to $30.

Echoing this sentiment, Goldman Sachs abruptly revised its outlook over the weekend, shifting from prior optimism to warn that "if no signs of a solution emerge this week, oil prices could exceed $100 next week," with upside price risks intensifying. The firm added that if Strait traffic remains low throughout March, oil prices, especially for refined products, are very likely to surpass the 2008 and 2022 peaks. Goldman Sachs also stated that if evidence supporting their assumption of a gradual normalization of Hormuz traffic does not materialize in the coming days, they plan to promptly reassess their oil price forecast.

In a separate significant development, Federal Reserve Governor and Vice Chair for Supervision Michelle Bowman suggested that the weaker-than-expected February jobs report has made her lean towards supporting further interest rate cuts again. Following the non-farm payrolls data release, Bowman remarked, "I was comfortable holding steady at the January meeting, but now seeing the labor market situation, perhaps that was an exception," referring to January's strong job growth. She stated the new data "confirms continued weakness in the labor market, requiring some support from our policy rate." Fed officials are scheduled to hold their next policy meeting in Washington from March 17-18.

Inflation data will also be a key focus for Wall Street. U.S. February CPI figures are due next Wednesday, following January data that unexpectedly came in below market forecasts. The Fed's preferred inflation gauge, the PCE price index, will also be released next Friday. If inflation data is moderate, the market may not overreact, as the reporting period largely predates the escalation of Middle East conflict. However, an unexpected surge in inflation could pose particularly difficult challenges.

Isaac Stell, Investment Manager at Wealth Club, commented, "Unexpected weakness in employment coinciding with building inflationary pressures presents a difficult trade-off for policymakers. Uncertainty continues to dominate the market environment, making business planning more challenging and clouding the policy outlook."

Concerns that energy prices could drive inflation higher have recently led investors to push back expectations for the timing of the Fed's next rate cut. However, Friday's weak jobs data has somewhat revived expectations for easing. Markets currently price in a 45% probability of at least a 25-basis-point cut at the Fed's June meeting.

One analyst noted, "If energy prices persist and fuel inflation concerns, the Fed's ability to implement two rate cuts in 2026 will become significantly more difficult." Another Fed official, Hammack, suggested that a sustained energy shock could push inflation higher while pressuring economic activity. If inflation fails to cool later this year, the Fed may need to discuss raising rates. He added that inflation could potentially fall to 2% by 2027, and the Fed need not wait for it to reach 2% before cutting rates again.

In a reassessment of Chinese physical assets, a major report titled "The HALO Effect" released by Goldman Sachs Global Investment Research in early 2026 posits that the narrative of "light assets, high growth" from the internet era of the past decade is ending. It is being replaced by a new asset pricing paradigm termed HALO. Goldman Sachs argues that AI has not made the world "lighter"; instead, tangible physical capabilities—the ability to build, deliver, and supply power—have become the critical bottleneck determining the上限 of the digital future. Against this backdrop, HALO assets have become new market favorites.

According to a Guosen Securities report comparing the U.S. Infrastructure Stock Index and the U.S. SaaS Index from January 1, 2025, to February 27, 2026, the infrastructure index surged 80.59%, significantly outperforming the SaaS index, which fell 17.05%.

Guojin Securities notes that compared to U.S. stocks, A-share revenue is more concentrated in sectors like mining and manufacturing, which are less susceptible to AI displacement. From an industry-neutral perspective, the proportion of tangible assets to total assets for A-share listed companies is often higher than for their U.S.-listed peers in the same industry, suggesting Chinese companies may be relatively more resilient to potential AI disruption. From a value-added perspective across economic sectors, China's share of manufacturing value-added and materials-related industry value-added is also higher than in other major developed economies.

Global investors may find that the disruption-resistant HALO assets they seek are widely distributed within the Chinese market. The productive capacity value of Chinese assets could become irreplaceable. The adage "productivity is wealth," emphasized since last year, is gradually becoming reality. The re-rating of Chinese manufacturing assets has begun, with capital回流 and domestic demand recovery also underway.

Guojin Securities further suggests that as the world faces technological challenges to industrial order and regional conflicts challenging globalization, physical assets, overlooked during periods of orderly prosperity, will gain systemic importance. Chinese assets, possessing the closest attributes to physical production globally, are also poised for re-rating.

Recommendations include: 1) Assets less prone to AI displacement that also benefit from AI development and increased government focus on resources—copper, aluminum, tin, crude oil & tanker shipping, rare earths, gold; 2) Chinese equipment export chains with global comparative advantage and confirmed cycle bottoms—power grid equipment, energy storage, engineering machinery, wafer manufacturing, and domestic manufacturing sectors showing bottom reversal—petrochemicals, dyeing, coal chemicals, pesticides, polyurethane, titanium dioxide; 3) Consumer recovery sectors benefiting from capital inflows, eased balance sheet pressure, and inbound travel trends—aviation, duty-free, hotels, food & beverage; 4) Non-bank financials benefiting from capital market expansion and a bottoming in long-term asset returns.