How much can economies and markets endure?
Macro and financial market endurance relies on the assumption of a fragile de-escalation of the Middle East conflict and AI supercycle. Any negative surprise can exacerbate existing vulnerabilities (high debt, concentration, leverage).
DOWNSIDE SCENARIO
BASE SCENARIO
UPSIDE SCENARIO
Re-escalation, failed deal implementation, or an AI hard landing
Fragile de-escalation, broadening of AI adoption
Credible settlement and clearer Strait reopening, AI virtuous cycle
FIND OUT MORE
FIND OUT MORE
FIND OUT MORE
Macro/financial shock and global recession risk Oil moves far above assumptions; inflation expectations become less anchored, pushing central banks to hike further in 2026 and/or disappointment in AI/tech leads to a market correction.
Market implications
Risk-off pivot; lower quality credit under pressure, high premia on govies with scarce fiscal discipline. Favour cash, short-term rates in the US and safe-haven currencies (CHF, USD).
Energy risk repriced, recession avoided Oil higher than previously assumed but no significant spike. Growth revised lower (notably Europe) but no recession. Cautious central banks; hikes possible but do not expect a full hiking cycle.
Market implications
Stay risk-on, with protection: strong EPS growth, decent liquidity. Selective on Europe, Asia, real assets, commodities insurance.
25%
Probability
60%
Probability
15%
Probability
De-escalation, disinflation and rising confidence Normal in/outbound Strait of Hormuz traffic, paving the way for clearer easing cycle for central banks.
Market implications
Increase risk exposure. Favour cyclicals, Europe, EM assets, Asia and energy importers; bonds supported as inflation fears ease.
