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Energy Shock Scenarios - Weekly Wrap

Written by

Variant Perception

Published on

27 Mar 2026

Chart of the week

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image (6) — *Today's key risk: a serious rise in inflation and falling money growth. This would shrink* *Global Excess Liquidity, an echo of the 2022 energy shock.*

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Research This Week

Energy shock scenarios - Mar. EM/DM Leading Indicator Watch - March 27

In our G3 LIW Energy Shocks, we stress-tested our leading indicator models. It showed the US as the most resilient economy, while the Eurozone was very exposed to stagflation.
Within DM, we find that the UK has the most stagflationary outlook. Japanese inflation risks are greater today than seen during the 2022 shock. Switzerland and Australia are more resilient to energy shocks.
Within EM, we see Brazil and Mexico as relatively insulated. Korea faces a terms of trade shock. Indonesia’s real yield buffer is now gone, necessitating rate hikes.

DM

UK: Stagflationary outlook exacerbated by Iran conflict => Receive GBP 1y1y
Japan: Impossible trinity still weighing on JPY, more exposed to inflation shock than ‘22
Australia: The lucky country to stay lucky
Switzerland: Resilient growth, CHF safe-haven flows help offset imported inflation costs

EM

Brazil: High real yield buffer makes receiving BRL rates attractive
Mexico: Relatively insulated from shock
South Korea: Terms of trade shock offsetting hawkish policy for KRW
Indonesia: Tightening cycle likely as inflation pressures remove real yield buffer

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Global Macro Update: The Martian Perspective - March 25

Markets are still driven by headlines, but we might be past peak uncertainty. Now is a good time to re-assess where the cross-asset dislocations and opportunities are.

Martian Perspective:

Market is trading 2022-style stagflation for now.
Despite the S&P 500 index holding up relatively well, damage has been done under the hood, creating potential for short squeezes.
Compared with 2022, if we get a prolonged energy shock today, we should see a shorter period of inflation panic, with market fears turning quicker towards recession risks.

Martian Portfolio

Short EUR vs long USD
Receive GBP 1y1y
Long Brazil bonds/receive BRL 2y
Long China tech equities

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Asset Allocation Update: Overweight US - March 23

It remains premature to fully quantify the asset allocation implications of the ongoing conflict involving Iran; however, we suspect this escalation will serve as the catalyst to reverse the "Sell America" narrative.

We now recommend investors to Overweight US assets vs. other Developed Markets (DM) and move to Equal Weight US vs. Emerging Markets (EM).

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