How will global markets evolve in 2026?

1. To frame 2026, what is the single macro variable you are watching most closely and why does it have the greatest potential to reprice market quickly?

If there is one macro variable I am watching most closely in 2026, it is the term premium on long-dated government bonds, particularly the U.S. 10-year and beyond. It is where inflation expectations, fiscal sustainability, central bank credibility, and global capital flows converge. And when it moves, it rarely does so quietly.

At its core, the term premium is a barometer of investor confidence in the long-term macro regime. That matters more this year as structural questions come to the fore: fiscal deficits appear increasingly embedded, geopolitical uncertainty remains elevated, and global trade is fragmenting. At the same time, central banks, scarred by past inflation misjudgements, are prioritising optionality over firm guidance.

The ongoing conflict in Iran has intensified these dynamics. What began as a regional escalation now threatens energy infrastructure and key shipping routes such as the Strait of Hormuz, embedding a persistent geopolitical risk premium into markets. This is not just a near-term inflation shock. It increases uncertainty around long-term outcomes, which is precisely what the term premium captures.

This matters directly for the term premium: geopolitical shocks of this magnitude do not just affect near-term inflation. They alter the distribution of long-term outcomes.

Several forces are converging:

First, fiscal dynamics. Developed markets are running recession-like deficits despite ongoing growth, driving sustained sovereign issuance and pressure on long-end yields.

Second, the policy transition. Markets are moving from tightening to selective easing, but must absorb record debt supply as central banks shrink balance sheets. Rising term premia during a cutting cycle would mark a clear break from past patterns.

Third, geopolitical and trade fragmentation. The Iran conflict is not an isolated event. It is emblematic of a broader shift toward strategic competition, regionalised supply chains, and more assertive industrial policy. These forces increase macro uncertainty and reduce the predictability of global capital flows, both of which push the term premium structurally higher.

Fourth, valuation sensitivity. A reassessment of structurally low discount rates, long embedded in asset pricing, raises the risk of rapid cross-asset repricing.

Finally, investor psychology plays a critical role. Bond market volatility has historically been episodic, with credible policy backstops limiting tail risks. In 2026, however, central banks are signalling flexibility rather than commitment. At the same time, geopolitical shocks are becoming less episodic and more structural. This shifts the nature of risk from cyclical uncertainty to regime uncertainty, and markets tend to price regime shifts abruptly.

In short, the term premium is not just another rate variable. It is the market’s referendum on the sustainability of the macro regime.

2. When we look at the west, Europe is operating with subdued growth, a cautious central bank stance, and even uneven fiscal positions across member state. What stands out most for market within that combination?

What stands out most in Europe’s current macro mix is a deepening structural vulnerability, now amplified by external shocks. Regulatory complexity, underinvestment, and fragmentation were already weighing on competitiveness. The Iran war has exposed how fragile that equilibrium is.

Markets are no longer reacting primarily to cyclical weakness. Instead, they are pricing a widening structural divergence between Europe and the U.S., but now through the lens of energy security and geopolitical exposure.

The Iran conflict has become a critical transmission channel. Despite limited direct trade with Iran, Europe remains highly exposed through global energy markets and shipping routes. Disruptions in the Strait of Hormuz, through which roughly a fifth of global oil and LNG flows, have already driven sharp increases in energy prices, weakened currencies, and tightened financial conditions.

The result is a growing risk of a stagflationary impulse: higher inflation driven by energy costs, combined with weaker growth and declining consumer confidence.

Within this context, three dynamics stand out:

First, policy asymmetry is becoming more binding. The ECB’s cautious stance is increasingly constrained by the inflationary effects of energy shocks. At the same time, fiscal responses remain fragmented across member states, limiting Europe’s ability to respond cohesively. This leaves European assets more sensitive to external shocks and global rate dynamics.

Second, Europe U.S. divergence is now structural and geopolitical. The U.S. is relatively insulated from energy shocks, while Europe is directly exposed. This asymmetry is reinforcing differences in growth, policy flexibility, and capital flows, widening the gap in how markets price risk across the two regions.

Third, energy has become the dominant macro transmission channel. The Iran war has effectively reintroduced an energy risk premium into European markets. Gas price spikes, supply uncertainty, and logistics disruptions are feeding directly into inflation expectations, corporate margins, and household demand, driving volatility across rates, FX, and equities.

Europe is entering a regime where monetary caution, fiscal fragmentation, and energy-driven geopolitical risk converge to structurally elevate risk premia. Markets are no longer driven solely by domestic macro data. External shocks, particularly through energy, are now the primary force shaping European asset pricing.

3. In the United States, the Federal Reserve continues to hold rates within a 3.50% to 3.75% band. Based on the data you are watching, what is your base for US monetary policy from here and what would make you revise that view?

Our base case is that the Federal Reserve remains on hold in the near term, maintaining rates within the 3.50% to 3.75% range. Inflation is easing, but remains above target, while the labour market is still resilient and growth has yet to show a decisive slowdown. That combination leaves the Fed with limited scope to pivot.

From here, policy is increasingly defined by the interaction of three variables: inflation, labour, and demand. The challenge is that all three are now being influenced by a new external shock, the war in Iran.

The conflict has introduced a meaningful energy-driven inflation risk, with oil prices rising sharply and adding uncertainty to the disinflation path. This complicates the Fed’s reaction function: higher energy prices can keep inflation elevated even as growth begins to soften, creating a tension between its price stability and employment mandates.

As a result, the Fed is likely to remain in a “hold and assess” regime, with a higher bar for cuts than markets previously expected.

We would revisit this view under three clear conditions:

• Inflation dynamics shift materially: A sustained rise in core inflation, potentially reinforced by energy, would push the Fed toward a more restrictive stance.
  
  
• Labour market inflects: A meaningful deterioration in employment or wage growth would open the door to easing, particularly if inflation expectations remain anchored.
  
  
• Growth slows more sharply: Weakening consumption or broader activity would tilt the balance toward rate cuts, even in the presence of elevated headline inflation.

Beyond these, financial or geopolitical stress, including a further escalation in the Iran conflict, could force a policy response, particularly if it disrupts markets or tightens financial conditions abruptly.

Finally, credibility remains central. The Federal Reserve’s independence and its commitment to a data-driven framework are critical in anchoring expectations. In an environment where geopolitical shocks are feeding directly into inflation and growth dynamics, any perceived shift away from that framework would risk amplifying volatility.

The Fed is on hold, but the policy path is narrowing. Inflation, labour, and growth are no longer moving independently, and the Iran war has made that trade-off more complex.

4. When you shift lens to Asia, do you see the region acting more as a stabilizing force for global markets or as a potential source of volatility in the months ahead?

Asia’s role in global markets has become increasingly conditional on the Iran conflict, particularly through its exposure to energy flows via the Strait of Hormuz, which carries roughly one-fifth of global oil and LNG trade.

This makes Asia simultaneously a stabiliser of growth and a key transmission channel of geopolitical shock.

On the stabilising side, Asia remains the dominant engine of global demand growth, supported by strong structural trends in India, deep manufacturing ecosystems across China and ASEAN, and relatively solid external positions in parts of the region. These dynamics provide a buffer to global activity even as developed markets slow.

However, the Iran war has shifted Asia’s macro sensitivity materially. The region is the largest importer of Gulf energy flows, meaning disruptions through Hormuz translate almost immediately into higher import costs, inflation pressures, and FX volatility. Recent spikes in oil and LNG prices have already tightened financial conditions across major Asian economies and forced policy responses in fuel management and trade flows.

Three channels now define Asia’s market impact:

First, energy pass-through dominates the macro reaction function. Higher oil prices feed directly into inflation expectations and current account balances, particularly in import-dependent economies such as India, Japan, and parts of ASEAN.

Second, FX becomes the primary shock absorber. Rising energy bills and widening trade deficits tend to weaken regional currencies, increasing imported inflation and tightening domestic financial conditions.

Third, policy divergence increases volatility. While some economies retain room to stabilise growth, others are more constrained, creating uneven policy responses across the region.

Asia is not a binary stabiliser or volatility source. In the context of the Iran conflict, it is best viewed as the main transmission hub of the global energy shock into growth, inflation, and currency markets, supportive of global demand over time, but a key driver of near-term volatility in cycles of disruption.

5. Within Asia, which economy currently sets the tone for global risk appetite and through which channel is that influence most evident?

Within Asia, China continues to set the dominant tone for global risk appetite, but the transmission channel has become increasingly geopolitical in nature rather than purely macroeconomic. At the same time, the emerging Iran conflict has amplified this dynamic by adding a second-order energy-security shock that runs through both China and India, reshaping how risk is priced across the region.

China’s influence remains most immediate and systemic. However, it is now primarily expressed through geopolitical risk premia, including trade fragmentation, technology restrictions, sanctions risk, and strategic rivalry with the West. These channels mean that shifts in China’s policy stance or external relations tend to trigger abrupt global risk repricing, particularly across equities, commodities, and credit markets that are sensitive to supply chain disruptions and demand uncertainty.

The Iran conflict has reinforced this pattern by re-centring global attention on energy chokepoints and maritime security, particularly the Strait of Hormuz. As tensions escalate, the resulting oil price shocks act as an immediate transmission mechanism into Asian risk assets. Given Asia’s structural dependence on imported energy, higher oil prices tighten financial conditions across the region, weakening currencies, pressuring inflation, and forcing a reassessment of central bank policy paths. China is affected through industrial margins and export competitiveness, while India is particularly exposed through its external balance, inflation sensitivity, and fiscal pressures. In both cases, the conflict introduces a geopolitical risk overlay on top of existing growth concerns.

India’s role in this environment is more of a structural counterweight than a source of global risk shocks. It sits at the intersection of geopolitical realignment and energy vulnerability, benefiting from supply chain diversification away from China and stronger portfolio inflows tied to its growth narrative, but simultaneously exposed to oil-driven inflation and currency volatility stemming from Middle East instability. As a result, India’s influence on global risk appetite is less about triggering risk-off events and more about shaping the medium-term stabilisation or persistence of risk sentiment through allocation flows.

Taken together, Asia’s influence on global risk appetite is increasingly defined by overlapping geopolitical fault lines. China remains the primary transmitter of strategic and policy-driven risk shocks, India anchors the structural growth and diversification narrative, and the Iran conflict has added a powerful energy-security channel that intensifies volatility across both, ensuring that global risk sentiment is now driven as much by geopolitics and supply chain security as by traditional economic cycles.

6. Looking at Africa, do you see signs that global investors are genuinely reengaging with African credit or does market activity still feel dependent on short and opportunistic issuance windows?

Global investors are cautiously re-engaging with African credit, but the nature of that engagement remains largely opportunistic rather than structural. Activity continues to be driven by issuance windows, where demand emerges only when relative value becomes compelling, liquidity conditions are supportive, and broader geopolitical volatility temporarily stabilises.

In this context, Africa is still predominantly viewed through a “risk-on window” lens rather than a sustained allocation theme. Yield premia remain the primary draw, but they are not yet consistently supported by a durable re-rating of credit fundamentals or liquidity depth.

Importantly, this dynamic is now increasingly shaped by a heightened geopolitical overlay. The escalation of the Iran conflict has reinforced global risk aversion through its impact on energy markets, trade routes, and inflation expectations. With the Strait of Hormuz representing a critical conduit for global oil flows, disruptions have led to sharp oil price spikes and renewed inflation concerns, tightening global financial conditions. This has a direct spillover effect on African sovereign and corporate credit, particularly for oil-importing economies where higher energy costs weaken fiscal positions, pressure external balances, and constrain monetary policy flexibility.

At the same time, the conflict has increased volatility in global capital flows. Episodes of heightened Middle East tension tend to trigger a broader defensive rotation in portfolios, supporting safe-haven assets while reducing exposure to perceived higher-beta credit segments. African markets, given their liquidity profile and perceived cyclicality, are often among the first to experience these outflows, even when domestic fundamentals remain stable.

Against this backdrop, Africa’s structural financing needs continue to expand meaningfully, particularly in infrastructure, power generation, electrification, logistics, and climate adaptation. The core challenge remains the mismatch between long-dated development requirements and the short-term, event-driven nature of global capital allocation.

Bridging this gap requires more than cyclical improvements in sentiment. It depends on sustained enhancements in credit quality, policy credibility, and market transparency, alongside deeper participation from local institutional investors. Blended finance structures, guarantees, and credit enhancement mechanisms are increasingly critical in insulating investment flows from geopolitical volatility, including shocks emanating from conflicts such as Iran.

In this ecosystem, institutions such as Absa Group play a pivotal role in translating episodic investor interest into executable transactions. By structuring risk, providing advisory capability, and mobilising both global and domestic capital, banks act as intermediaries between short-term liquidity cycles and long-term development needs.

Similarly, non-bank financial institutions, including pension funds, insurers, and development finance institutions, are becoming increasingly important in stabilising demand. Their use of credit enhancement tools and longer-duration investment mandates helps partially insulate African credit from external shocks, including those triggered by geopolitical escalations such as the Iran conflict.

Ultimately, while African credit markets continue to be characterised by issuance windows and shifting global risk sentiment, the added layer of Middle East geopolitical risk has intensified volatility at the margin. However, it has also underscored a more important structural point: the need for deeper, more resilient financing architecture that can absorb external shocks while sustaining long-term capital formation across the continent.

7. Turning to Mauritius, inflation reached 4.5 percent year-on-year in December. Based on the underlying components, does this look like a return path toward disinflation or something more persistent?

The latest inflation print in Mauritius at 4.5 percent year-on-year sits at an important inflection point, but the composition suggests this is more of a gradual normalisation path rather than a renewed inflationary regime.

On the surface, the moderation from prior peaks reflects easing imported inflation pressures, particularly in food and energy-related components, alongside a stabilisation in global commodity prices and freight costs. Given Mauritius’ structural openness and import dependence, these external drivers remain the dominant transmission channel into the inflation basket.

However, the underlying components point to a more nuanced picture. Services inflation remains comparatively sticky, reflecting domestic demand resilience, wage dynamics, and administered price adjustments. This is important because it indicates that while external price pressures are easing, domestically generated inflation is not yet fully anchored back to historical norms.

From a policy perspective, this places the economy in a transition phase rather than a clear disinflation cycle. The balance of risks is shifting, but not conclusively. The trajectory toward disinflation is intact, yet it is likely to be uneven and sensitive to both imported shocks, particularly energy, and domestic demand persistence.

In addition, Mauritius remains exposed to global geopolitical developments, including recent disruptions linked to the Iran conflict, which have contributed to renewed volatility in energy markets. Any sustained increase in oil prices would quickly transmit into transport, utilities, and broader input costs, delaying the disinflation process.

Overall, the signal is not one of entrenched inflation, but rather a gradual reversion toward target, contingent on external stability and the continued easing of domestic price pressures. The key differentiator going forward will be whether services inflation begins to converge meaningfully lower. That will ultimately determine whether disinflation becomes self-sustaining or remains externally conditional.

8. When you connect the global picture through rates, what do the major yield curves currently signal about funding conditions and market risk appetite over the next year?

When you connect the global picture through rates, the message from the major yield curves remains clear, but the backdrop has shifted materially. We are moving out of peak restrictiveness, but not into easy money. The Iran conflict has reinforced that transition by introducing a new inflationary and risk premium shock into the rates complex.

In the U.S., the re-steepening of the Treasury curve still marks a shift away from outright recession pricing toward gradual policy normalisation. However, that steepening is now being shaped as much by higher long-end yields as by expectations of easing. The energy shock stemming from disruptions in the Strait of Hormuz, through which roughly a fifth of global oil and LNG flows, has pushed inflation expectations higher and made the path to rate cuts more uncertain. Markets are no longer pricing contraction, but they are also no longer confident in a smooth disinflation path.

In Europe, the signal is more constrained. Curve steepening reflects elevated term premia rather than growth optimism. The region’s exposure to imported energy, particularly natural gas, means that the conflict is tightening financial conditions via inflation and external balances. Long-dated funding remains structurally expensive, reinforced by fiscal supply and heightened geopolitical risk. Capital is available, but it comes at a higher and more volatile cost.

Japan’s ongoing normalisation reinforces this global theme. As domestic yields rise from historically suppressed levels, Japanese capital is less readily exported, contributing to upward pressure on global term premia at a time when markets are already digesting geopolitical uncertainty.

Taken together, yield curves are signalling that funding conditions are stabilising, but with an inflation-driven floor. The Iran war has effectively delayed the transition to easier policy by injecting renewed price pressures through energy, transport, and supply chains. Liquidity remains adequate and markets are functioning, but the cost of capital, particularly at the long end, is rising again.

From a risk appetite perspective, the message is more delicate. The fading of deep inversion suggests markets are not bracing for an imminent recession. Credit spreads remain relatively contained, and capital flows have not reversed in a disorderly way. However, risk appetite is increasingly conditional rather than broad-based.

Investors are now demanding clearer compensation for:

• Energy-driven inflation risk
• Fiscal slippage as governments absorb higher costs
• Geopolitical uncertainty with no clear resolution path

Recent market behaviour reflects this tension: yields have risen alongside oil, while equities have shown increased volatility as optimism around a quick resolution fades.