Ronnie 00:00

Hey everybody, welcome back to the Barclays Brief, it’s Ronnie. It's Monday, March 9th, and I'm here in a recording studio in New York with Ajay, who's become a frequent guest on the Pod, which should tell you a lot about the state of the world so far in 2026. Ajay is our Chairman of Global Research and one of our top thought leaders on markets and macro, particularly at important moments like this one.

Ajay, let's just get right into it because there's so much to cover. There's so many forces at work in geopolitics, the broader business cycle and markets right now, for the first time in months, markets are really starting to react and build in more risk premium across the board. As I look at screens this morning, using the VIX as a barometer, we're printing in the 30s, which is generally an unsustainable level absent a lasting shock.

What's your framework for evaluating it all?

Ajay 00:43

Good morning, Ronnie, and good to be back. What I care about primarily is transmission mechanisms. And I'll give you a couple of examples: Right now, for example, everyone is fascinated by the spot price of oil. Will it go to $105, $110, $120? I don't care that much, what I care about is how long oil will stay elevated in the market's mind and in reality.

Because if it stays elevated, if it stays above $100 a barrel for six months, that's the point at which I'm going to start to change my economic forecasts in the US and Europe and so on. And similarly, with private credit, the fundamentals look poor, the headlines are God awful. But once again, are things moving quickly enough and big enough to take down a $31 trillion economy?

We've seen these episodes before Ronnie, we saw it during the SVB scare, we saw it during the commercial real estate scare in the United States, the transmission mechanism, the magnitude of it matters more than people think. And then finally, it's important not to lose sight of the bull case. AI use cases keep coming up. Hyperscalers upped their spend. That is a secular CapEx cycle between the AI, the energy buildout and defense in the US, Europe and Japan.

So look, at this point, it's as much qualitative and quantitative. And much as I hate it near-term, it's going to be driven by the headlines.

Ronnie 01:58

I love your balance. I really appreciate the way you think about how markets are efficient and how they, deal with certain issues and certain outcomes. I think it's a good reminder in times like this.

You mentioned the transmission mechanism of oil. Let's move that into the topic of inflation, which is a big one for everybody. We were seemingly in a really good place from an inflation expectations perspective. You had oil down, you had expectations of AI being deflationary. With the recent moves and the recent events, do you feel like those inflation expectations have changed in a sustained way in your eyes?

Ajay 02:59

I don't. Now look, I'll preface this by saying I do think too much was being made even a month ago, when the conflict was not on the horizon, of the deflationary functions of AI in this business cycle. Don't get me wrong, AI is a game changing technology. It's going to do massive things for improvement in the quality of life for the vast majority of the population. It's going to change how we approach work. You're going to see services firms in particular already take advantage of this technology. We see it in tech, we see it in finance, but once again, for AI to lower inflation across the global economy, I just don't think it's an issue for this business cycle. I don't think The Fed is going to cut a 150 basis points by the end of ‘27, simply because it points to inflation and says, “look how low it is, and it's all because of AI”.

Now, on the other hand, you asked about the price of oil and you are right, inflation expectations start in a comforting place. Governor Waller of the Fed said it best last week when he said, “look, this is a one time increase in price levels and that's it.” And the Fed is going to ignore it unless it starts to change medium term inflation expectations, which it shouldn't. I mean, honestly, Ronnie, if the Fed did not lose inflation credibility in ‘22 and ‘23 when CPI ran at 8% for two years straight, then I'm sorry, but it's not going to do it now,

Ronnie 03:46

Right? Well, look, I think being a student of history, particularly market history, is very important in times like this.

As you contextualize this current conflict, what are some of the historical episodes or analogues that we should focus on as it relates to the price of oil and what we've seen in the past?

Ajay 04:03

That's a great question. And looking at it through the prism of oil is a very good way to phrase it. So if I look at the last 4 or 5 instances, none of them genuinely applies. And I'm not trying to cop out of answering the question, but if you look at June 2025, what was called Operation Midnight Hammer, oil spiked for one night and then came straight back down. In that case, the episode was also over very, very quickly. Similarly, April 2024, October 2024. Perhaps the most significant episode, I would say, was September 2019, where in a related conflict, you had Saudi Arabia's biggest processing facility for oil, something that handled about half of that production, taken out. But even in that instance, oil went up 15% overnight, but then over the next couple of weeks started to come down as production resumed. Now, if I take the other side of the spectrum, a point at which oil had a really big impact, it was clearly the first Gulf War. But oil went from $17 a barrel to, over subsequent months, over $40 a barrel. But even there Ronnie, on the day on Jan 1991, that the war actually started. Oil fell 33%, its single biggest drop in one day that I can remember. So right now…

Ronnie 05:15

…that’s pretty incredible when you think about it.

Ajay 05:18

It is amazing, right? I mean, I guess where I stand is you're probably somewhere between the 2019 episode Ronnie, right now.

Ronnie 05:23

Yeah.

Ajay 05:24

In terms of seriousness versus at the far end of the spectrum, what happened in 1990, ‘91.

Ronnie 05:29

But I think the real lesson is you just have to be very balanced around all this stuff.

Ajay 05:33

You have to be very balanced. You can't get swayed by headlines and speaking of being balanced, I want to know where your head is at, how balanced that is, because I'm not letting us get out of the studio without you sharing your views on the current situation.

I know you're deeply intertwined with our clients, with our Markets franchise. How are you thinking about the path forward?

Ronnie 05:53

Other than my head hurting? So, look, this is obviously a very hard and confusing time. And I think that it's an especially difficult time to predict the immediate future for markets. So what I'm really trying to do is just picture what the world might look like out 6 to 12 months, because I've found that that is generally what drives a sustained path for markets.

And one thing I've been very impressed by is the dispersion in markets and how that rotation, like one sector up, another sector down, the balancing out of the market through market internals has proved resilient in the face of a lot of headline shocks. I mean, if you think about it, it feels like we've thrown the kitchen sink at the market for the last six months across geopolitics around AI fears, hyperscaler CapEx, spending fears.

There's been a lot and the market hasn't really gone up, but it really hasn't gone down either. And a lot of that is just market internals and rotation. And so I think what that's telling you is the market feels like there's a large AI impulse coming that's going to drive a lot of productivity gains and drive a lot of new breakthroughs.

And you just have to be aware of it because the market's trading difficult events with a path forward with like a look through to a lot of efficiency gains from technology. So that's something that I'm paying a lot of attention to.

Ronnie 07:07

Along the same lines, we're super lucky. Our U.S. internet analyst Ross Sandler is as good as it gets. I get to catch up with him frequently to my benefit. He and I spent a bunch time together on Friday. And one thing that he's focused on is the growth rate and the ramp for Anthropic. This is the company that's reached $20 billion in ARR, the fastest of any company on the planet. And what are they doing?

They're working closely with the mag seven. They're working closely with companies of all sizes across the globe to drive efficiency, to drive productivity, to drive new product breakthroughs. And Ross thinks that you're about to see that hit the mainstream. And as you do, that wow factor as it relates to AI should come back into the market. And I think this is the theme that matters most for the sustained path of markets from here, and so there's a lot of reason for optimism.

Ronnie 07:54

And then you spent time on private credit. You spent time on software. I'll hit both pretty quickly. I've spent a lot of time on them as well. But when I think about the two, they're obviously very unique and different, but the same in one sense.

Both of them are going to be slow moving. If I think about the runway for software companies, they have contracted revenues out 3 to 5 years. They have a lot of optionality to pivot and fuse AI for the space to consolidate. There's a lot that can go wrong, obviously they're being disrupted, but there's a lot that can still go right and they have the benefit of time.

Private credit: the same thing. It's going to take a lot of time to crystallize. And then when I look at private credit in places that can create systemic risk like life insurance, company balance sheets and general accounts, here in the US, it's a tiny fraction of the assets, and I don't expect even draconian scenarios there to create systemic issues.

So when I look out 6 to 12 months and I think about the things that matter, I see a pretty nice path forward for markets as we kind of get through what we're dealing with in the here and now.

Ajay 08:49

Fair enough. Yeah.

Ronnie 08:51

All right. One last question for you, for all of us, what is the thing that you're going to be most focused on in the here and now for markets?

Ajay 08:57

Alright, I'm going to give you two. On the market side, it's probably the July or September oil futures contract. You know that curve is still in backwardation if it starts to go into contango. I would start to get far more worried unless spot oil has dropped a lot. And on the economy side you cannot get away from the labor market. If we have 2 or 3 more prints like the one that we saw last Friday on the labor market. If you have continued job losses, I don't think we will, but if we do, then all bets are off. So those are the two things I'm watching very, very closely.

Ronnie 09:28

Ajay , it's always great to have you here. We appreciate your thoughts and we look forward to having you back soon, which, if this year is any indication so far, it'll be sooner rather than later.

Ajay 09:37

Thank you.

Ronnie 09:38

In summary, markets are local volatile, but Ajay urges balance when evaluating the lasting impacts of geopolitical shocks like these.

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