Bill al-Hafiz

If the decline in energy prices is sustained, Germany should see a bigger boost than recent PMI data suggests, because the energy shock’s negative impact has persisted longer than expected. A European manufacturing recovery is the main way to play lower energy, favoring German cyclicals and industrial equities.

Japan offers a compelling equity opportunity because valuations are significantly cheaper than Korea and Taiwan, while the government has launched significant investment plans to catch up in the AI semiconductor space. The recent sell-off in Asian tech makes this relative value trade even more attractive.

The US dollar is overbought, with positioning heavily long and far from its multi-year peaks. A true sustained Fed hiking cycle is needed to propel the dollar higher, and that is not happening now. Warsh is using talk to manage inflation expectations, while upcoming disinflation and a still-weak US consumer should take pressure off the dollar, limiting further upside.