Processing uncertainty in real time

0:00Ajay Rajadhyaksha:Hey, everybody. Welcome back to the Barclays Brief. It's Ronnie. It's Monday, March 9th, and I'm here in our 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 are 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.

0:33Ajay Rajadhyaksha: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?

0:43Ronnie Wexler:Good morning, Rani, 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, in Europe and so on.

1:14Ajay Rajadhyaksha:And

1:14Ronnie Wexler: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. There is a secular capex cycle between AI, the energy build-out, and defense in the US, Europe, and Japan.

1:51Ronnie Wexler:So look, at this point, it's as much qualitative as quantitative. And much as I hate it, near term, it's going to be driven by the headlines.

1:57Ajay Rajadhyaksha: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.

2:11Ronnie Wexler:Let's move that into the topic of inflation, which is a big one for everybody.

2:14Ajay Rajadhyaksha: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?

2:31Ronnie Wexler: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.

3:07Ronnie Wexler:I don't think the Fed is going to cut 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.

3:46Ajay Rajadhyaksha: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 analogs that we should focus on as it relates to the price of oil and we've seen in the past?

4:02Ronnie Wexler: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 four or five 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 their production taken out.

4:43Ronnie Wexler:But even in that instance, oil went up 15 % overnight, but then over the next couple of weeks, slided 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, where oil went from$17 a barrel to over subsequent months, over$40 a barrel. But even there, Ronnie, the day on Jan 1991 that the war actually started, oil fell 33%, its single biggest drop in one day that I can remember.

5:14Ajay Rajadhyaksha:That's pretty incredible when you think about it.

5:16Ronnie Wexler:It is amazing, right? I mean, I guess where I stand is you're probably somewhere between a 2019 episode right now in terms of seriousness versus at the far end of the spectrum, what happened in 1990, 1991.

5:29Ajay Rajadhyaksha:But I think the real lesson is you just have to be very balanced around all this stuff.

5:32Ronnie Wexler: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 market franchise. is how are you thinking about the path forward?

5:53Ajay Rajadhyaksha: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 six 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.

6:26Ajay Rajadhyaksha: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.

7:03Ajay Rajadhyaksha:So that's something that I'm paying a lot of attention to. Along the same lines, we're super lucky. Our US 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 of 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 Mag7. They're working closely with companies of all sizes across the globe to drive efficiency, to drive productivity, to drive new product breakthroughs.

7:38Ajay Rajadhyaksha: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. 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 three to five years.

8:10Ajay Rajadhyaksha: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.

8:20Ronnie Wexler:Private credit, same thing. It's going to take a lot of time to crystallize.

8:24Ajay Rajadhyaksha: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 six 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.

8:49Ronnie Wexler:Fair enough, yeah.

8:50Ajay Rajadhyaksha:All right, one last question for you, for all of us. What is the thing that you're gonna be most focused on in the here and now for markets?

8:56Ronnie Wexler:All right, I'm gonna 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 pot oil has dropped a lot.

9:11Ajay Rajadhyaksha:And on the economy side, you cannot get away from the labor market.

9:15Ronnie Wexler:If we have two or three more prints, like the one that we saw on 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.

9:28Ajay Rajadhyaksha: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. Thank you. In summary, markets are locally volatile, but Ajay urges balance when evaluating the potential lasting impacts of geopolitical shocks like these. Please remember to hit the subscribe button wherever you listen to your podcast to be notified each time we release a new episode of the Barclays Brief.