Attack the Week (ATW)
What comes after Week 1 - Scenario Analysis / Calendar / Charts / Allocation Update
Sunday Thoughts
In this ATW, I will focus on a scenario analysis I have been developing over the past few days, using historical data and some probabilities to assess where we go from here. Of course, no crisis is ever the same, so some of it has to be taken as it is - a pure hypothetical exercise. I find it, however, useful in framing what has and hasn’t moved yet when thinking through various scenarios.
Last week tested many investors to the core. While I was anticipating a war, I didn’t think through a possible 2022 redux for central banks. The ECB is now anticipated to hike later this year. I have thought through this scenario already in Friday’s Thoughts. There are similarities and quite remarkable differences.
A few markers to reflect on last week. Brent crude: +31% on the week. European natural gas: +76%. Gold spiked to $5,420, then got liquidated in a classic flight-to-cash move. Silver swung from $96 to the low $80s over two sessions. The KOSPI dropped 12%. The DAX lost 4.2% on Tuesday alone. The STOXX 600 posted its worst week since April of last year.
And the S&P 500? Down 2%.
Let that sink in. The biggest oil supply disruption in history, and the S&P can’t even muster a larger decline. Monday’s buy-the-dip reflex — recovering from -1.2% to flat — was Pavlovian conditioning at its finest. A decade of “geopolitics don’t matter” muscle memory, firing on autopilot into what may be a fundamentally different type of shock.
From what I’m hearing, many rate desks were stopped out en masse on Thursday and Friday, so some of the nasty STIR sell-offs might have passed, which was partly helped by the much weaker-than-expected NFP print. Notably, the Dollar has started to soften in late Friday trading, propelling Gold & Silver higher into the close, alongside high beta developed market FX like the AUD rallying vs the USD, while stocks were closing in on the lows of the day
Gold’s performance during the week was disappointing, not really providing the hedge one would have expected. When scanning the historical data, one should look at the Stock/Gold ratio (ES/Gold below), which has been on the ascent for a couple of years now. While Gold’s absolute performance is somewhat lacklustre, the relative performance is pretty solid. Behind the paywall, I am analysing previous geopolitical episodes and what the Gold/Stock ratio can tell us about what markets might be anticipating going forward. Is telling us that this isn’t just a geopolitical shock, but a structural regime signal?
The 2026 buy-and-hold portfolio was not spared the volatility over the past week, but has held in much better condition than the SPX and NDX, now tracking a YTD performance of 8.4%.
It’s easy to forget that we are not only facing uncertainty coming from a war, but also plenty of uncertainty stemming from mixed economic signals, the impact of AI and credit stresses building. HY spreads are still relatively low, as shown below. Private credit’s 3 trillion market might become systemic.
Let’s now go to the meat of this post and work through various scenarios for the coming week and what we can learn from previous episodes. We then read Macro D’s latest thoughts and Macro FX implications before we look at the weekly calendar ahead, a few interesting chart setups and the latest output of the weekly asset allocation model.
Lots to go through, let’s go.
