FidelityConnects: Jurrien Timmer – The global macro view March 23, 2026

[00:04:50] Pamela Ritchie: Hello, and welcome to Fidelity Connects. I'm Pamela Ritchie. With stocks tracking higher to kick off this week after last week's sell-off investors are judging whether it's time to get back in or wait for more signal ultimately to take hold. Behind some of the actual moves our next guest says the certainty of stagflation being priced into the market further goes on as we see this war with Iran carrying on. We have bond yields that have been up to counter inflationary risks caused by oil prices. Equities, of course, have sold off to reflect concerns about growth, also due to the oil price, ultimately. Hopefully, what is also moving behind the scenes is the earnings outlook and its strong foundation. While the fogginess of war, of course, remains for some version of an unspecified period the valuation picture is starting to look perhaps attractive to some investors. Joining us here today to find out the firm story underpinning markets here, the technicals, and for the broader global market story is head of global macro at Fidelity, Jurrien Timmer. Warm welcome to you, Jurrien. You are joining us from across the pond. Thank you for making time for us today.

[00:06:04] Jurrien Timmer: Nice to see you again, Pamela, and I apologize. I look like some day trader doing something from his basement. I'm actually at the Marriott Hotel in The Hague. I'm in Holland to look after my parents. We're selling their house so I don't have my mom's kitchen table to Zoom from anymore. I had to scramble because the Wi-Fi here was pretty bad so then I had to get an ethernet connection, which I have, but my computer doesn't have that connection so I had to go and rent a  laptop. I'm sitting here in a conference room, doesn't look very interesting. Anyway, the parents are good and we're getting stuff done  so all good. We're here to talk about markets.

[00:06:50] Pamela Ritchie: We are. Well, we're delighted. Sorry that you had to scramble so much for that, an ether cord, that seems like a long time ago. In any case, here we have this snapback in markets. We have comments that maybe the war with Iran is seeing its final moments and poof, markets are up 2% across the boards. That is the whiplash that everyone is talking about. I wonder if we can go through last week a little bit and and the bigger question of where to hide was sort of front and centre.

[00:07:20] Jurrien Timmer: For me the takeaway of the last, I guess, three weeks, the conflict started three weeks ago, the most interesting things that happened, not even last week but the week before, was, obviously, equities go down but they didn't go down a lot. The reason for that is that earnings are so strong. When you really think about equity drawdowns you should really look at drawdowns in valuation because that's the price. I mean, the index is the price but the valuation is what people are willing to pay for something. The P/E ratio as of Friday for the S&P was actually down 20%. That is a significant haircut. Price was down 7% and that's because earnings are growing 14%. What could have in a much bigger drawdown, or much scarier one, has been mitigated by the fact that we are in a very strong economy, but also earning cycles. That's the first takeaway. Even if you go abroad to EM or EAFE, developed markets, those were down about 10% so not that much worse but a little bit worse because, obviously, they are more vulnerable to the supply chains that have been disrupted. That was equities.

[00:08:36] Of course, on energy, very predictable. Oil goes up, Brent goes up more than WTI because, obviously, Brent is what is affected the most by the Strait. I was on a different call with our energy leader, Ashley Fernandes, and he pointed out that about a quarter or a third of the oil that moves on ships goes through the Strait of Hormuz. Even though the US is a net exporter of oil, 13-plus million barrels a day we produce now, it's not all crude oil. It's distillates, of course, it's LNG. We overproduce LNG so we're not at all vulnerable there. Even though we do import crude oil what we do import is mostly from you guys, from Canada. The US is somewhat insulated, and we'll talk about this later, but my hope is that a silver lining out of this conflict might be that discussions or animosity around US-Canadian relations might actually temper because the US will see what kind of hornet's nest it disturbed here and maybe it will play a little nicer with our friendly neighbours across the border. Maybe that's wishful thinking.

[00:10:01] Pamela Ritchie: Okay, we'll have lots of follow ups on that but we'll come back to trade.

[00:10:06] Jurrien Timmer: The most interesting thing, of course ... and the dollar was bid so that's somewhat predictable as well, global uncertainty, need for cash, need for liquidity. Bond yields broke out even two weeks ago and they really broke out last week to 4.39. At first glance that's a little bit of a head scratcher. Say, okay, safe havens are supposed to do well. Last Friday gold completely got hammered, that, of course, at first glance is also a head scratcher. Finally Bitcoin, we've talked about this in the past, has been incredibly resilient even though it does occasionally wear the hat of a risk asset. These are all tells, the way I think about it. Gold weak, Bitcoin strong, really dovetails with something we've been talking about recently, and I've been writing about, gold has been on a tear going up, Bitcoin has had sort of a mild winter going down, 50-60%, not that mild, maybe there's a rotation there in the gold to Bitcoin ratio. That seems to be playing out here.

[00:11:15] Again, coming back to bonds, when I think about the correlation between stocks and bonds now becoming more positive but in the wrong direction, because bonds are going down and stocks were going down, it's a little bit of a deja vu, and I hate to say it, to 2022 when we had a 28% bear market entirely driven by a rising cost of capital. Again, it may be premature to declare this but that, I think, was sort of for me a little bit of an aha moment as well.

[00:11:53] Pamela Ritchie: Let's go there. The rising rates are on inflation risk. I mean, the concern is that central banks around the world, which actually many of them have completed their cutting cycle, were sort of in a neutral stance and hoping probably not to hike, but are now probably going to hike. We've even got the Fed having questions around that. I mean, it is a hugely different world for the rate story today than it was just a couple of weeks ago. Inflation risk longer term appears to be, well, at least shorter term appears to be there.

[00:12:28] Jurrien Timmer: If we go back to the COVID days in 2020, obviously, we had that massive inflation spike that was driven by supply chain bottlenecks, as we all remember not so fondly, there was also a demand shock coming from the fiscal impulse. That's the part that the Fed, I think, did not really appreciate. It was focused on supply shocks and that's why it said the inflation is transitory. It didn't really act. It didn't tighten policy earlier than it should have. Then when it really became pervasive they had to really act, that was in 2022 when they raised rates from 0 to 5 and bond yields went from 1 to 5 and inflation went to 9% on a year-over-year basis. Then it came down, it worked, they achieved the soft landing but the long term inflation target for the Fed is 2%, or 2 1/2 if you think about the CPI versus the PCE, for that target to remain true over the long term, if you go to 9 you need to overshoot in the other direction to end up at 2. The 5-year inflation rate is more like 4% right now, which is well above the Fed's target. Now if you get another inflation shock which, of course, any time oil prices rise you will get that at least temporarily, then you are starting that inflation from a higher base.

[00:13:59] I saw a report by Goldman Sachs this morning that they think if this is a sustained supply chain shock that the CPI could add 1% to it while GDP loses 40 basis points. That is stagflation, at least in some way.  It's hard to think about what's happening now as a 1973 style inflation shock when we had the oil embargo then and later the Iranian revolution. Every time tensions escalate, and hopefully they're now de-escalating, but certainly as of the weekend they were escalating with that ultimatum you run the risk that more infrastructure gets destroyed and that will take time to rebuild. It could take several years to rebuild. Then you have chronic supply shortages not only in oil and gas but you get shuttered infrastructure. Of course, other things run through the Strait as well, potash--

[00:14:58] Pamela Ritchie: Helium.

[00:14:58] Jurrien Timmer: --fertilizers, exactly. I think that's what the market is grappling with is that, okay, generally speaking economists think an oil shock is disinflationary because it creates demand destruction and then the economy goes into recession and the Fed or the central bank has to ease. But if it is a supply chain bottleneck where countries cannot function, basically, because they don't get enough energy that's a whole different can of worms. That, I think, is what the market is really pricing in. You saw that over the weekend on Friday into Monday. Now, of course, we've had this reversal by the President causing movements in the other direction but it shows you what is at play. It's Treasury yields, it's, obviously, equities, it's energy prices, but it's also what are the central banks going to be able to do.

[00:15:57] That brings me back, and I hope it doesn't end up being a repeat, we always think about, okay, what if earnings don't go up or they come down or the estimates are too high or the valuations are too high or we have an AI bubble, since 2022 we haven't really thought about that scenario. Interest rates are one of the components of a discounted cash flow model and if you end up with a secular inflation story that got its first shock in 2022 and now a second shock, and then you get the 5-year rate of change running at 4, 5%, central banks can't ease into that and that's a risk too. Remember during the financial crisis around September, I think it was, the Fed was already leaning towards cutting rates because of the Lehman Brothers moment but the ECB under Trichet was actually raising rates because oil prices were high. That ended up being a fairly fatal mistake. Those are kind of the things that I think are going through the minds of investors and market participants right now.

[00:17:08] Pamela Ritchie: It reminds us of how many times we use the term what does the Fed have in its toolbox? It's almost back to that, if you don't have easing as one of the main ways to lean into it. The other thing I just wanted to ask is within the pandemic and when we had the supply chain shock, and it was a supply shock the same time, we kept hearing that economists didn't have the right models because models were always sort of built on the other type of supply shock. We must have better models now after looking at the pandemic situation. How is that helping you, helping the markets, ultimately?

[00:17:50] Jurrien Timmer: I forgot to bring up some charts but let's go to slide 2 here. I think the market understands how sensitive the global economy is to energy. We're all trying to become less energy dependent but it is still an input into almost everything people do. If the oil stops flowing, and it's hard to believe that one little terrorist country controls so much of the movement of oil and gas, that's where we are. We can talk about whether the administration really thought all this through. Maybe they didn't but that's neither here nor there because this is where we are right now. Again, you look at Brent at 112, it's down from that now since this morning. To me the market is focused on the bottom panel, the crossings in the Strait of Hormuz which is in the single digits, a few shifts are passing but just a few, and then the backwardation of the oil curve.

[00:18:59] This is the difference between the ninth contract for WTI and the front contract. The difference is about $20, $25. In other words, oil for immediate delivery is $25 more than oil for delivery a year from now or so or nine months from now. If you don't follow anything else those two lines will tell you what all the other things are going to do. Reopening the strait, obviously, is the clearest priority. I think that's what the salvo over the weekend and then the other one this morning are all about.

[00:19:41] Pamela Ritchie: Maybe we follow exactly that in answering this question, you mentioned in some of your notes that equities are trying to follow the oil shock sell-off sort of system or trajectory. Why trying? Is that just investors trying to get a handle on how to handle whether they're going to sell, hold?  What's the trying part?

[00:20:05] Jurrien Timmer: We go to slide 3. The trying part is just ... the S&P hasn't really gone very much, if you look at the black line, really over the last few months. It's been going sideways and the reason for that was that the Mag-7 has been in a holding pattern, or at least it was until last week. It is down from there now, I'll show you that in a moment. The broadening trade, or the convergence trade, has been very powerful. It's EM and EAFE catching up to the S&P, and even the equal-weighted S&P catching up to cap-weighted S&P. That trade had a lot of momentum. I think when you get some sort of shock, and it could be any shock, if there is a fast money component in the system, right, not like the Fidelitys buying for the long term but just people kind of going along, maybe hedge funds, maybe managed futures, CTAs, they're going to sell first and ask questions second. They have protocols, they have algorithms. If the volatility goes in a certain direction their models or their computers will tell them to sell.

[00:21:18] If we go to slide one for a moment you can see, if you have the volatility indices, the VIX is on equities, the MOVE index is on bonds, the OVX is on oil, and the CVIX is for the dollar. Those are the lines above the dashed line there. As those go up, if you're running some kind of algorithmic model your models are going to de-risk because they are based on a certain amount of volatility and certain Sharpe ratios. Part of the selling is automatic, it's systematic as we would say. If we go to slide 7, for instance, you can see the cap-weighted index on top, equal-weighted index at the bottom, that's the severity of the declines. We're just back to the trend lines and still the main indices are making higher highs and higher lows. That is the definition of an uptrend. At this point, there's not a lot of chart damage, and that's good. If we go to slide 8 I'll show you the Mag-7. There is some chart damage there. I haven't really looked at what they're doing today, and there's a lot of movement, so it's possible — sorry, that's slide 9, I apologize, that was the SPW. I don't know to what degree they are leading on the way up or down. If we go to slide 9, which is the Mag-7, that's the next slide from the one we're looking at right now.

[00:22:57] Anyway, there is some damage there. Only 20% is above its 50-day moving average. We might have been more oversold than that earlier this morning. In any case I think, to answer your question, there is some selling of the marginal traders. For the long term investors, they should not sell this quickly because they're basing their decisions on some fundamentals. Again, the earnings estimates are expanding and that is mitigating the decline. The market is assuming this is going to be over in a few weeks or a few months and if it's right then I think we will survive this, there's a lot of assumptions in there.

[00:23:45] Pamela Ritchie: There's so many great questions coming in for you, I'll put some of them to you. This is maneuvers about how oil gets out of the Strait of Hormuz. You won't necessarily be the person to answer all of these but you can see what investors are worried about. How might oil prices be impacted if Saudi Arabia decides to send oil to the Suez, putting it to the other side, to the Red Sea side of Saudi Arabia. Just sort of looking at oil flows if you can get the price to calm down what, ultimately, might be the impact.

[00:24:22] Jurrien Timmer: Saudi Arabia is already doing that. It's just a matter of capacity. There's also pipelines, that's the other way that oil gets transported. Of course, that's a case from Canada to the US. To amp up other forms of transportation is not something you do overnight. If it was really low-hanging fruit nobody would ever use the Strait of Hormuz. I think it's just a matter of the oil is there, there's no real oil shortage, but it's just the bottlenecks of getting it from point A to B. For LNG it's Qatar, of course. The US is the other player but that's not at issue right now. For crude oil, my guess is what will eventually happen if there is no direct resolution between the US and Iran is that China might end up as a peace broker here because China, obviously, needs oil. We've already heard stories of Iran negotiating directly with other countries including Japan. It might end up that we get an even more fragmented world order. We've talked about this already, this notion of going from a single world power, the US, to multiple spheres of influence where China is one and Russia is another. It might be something like that where China deals directly with other countries, it gets denominated in yuan, the petrodollar starts to diminish, maybe that's another hint here on why yields are rising, although they are rising across the globe so it's not a US story. There's all kinds of...

[00:26:09] Pamela Ritchie: Say more on not, the petrodollar. Sorry, just say more on that, the petrodollar dynamic. This is whether you buy it in dollars at all, right? You could buy it in some other currency.

[00:26:18] Jurrien Timmer: What happened in World War II, Bretton Woods, the world went off the gold standard, where every currency was pegged to gold, to the dollar standard where every currency was pegged to the dollar and the dollar was pegged to gold. In '71 President Nixon took the US off the gold standard because it was unsustainable given the amount of budget deficits that were being run. You can't be on a gold standard when you're inflating the money supply like that. That created the era of the petrodollar where the world was buying oil but they had to pay for it in US dollars. Those dollars then ended up as reserve surpluses in the Gulf states, for instance, and other countries. Where do you go with your excess dollars? Well, you go into the deepest most liquid capital market which is US Treasuries.

[00:27:12] So you had this recycling of dollars, buying oil and then getting put into Treasuries. Again, maybe I'm overreaching here in terms of this thesis but if Iran ends up just selling oil, and Iran doesn't sell a lot of oil but it controls a lot the flow, to China and emerging markets and Russia is sort of in that game, they're not going to settle in dollars. They're gonna settle in other currencies or commodities or gold or what have you. Maybe that becomes part of this narrative as well. That would reduce one bid for Treasuries. Again, it's not just Treasuries, if we go to slide 14 you can see that yields are rising everywhere. I'm hesitant to say this is all about Scott Bessent misjudging or this or that. You look on the right there, the UK, Canada, Germany, Japan, everything is rising. I think it has more to do with the markets adding in an inflation premium than thinking Treasuries are going to be impaired relative to other currencies.

[00:28:28] Pamela Ritchie: There's a number of questions, probably not surprisingly, on gold, which you've already mentioned but just sort of some more specifics. A couple of questions are sort of gold broadly and then the idea of moving from gold mining companies, maybe a fund focusing on materials companies, gold, to sort of more the energy side. Anyway, I guess, just put the gold question to you again.

[00:28:53] Jurrien Timmer: That was definitely a head-scratcher for me last week, slide 16, and I still haven't heard of a satisfactory answer. Until now gold has been sort of a very good proxy for the amount of paper money sloshing around the system. That's exactly what gold is supposed to do. It's hard money so when the global money supply is growing at double digits, as it has been until a few weeks ago, gold should be going up because hard money is there to protect purchasing power when paper money, or fiat money, is getting inflated. That's exactly what hard money's supposed to do. It was down to 4,100 this morning from 5,600 just a few months ago, that's a pretty big haircut. Now, it rose a lot, of course. Maybe it rose too much. Why is it down? Is it central banks selling because their countries, and I'm thinking Middle East countries, are not getting oil revenue so they have to sell reserves? I don't know that gold would be the first thing I would sell if that were the case. They might have T-bills or something, or maybe Treasuries so maybe that's behind the rise in Treasury yields. Again, then it would not be a global thing.

[00:30:16] Or could it just be that if rates are going to rise and real rates are going to raise, which is what's happening, both inflation expectations are rising and real rates are rising. If real rates are rising then gold should fall because gold tends to move inversely to real rates. Again, the degree of the move is so outsized that I can't really put my finger on it. I still like gold. As I've been saying for a few months or a few weeks, if we go to slide 17, Bitcoin has been on the other side of gold. Gold has been eating Bitcoin's lunch for the last few months. If you look at the bottom panel, it's a little bit busy, but if you look at orange bars, that's the Bitcoin to gold ratio on a detrended basis. You can see that the major inflection points in terms of a pair trade between gold and Bitcoin have happened when that ratio is down 100% or more. That's exactly where we got. I don't think this is rotation out of gold into Bitcoin but Bitcoin has been super resilient, holding that 60, 65,000, which has been my downside target, and maybe gold just went up a little bit more than it should and you're seeing some rotation.

[00:31:40] I think maybe it's a combination of all of them. Whenever something goes down that fast by that much it tells you that there's some sort of forced liquidation. Nobody's going to liquidate willingly  that quickly because it would be a stupid thing to do. You're painting the tape with your own trade and you're going to be the victim of it. It might be algorithms, CTAs getting stopped out of a trade based on some central bank doing something because they need liquidity, or the perception that they need it. Maybe they don't even because these countries will have reserves in other places as well.

[00:32:22] Pamela Ritchie: That's fascinating, and it really helps explain part of the gold story. I think we have a minute left here. If there's just one piece of the sort of second order effects of what's going on in Iran right now that talks about oil and how Canadian oil to the US and trade might just click in a trade deal what would it be? I wish I could ask you more.

[00:32:45] Jurrien Timmer: My quick sense is that, and again, I'm not a political person, I've survived 40 years in the industry by not being political, but when I look at what's going on in Washington and in Russia a couple of years ago with Ukraine, it kind of feels like there's some hubris there that people, leaders get overconfident, they think they can just do whatever the hell they want. Maybe this Iranian situation reflects some overconfidence by the US after the very easy decapitation of the head snake in Venezuela. The US has been very adversarial against Canada and Mexico so my sense is that if they are licking their wounds trying to clean up this mess they're going to be less likely to pick a fight with Canada given that the reason the US is energy independent is basically because of Canada. Otherwise it would have to get its oil from the Middle East too. Maybe that's a silver lining here for our relationship. Not that our relationship is bad but you know what I mean.

[00:33:56] Pamela Ritchie: Not our relationship, I know what you mean. We adore having you and having your thoughts and setting us straight. We wish your family very well and safe travels to you. We'll see you very soon. Jurrien Timmer joining us from The Hague.

[00:34:06] Jurrien Timmer: Thank you very much.

[00:34:08] Pamela Ritchie: Thank you for joining us. Let's go through what's coming up this week. Tomorrow portfolio manager Mark Schmehl, he's back for another lively discussion on global markets and the emerging trends shaping his outlook and portfolio positioning. He's probably been very active of late, we'll ask him about that. The webcast will feature live French, Mandarin and Cantonese audio interpretation so please join us in any of those languages.

[00:34:32] On Wednesday, you can join our Directors of Tax and Retirement Research, this is Michelle Munro and Jacqueline Power, for a practical, timely walkthrough of what you need to know to guide your clients through the final stretch of tax season. They're going to be breaking down key changes, common filing pitfalls, and the strategic considerations that matter now that the RRSP window has officially closed. Jacqueline Power will join us first in French at 10:30 a.m., that's Eastern time, and then she'll join Michelle Munro at 11:30 in English at the regular time, that's Eastern time as well.

[00:35:05] On Thursday Fidelity Director of Quantitative Market Strategy, Denise Chisholm, is back to discuss her latest sector thesis and the key signals advisors should be paying attention to for the month ahead. We'll look forward to all of those and seeing you then. Thanks for watching here today. Happy Monday. I'm Pamela Ritchie.