European Equity Strategy: The impossible trinity of Hormuz

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European Equity Strategy: The impossible trinity of Hormuz

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European Equity Strategy

The impossible trinity of Hormuz

Markets remain sanguine despite large-scale energy supply disruptions, with European equities down 22 May 2026

only 2% since the start of the war and global equities up 4% to a fresh all-time high. The resilience is

Equity Strategyexplained by (a) the relatively subdued rise in oil prices in response to the supply shock (helped by inventory

Europe

drawdowns); (b) the continued robustness of the global macro data and US consumer spending in particular,

supported by the large tax refunds at the start of the year; (c) exceptionally strong global earnings momentum

running far ahead of the macro-implied levels, fueled by the AI investment boom.

The impossible trinity of Hormuz: we see the current market pricing as embedding three propositions that

appear to be mutually incompatible: (a) financial risk premia remain close to a 20-year low, consistent

Sebastian Raedler >>

with a scenario in which global growth momentum reaccelerates; (b) our commodity strategists highlight Investment Strategist

that oil inventories will likely drop to critically low levels unless the Strait reopens soon (once MLI (UK)

+44 20 7996 1749

inventories are exhausted, the supply-demand imbalance would have to be adjusted via demand destruction, sebastian.raedler@bofa.com

implying weaker growth); (c) prediction markets see only a 40% probability of the Strait reopening Thomas Pearce, CFA >>

before the end of July, consistent with our global economists’ argument that more pain will likely be required Investment Strategist MLI (UK)

for the two parties to the conflict to capitulate. There is an obvious tension between these three propositions: +44 20 7996 2081