Pricing the Crisis

Pave Multi-Asset Class Ranks: After the Shakeout

Soundbite: Bulls look past the bears’ nightmare scenarios of $200 oil and the impending bankruptcy of Private Equity and Private Credit. They point to the historical tendency for markets to quickly price in the downside of military conflicts, arguing the worst is already reflected in the current market. They also emphasize the positives: deregulation and lower taxes, infrastructure and defense spending, and the hoped-for industrial renaissance plus AI-driven productivity, all presenting potential value. Who is right? The market tends to be. Our weekly Multi-Asset Class rankings across 112 ETFs covering global asset classes reflect areas where capital is migrating, alongside areas where capital has left and could continue to leave.

Commodities still rule, with oil and oil stocks ranked in the top decile along with commodity-heavy country indices in Mexico, Brazil, and Australia. Consistent with the inflationary theme, Materials stocks continue to be favored. Managed futures/Commodity Trading Advisor strategy ETFs are also outperforming thanks to their exposure to commodities, although Gold and Silver are neutral in our scores. Utilities continue to outperform on the back of the datacenter power demand theme. Against a backdrop of elevated volatility, it does not surprise us that Low-Volatility High-Dividend stocks are ranking highly, acting as a fixed income substitute. Interestingly, these low beta dividend payers are favored over domestic or foreign fixed income instruments across all maturities and credits. The second highest decile is dominated by U.S. Small and Mid-Cap indices, which continue to outperform Large Caps and the Mag 7.

On the downside, domestic Consumer Discretionary stocks are lagging, and Bitcoin continues to score poorly. While China is only slightly underperforming U.S. equities, the Chinese tech sector is massively underperforming the broader market. India, a recent investor favorite, is struggling and continues its underperformance since Q3 2025. The Fed’s new focus on containing inflationary expectations has surfaced in our models, with Treasury Bills dropping sharply to our bottom decile.

The deeply oversold assets in our model are candidates for a mean reversion rotation, and this week Morgan Stanley strategists highlighted the value presented by Consumer Discretionary stocks as one such opportunity. Another possibility for a reversal among our low-scoring ETFs could be India. Indian stocks have not been this out of favor relative to Asian indices for about three decades. INDA, the MSCI India ETF, is trading at more than a three-year low in U.S. Dollar terms, despite recently improving economic data. We have our eye on this one in case our scores recover. No signs of improving sentiment yet.

BoJ Rolls Out Shiny New CPI Inflation Indicator

Soundbite: The Bank of Japan sees the need for higher rates to address problematically low real interest rates. Because the BoJ expects CPI to be above their 2% target and continue to rise, they are feeling a sense of urgency to hike rates. Last week, however, the Internal Affairs Ministry released a 1.6% benchmark core CPI figure, forcing the central bank to look at alternative measures of inflation and potentially giving the BoJ the justification to raise rates. To calculate a more realistic picture of underlying inflation, the central bank is excluding certain government measures such as energy subsidies. After removing what they call “institutional factors,” the reformulated Core CPI came in at 2.2% for February. Because the new data suggests the traditional measures have been artificially low, investors believe the BoJ is clearing the way for at least two more rate hikes this year.

The central bank raised rates by 25 basis points in January 2025 and again this January by another 25 basis points, pushing their key short-term rate to 0.75%. The new core price measures apparently justify raising official rates to 1.25%, the highest since April 1995. Governor Ueda’s plans for another leg of rate increases could finally strengthen the Yen and start a repatriation wave. If it really gets moving, carry trade unwinds could become a concern. For now, it is premature to raise any red flags, but the change in CPI methodology has increased the chances of carry trade vulnerabilities emerging sometime this year.

The elevated 160 USDJPY exchange rate makes the threat of an overly strong Yen a distant concern today. Nonetheless, Japan’s economy has been growing, and inflation, not deflation, has been a constant for the past three years. Additionally, Japan’s unions just negotiated a 5% annual wage hike for a third consecutive year. These factors have the BoJ fearing that the recent crude oil spike could push inflation expectations into alarming territory. Chair Powell discussed similar concerns at his March press conference. However, containing consumer price expectations are probably keeping the Fed on hold. For Japan, it opens the possibility for a more rapid BoJ rate hike schedule. Investors have priced in just over two rate hikes for this year, relative to none from the FOMC. The jump in crude has generated heavy Yen short positions, given Japan’s extreme dependence on oil imports. Therefore, the market is exposed to a sharp strengthening in the Yen assuming the Middle East crisis does not continue to spiral.

After the March 19 BoJ press conference, Governor Kazuo Ueda promised the Bank would publish new inflation data by the summer that removes government measures with “one-off effects on inflation,” yielding a cleaner picture of the underlying trend. The fact that the revised inflation data was introduced just one week later speaks to the urgency of building consensus to raise short-term interest rates. Core CPI excluding fresh food and institutional factors has been above target for four years running. When also excluding energy, the February Core CPI rose to a 2.7% annual rate. Brace for changes.

All That Power

Soundbite: As the New York Times wrote this morning: “data centers are like massive remote computers that process much of the digital world we interact with every day…With the rise of artificial intelligence, the size, complexity and cost of data centers have increased dramatically.” This has rocketed the demand for semiconductors (that are themselves packed densely to run complex AI functions), exponentially increasing future electricity consumption. Goldman Sachs calculates that hyperscalers’ upward revision to spend an additional $300 billion between 2026-2027, devouring 87% of their operating cash flow, is still well below the 120% that was deployed at the peak of the shale oil revolution. Goldman had to raise its estimate of 2030 global data center power demand by an additional 30%, driven by an increasingly optimistic outlook for productivity gains that will accelerate compute demand. To put it in perspective, their forecast represents additional power needs equivalent to the entire energy consumption of Germany, the sixth-largest energy-consuming country.

One thing is certain: these are very fast-moving developments, and the outlook can change dramatically in either direction based on shifting constraints. For now, it looks as though the personnel needed to create the infrastructure, not energy supply or its costs, are the limiting factor.

Despite the mind-numbing power demand numbers, Goldman is not concerned about the rising price or “supply cost” of power. They are worried about a bottleneck emerging from trying to find skilled electricians to build out the grid infrastructure required for future energy needs. While Goldman analysts acknowledge the high cash flow burden, the debt funding the data center rollout will not prove excessive thanks to hyperscalers’ unlevered balance sheets. As a result, Goldman expects upside growth surprises, and the investment bank raised its electricity demand estimates due to the following drivers:

• Increasing energy intensity in inference, with further upward revisions likely
• Sheer number of servers being shipped is growing
• Accelerating deployment of the latest generation of servers
• Expanding data center buildout globally

Goldman posits that 60% of the power sourced through 2030 will still come from natural gas and 40% from renewables, with nuclear representing a small portion of the latter. Beyond 2030, nuclear could play a meaningful role. Furthermore, the mix between renewables and natural gas could hinge on delays in bringing more efficient natural gas turbines online. The trajectory of battery and solar power development will also shape that composition.

One interesting view from  Goldman is that affordability is not a constraint: hyperscalers may be paying more for power, but with marginal impact to their bottom line. In fact, these companies are taking strides to source power from cleaner, though more expensive, alternatives such as nuclear, solar, wind, and battery storage, despite the higher cost of relying solely on natural gas. The investment bank calculates that the extra cost to roll out green solutions globally would hit earnings by just 2.5% and depress return on capital by under 1%.

Despite the frenetic pace of change, Goldman’s framework calls for a steady upward path. Let’s hope their optimism is as well-founded as it is well-researched.

What to Look for This Week

(All times E.S.T.)

1. Friday, April 10 at 8:30 a.m. March Consumer Price Index. CPI data has been depressed by the October Government Shutdown, and Core CPI was 2.6% in November and December, and 2.5% in January and February. The April data will begin reversing the headwind from depressed Shelter Inflation, but for now, the Cleveland Fed Inflation Nowcasting service forecasts Core CPI to be a tepid 2.6%. Friday, April 10 at 10:00 a.m. The New York Federal Reserve Multivariate Core Trend Inflation Indicator for February. Not widely followed, but quite important.

2. Friday, April 10 at 10:00 a.m. The April preliminary data from the University of Michigan Survey of Consumers. For the final survey from March, long-term inflation expectations were depressed at 3.2%; you must go back to December 2024 to see a lower reading. We will see if the persistence of high gas prices throughout the month and into the April 9 end of the survey period had any impact. Tuesday, April 9 at 11:00 a.m. The New York Federal Reserve Survey of Consumer Expectations for March. We prefer this survey to the University of Michigan due to its superior sampling procedure. Three- and Five-Year Ahead Inflation Expectations were subdued for February, so we will be watching the March report closely since it will capture the oil and gas spike.

3. Thursday, April 9 at 8:30 p.m. The Personal Consumption Expenditure Price Index for February. It is stale data, but it is the FOMC’s favored inflation gauge. January’s Core PCE rose to 3.1% in January 2026 from 3% previously in December. January’s print was the highest since March 2024. The Cleveland Fed’s Inflation Nowcasting anticipates a 2.8% reading for February. Tuesday-Thursday at 1:00 p.m. The results of the Quarterly Treasury Refunding are released for the 3-year note (Tuesday), 10-year note (Wednesday) and 30-year bond (Thursday). We will be focused on foreign interest now that 10-year rates are above 4.30% for the first time in eight months.

FOMC Voters Speaking: Wednesday, April 8 at 2:00 p.m. the Federal Reserve releases the minutes from the March 16-17 meeting (the April meeting is set for the 28-29). This should be an interesting read to decipher the degree to which the FOMC is shifting away from a strong easing bias, as inflation has been sticky and crude has complicated the horizon. Tuesday, April 7 at 5:50 p.m. Fed Governor Phillip Johnson discusses the Economic Outlook and the Labor Market. Earlier in the day at 12:35 p.m., Chicago Fed President Austan Goolsbee speaks. 

Earnings: Waiting for Q1 earnings season starting next week. There are a total of 48 earnings this week. Delta Air Lines (DAL) reports Wednesday, April 8 before market and the discussion should touch upon higher fuel costs and hedging. Tuesday, April 7 has Kura Sushi USA, Inc. (KRUS) reporting after market. The Thursday, April 9 highlights are BlackBerry Limited (BB) before market, and WD-40 Company (WDFC) after market, so you get the picture outside of DAL for this week.

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By Peter Corey

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