Geopolitics and AI in focus

Eric Lascelles - Managing Director, Chief Economist and Head of Investment Strategy Research

Hello and welcome. My name is Eric Lascelles. I'm the chief economist and head of investment strategy research for RBC Global Asset Management. I’m very pleased to share with you as always, our latest monthly economic webcast. This one is for May 2026. And the title, as you can likely see, is ‘Geopolitics and AI – that's artificial intelligence – in focus.’

Indeed, those are two of the more pressing macro subjects of our time. And we will spend a fair amount of time in this particular webcast talking about them alongside some other important developments as well. And so let's proceed.

Report card: We'll start with a report card of sorts. And indeed, perhaps on the negative side of the ledger in that report card.

And so let us talk about what's not going so well out there right now. I suppose this is where I introduce the caveat that I'm recording this on April 30th. And so my knowledge ends at that date. You may know more than me as you're listening to this, but I can say, at least at this moment, unfortunately, oil prices are still very high, which is, of course, a global macroeconomic drag.

Related to that – in fact, entirely the result of that – the Strait of Hormuz remains significantly blocked. That's where the oil and natural gas is not flowing, related, of course, to this war with Iran. We are still anticipating some lagged damage from the blockade. So I'm going to get to, in a moment, how the economy is looking relatively resilient despite all of that. But there is still a bit of pain coming that we haven't quite absorbed yet. So let's be aware of that. And I'll speak more at length about all these ideas a little bit later.

In the AI space, there are certainly AI worries. There are worries about worker displacement. Will significant jobs be lost? There is a risk of that.

In fact, I think in our last webcast, we got into that particular risk at great length. And there are some scenarios in which that happens. So I would emphasize it's not a certainty by any means. And there are some policy remedies that can perhaps minimize the damage, even if that happens to be the path that we find ourselves on.

The other prominent AI concern is disruption, disruption to sectors that might not do as well with AI or might not be as necessary or might lose some of their pricing power. The software sector has been particularly the focus there and we've seen some genuine weakness in that area. So there are winners and losers, it would seem, in the AI space, which is ultimately entirely true.

Another concern, and it's not brand new to this month, but it's something that's been brewing for a number of months: private credit concerns. And so those continue. I'll show you a chart a little bit later, but I guess I would issue the comment that as it stands right now, private credit concerns are still mostly concentrated in private credit, as you might imagine.

They are often related to software concerns. And so the idea is the software sector is perhaps weaker. Many of the loans made by private credit into that sector aren't looking quite as positive as they were. For the moment it's not obvious to us that there needs to be any particular bleed through into other elements of the economy or into the banking sector in a major way.

But it’s certainly worth watching. And that isn't the final word on the subject.

What about the positive side? Well, there are fortunately some good things going on after that big long list of bad things. One would be in circling back around to oil and energy. We do still think this oil shock is fundamentally a temporary supply side shock.

And so that means the damage itself should be contained and should be ultimately temporary. And indeed, some of it should unwind later. So that's still very central to our thinking. I think the stock market has very much embraced that idea as well.

Related to all of this, the ceasefire that has been agreed to is broadly holding between the U.S. and Iran.

It's not to say that the war is fully resolved. And there are some risks still, to be sure, that I'll get to in a moment.

But, as it stands right now, that part – the actual flinging of missiles and drones and things –has for the most part stopped. They’re still looking for a deal, obviously. But we do believe a deal is possible.

We’ve seen a big stock market rebound as a result of that. So risk assets, for the most part, are feeling pretty good. As we look at economic data, the data is remaining solid – and that is probably a conservative word. It's actually been quite strong, surprisingly so – not just in the U.S., but in other spaces as well. We still think there are important growth tailwinds for 2026 as well.

And just to give a nod of the head toward Canada, a couple of things are going on here. One is Canada has now formed a majority government. There have been enough people shifting across parties and by-elections that the Liberals now hold a majority, which while still a very bare majority. And so I can't quite promise that it's there for a multi-year government. But it does provide some additional stability, some additional scope for action to the extent that the policy priorities seem to be boosting the economy. There is something positive, you might say, for the economy in all of that.

One of the big new announcements in a spring fiscal update that was just released, is that Canada now aspires to a new sovereign wealth fund. And, you have to think a little bit. And it's hard to draw precise parallels. Many sovereign wealth funds are formed because the country is running such big budgetary surpluses. They need something to do with the money. That isn't Canada's situation.

Many sovereign wealth funds intentionally invest outside of the country because they don't want to needlessly strengthen their own exchange rate and so on. And that doesn't seem to be the plan here, either. This one seems to aspire to help get infrastructure and resource projects perhaps going in Canada, while still generating a market return, possibly with the participation of retail investors in Canada.

And so it seems like a hard trifecta to achieve all at once. But nevertheless, it does look as though it's a further confirmation that this government does plan to do some significant investing into the economy, if nothing else.

And then just to mention as well, and not to celebrate whatsoever, the fact that we appear to be living in a fairly dangerous world and our security resources and access to those resources has become an even greater priority than it was in the past.

And of course, many countries are struggling to gain access to the energy that they once relied on through the Strait of Hormuz, just as the latest prominent example of that. But, Canada comes off fairly well in that kind of world, right?

Canada is resource rich, whether we're talking fossil fuels or agricultural products or base metals or precious metals or fertilizer, certainly potash.

Canada has what the world wants and Canada is a relatively stable supplier. The government now seems more willing to allow expansion in those sectors. It's actually a fairly good combination. That doesn't mean next month's GDP print is going to be all that great, but it does suggest over a multi-year horizon there could be some good things brewing. That would be our perspective.

In the interesting file, these didn't quite fit into either of the other two columns. One would just be a fairly bland comment here, but AI very much still in the spotlight. Maybe not existential or maybe existential, but this is certainly the central issue of our time right now –the extent to which it is deployed and, as much as it could have quite a variety of directions it goes in. We are of the view that it will likely – and perhaps is already – enhancing productivity growth.

And so it is supporting economic growth.

Again, with some question marks as to the damage it might be doing on the side, changing global monetary regime with a question mark. What that references is that we've been in a rate-cutting regime. We seem to be exiting that. I think it's still up for debate just how much rate hiking, if any, is actually going to happen.

But there is a bit of a pivot there. And that does have implications for markets that we’ll get into a little bit later.

North American central banks were on hold this week. At least as I'm recording this, both the U.S. Federal Reserve and the Bank of Canada have unchanged rates. So I suppose further to the idea that we're no longer so obviously in a rate-cutting environment.

And then just finally and really continuing on the central banking theme and looking directly at the U.S., well, there had been criminal charges leveled against, I guess I can say at this point current Fed chair Powell. Those have been dropped.

That's probably a constructive thing because some politicians were refusing to confirm the next chair appointee, Kevin Warsh, until that happened. So that happened. It looks like the Warsh appointment, the nomination, will turn into an actual role fairly quickly, I should add, since he needs to be in that chair within the next month or so as I'm recording this.

He is perhaps at the margin a little bit dovish. I think overall, though, he is a reasonably sound choice for the Fed. And we don't think too much politicization is likely too often to actually happen.

Okay. There's your report card. Let's just dig our way in now. And I don't know that I'm allowed contractually to talk about anything other than Iran as the first subject.

War with Iran overview: It is, of course, so central right now to markets and to the economy. So let's just sort of zip our way through a quick overview. Not to say that it's changed in a radical way over the last month, but I suppose if last month was the last time you heard from us, there has, of course, been a ceasefire and so on.

So there's been some progress and quite a heroic rebound in the stock market in particular. And so, let's just run through the main points here. To start with, of course, we have this rather intense war that's taken place and looking not very much at all like the surgical strikes that had pre-dated it in June 2025, and Iran retaliating fiercely, facing, at least from its regime's perspective, something of an existential threat.

We have since gotten a ceasefire that's holding, at least as I record these words, and we're a few weeks into that. And so this is logical. The U.S. does want this war to be over. Pocketbook economics and a focus on midterms would suggest that lower gas prices would be good, lower mortgage rates would be good.

And so the U.S. wants a deal here. I think it's maybe fashionable to suggest that Iran, though, doesn't or that Iran can withstand pressure for an extended period of time. They've suffered real physical damage. There have been, I think, conservatively, 18,000 strikes on Iran military assets, infrastructure and other targets, political and so on.

Its leadership is personally threatened. We've seen its original leaders killed. And so that risk is very real. Its military has been somewhat degraded. It’s certainly not toothless, but somewhat degraded. And we had seen even prior to the cease fire, a slightly declining number of missile strikes over time, just as an example.

I wouldn't want to underestimate the pressure that China is exerting on Iran. They are allies. China is the primary consumer of Iranian energy. Similarly, the Iranian economy is struggling. Its currency is collapsing. And it's no longer earning its energy revenue, now that there is a double blockade on the Strait of Hormuz, with the U.S. preventing the Iranian vessels from transiting as well.

So, ultimately, I do believe Iran wouldn't mind a deal as well. We do think there's a plausible path toward a deal, which I'll get to in a moment. Not to say that it's easy or straightforward, and there are a couple of obvious issues. But we do think that's possible to work toward before too long.

I think we're broadly aware the energy impact has been significant. As I'm recording these words, oil prices are back up well into triple digits. They've ebbed and flowed over the last two months. Nevertheless, quite high reflecting very real shortages as they exist. And it will take some time to restore production and exports, and for those ships to arrive at their destinations, even, when that restriction is lifted.

I think we're broadly aware of the economic implications of the global economy. I would say modestly to moderately hurt. We're not looking for recessions here, but we have just marked down our 2026 growth forecast – primarily the first half of the 2026 growth forecast. But to the extent this is a temporary shock, we think there is room for a rebound later.

It's similar for inflation, there’s a temporary spike. A partial unwind – in fact, we may be even starting to see the beginning phase of that in some of the data. Geographically it is more painful for Asia and Europe, less painful in general for North America – though it gets a little bit blurry because actually a notable number of countries – China, India, Mexico, predominantly, among others – are heavily subsidizing their gas prices now or outright capping them in a way so that essentially what would have been an inflation problem and would have been an economic demand problem, actually becomes just a bigger budget deficit.

So it's sort of more fiscal stimulus being delivered and not great from a borrowing perspective. But ultimately, actually, it contains to a degree the economic damage and makes it a little bit more complicated than just having a list of who imports the most oil and who imports the least.

There are some other factors at work. From a market standpoint, oil shock in theory is higher yields, which we've seen. It's weaker stocks, which we've seen. The markets have already rebounded quite substantially, if not fully on that front. To the point, as I'll speak to in a moment, there is arguably a bit of a disconnect between what the stock is saying and what the price of oil is saying.

We still think that there may be a lingering geopolitical risk premium that persists even after this war is long gone, however. So that's the big story.

But let's just dig into some pictures here. And so one would be, ceasefire is holding.

Ceasefire holding: So we actually have an AI model that is tracking the number of Iranian missiles and drones that are used to strike Gulf neighbors, essentially. And you can see, first of all, that it was quite intense at the beginning of the war and then did significantly scale back. So, speaking to what we believe is a diminishment of just the reserves of munitions that Iran has, and then you can see indeed, as of in and around April 9th, we saw the end of the attacks, essentially.

And so it has gone just about to zero and is the same on the other side in terms of U.S. attacks on Iran. So the cease fire is holding. I think if you'd asked anyone two months ago, a cease fire would mean victory in the sense of the war being over and oil shipping and all sorts of things.

But of course, that hasn't been the case. We haven't actually gotten the oil shipping yet.

One-fifth of global oil and Liquid Natural Gas supply typically transits through the Strait of Hormuz: So you look at the number of ships crossing through the Strait of Hormuz and it is up a little bit. I should note, indeed, I believe there was a Japanese supertanker that just brought 2 million barrels of oil out of the Persian Gulf. Notably so many of the trickle of ships that are moving are leaving.

They're not coming in for more. They're just trying to get out, and they happen to have some oil on them. And so I wouldn't suggest that’s a total normalization. Nevertheless, we can certainly see that there is still a rather significant pinch on the Strait of Hormuz right now.

Now, as I said earlier, we do think that there is a path toward a deal between the U.S. and Iran.

U.S.‒­Iran deal framework: This is the Iranian 10-point framework. We tried to think through the flexibility that Iran might have on these subjects and the likelihood of agreement by the U.S. The point that was the right most column. You've got ten points, and I think it's relatively straightforward to get to an agreement on eight of the ten. That would be our interpretation.

The two in yellow are the tricky ones, as you might have guessed. Who controls the Strait of Hormuz coming out of this? And does Iran get to continue refining nuclear materials? Those, essentially, are the two tricky ones.

I would not suggest there is an obvious single answer to this. But I would suggest that there is room for some compromise or room for some sort of solution, as it pertains to the Strait of Hormuz.

Certainly the best case scenario was no one controls it, it is back to a completely free passage. Wouldn't shock me if it ended up being one in which Iran shares control with Oman, which is on the other side of the Strait, or with the U.S. somehow administering something in the middle?

Preferably not, but I think you can hold your nose and perhaps get to a deal there.

On the nuclear enrichment, certainly there have been comments that Iran is willing to stop for five years, or variations on that. I think the real question is whether they stop forever and the degree of inspections and so on.

Not to say there is a precise agreement and actually we've heard some fairly contrary comments recently. We do think there's a path towards some sort of fudge that can get a deal there as well.

And so we're of the view that a deal is more likely than not before too long. And actually, we can take a look at what markets are thinking on that exact subject.

Strait of Hormuz probabilities: Again, focusing on the Strait of Hormuz, because there is a ceasefire, the war has in a sense stopped. The problem is just that the economic constraint has not been lifted.

These are two different betting markets. You can see different dates at the bottom of this chart. The blue bars say, when will the U.S. blockade be lifted by or the U.S. announce the lifting of the blockade? The answer here is, well, it could be by mid-May, which to my, way of reckoning is about two weeks out.

The market is feeling reasonably confident or feeling pretty good about the idea that it will be lifted by the end of May. So thinking that that will last less than another month.

And then the question is, well, how long does it take for the ships to actually start flowing in a normal way? The key word here is normal because you can imagine some flow starting almost immediately.

But it takes a bit longer for that to hit its normal volume. And so you can see there, probably not mid-May. Maybe late May, but probably not. Market doesn't have a higher than 50% probability for a sort of full normal passage until the end of June. And so that's loosely what we're thinking. Probably get it moving within the next month, probably normalize within about two months.

It takes a number of months for a product to get where it needs to go. And oil prices do continue to settle. They probably, again, don't fully settle back down to historically normal levels. But you can take out most of the premium that's in right now.

Stock market / oil price disconnect: Now I will acknowledge this, and I'm certainly not meant to be a warning of any sort, but just an observation that stock markets are feeling pretty good right now.

The oil price, however, is still very high. So it's something of a disconnect. Again, the cease fire is mostly holding, we are still somewhat constructive about the scope for a deal and scope for reopening the Strait of Hormuz. But the stock market is no longer down 10%.

The stock market has significantly rebounded. And so there are some risks associated with that. Before I get to the risks, let me acknowledge the idea that particularly in North America, stocks are at all-time record highs and so are completely ignoring oil. It's not quite true, for a couple of reasons.

One would be, well, we have actually had very real upward revisions to earnings estimates over the period of this war.

So quite literally, the underlying fundamentals have gotten better. That does support a stronger stock market. We've returned to the AI trade and people feeling good about those stocks and about that theme. And so that has driven the U.S. market up particularly. You note that you have not seen the stock market fully rebound in a number of other places.

And so this is me not being quite entirely factual and claiming that the stock market is now ignoring this war. That it is paying attention, but it's reduced its level of concern, I think you would say.

And so there are some risks associated with that. There's the risk the deal just proves elusive for longer.

And so it takes longer than I've just said. There is still some lag, economic and inflation damage still to show up. The April numbers will come out in a couple of weeks and they will show high inflation again. The economic numbers will take some time to come out and will likely show at least a little bit of damage, though I have to say, not a whole lot based on what I'm seeing so far.

A lot of countries, as I mentioned, are subsidizing their fuel costs. And so fiscal positions are going to get worse. Countries are going to report bigger deficits. So that's not great.

We still think there are some – not a lot – but some second-order effects from higher energy prices that affect supply chains and food prices and some other product prices.

You don't usually get a lot of that until a shock has lasted 3 to 6 months. So we're hopeful we can get this wrapped up before that becomes too problematic. But you should probably expect a little bit of that as well.

Then it takes, as I mentioned a moment ago, several months to fully normalize the energy market. Ships get where they need to go, production is back to normal.

Countries have perhaps rebuilt their reserves as well as a consideration.

And as I said earlier as well, normal energy prices might be a little higher than the pre-war prices. And so there is potentially a bit of a lingering scar that remains. And so not to put too fine a point on this, we don't have any great objection to what the stock market is up to.

But, you know, it looked distinctly cheap when it was down 10%. It doesn’t look as obviously cheap, you might say, now that it's fully recovered in some markets.

 Okay. Markets aren’t very concerned about recession though, and I should say neither are we at this juncture.

Betting market shows recession risks rose but now back down: This is a betting market and it shows that the risk of recession for the U.S. for 2026 did double at one point. It has essentially settled back down to where it was before the war.

That's about right. We would say the risk of recession is about 22%. So, a fairly normal- looking number. We don't think that this is of that magnitude in terms of the impact. Though, we are all assuming that this is something that gets resolved within the next few months. And if suddenly we're checking in six months from now when it's still closed, that begins to be a different story.

Real-time inflation measures show effect of oil spike: The inflation numbers, well the gold lines here show the actual official U.S. Consumer Price Index (CPI) print. So March, on the left chart, shows a big jump, which we're well aware of. We are expecting a further drop in April. You can see the blue line, which is a real-time estimate of inflation argues there’s going to be another leap higher in inflation in April.

That’s starting to decelerate. So again, to be clear, that falling blue line doesn't mean that prices are falling. It means they're rising less quickly. So not to get too excited there. Nevertheless, we're expecting April inflation to be high.

We're hopeful as we get into May and beyond that, we can then start to talk about actually slightly softer than normal inflation prints as we start to give up a portion of the inflation part of the shock.

We are somewhat heartened – I talked a moment ago about the extent to which we're getting pass-through prices. In other words, transportation costs have gone up.

So does the price of every product then go up that relies on transportation.

Businesses initially plan little passthrough from oil shock: Interestingly, the fraction of American businesses planning to raise their prices has actually been falling in recent months, including through March, which, of course, was the first month of this war. Wouldn't be surprised if the April numbers then leap a little higher. Just seems like you should probably expect something there.

But in general, businesses have not viewed this as an excuse to jam higher prices through. And so that's heartening and does suggest we don't need to price in too, too much in terms of second order effects.

We can also say something similar just looking at inflation expectations.

Market-based inflation expectations shoot higher: This is what the bond market is saying about inflation going forward.

You can look at three different time frames here. In dark blue is the two-year inflation expectation. And so that of course has gone up. This is of relevance. That's a relatively short-term metric. Interestingly it’s already settling back down. If you're confused about that, well, some of it is just the level of concern is diminished a bit.

Equally, another part of it is just that we're already through the month of March. We're already actually through, just about, the month of April as I'm recording this. And so, that's already baked into the cake, essentially. If you're buying a bond, the question again is what is inflation going to be like over the next two years.

It's not a question of ‘Is inflation high right now, or last month?’ if that makes sense. So settling back down but certainly higher than it was reflecting the shock. Interestingly, if you then look at the light blue line, which is a longer-term one, a five-year inflation break-even or expectation, it's gone up, but only a little bit.

That maybe speaks to the level of risk over a slightly longer time frame. And then you look at the gold line, this is a bit of a shift. This is a five-year, five- year. That means actually inflation expectations after five years, but before 10 years – from year 6-10 years, if that makes sense, or in 4 or 5 years – starting five years from now, just to really confuse you.

It's kind of a longer-term one that actually abstracts away from whatever's happening right now over the next few years. And it's kind of the ultimate arbiter of, are we getting or going to get stuck in a higher inflation regime? And it actually fell. It's since revived a bit, but on the net, it’s no higher than it was before.

So the idea here is that it doesn't have to change the long-term trajectory for inflation, which is certainly good for all of our purchasing power.

Some supply chain pressures forming, but mostly pre-war: We can see supply chains getting a little worse. I hasten to emphasize that as we look at this rising line, the great bulk of that has happened before the war, right?

This started in 2024, based on the chart, and most of it has been going from actually unusually smoothly flowing and easy supply chains to more familiar normal type of supply chains. But there has been a little bit of a further deterioration over the last couple of months, including March. That's the most recent reading. That suggests and it's logical to suggest that, of course, things are getting a bit trickier, in terms of shifting goods to where they need to go.

And of course, the Strait of Hormuz isn't just oil and natural gas. It's also fertilizer and chemicals and so on. And concern as well about the Suez Canal, to the extent that the Houthis are involved to some extent and allied with Iran. And so there are some risks here.

We see that being reflected, though for the moment we don't think there are big supply chain problems. Indeed, you can see that confirmed. It doesn't look a whole lot like 2021, 2022. Financial conditions have improved.

Global financial conditions have already improved: So up is bad, down is good here. This is sort of smushing together what the stock market is up to.

What are bond yields doing? What are currencies and oil prices and these sorts of things doing? And whether you're talking about the U.S. with the blue line or the world in gold. Yeah. There was a backup there. Financial conditions tightened, in particular as stock markets fell. And we're actually back to pretty familiar semi-normal looking financial conditions again.

And so that does not suggest any great distress for the economy in the immediate future.

U.S. jobless claims not showing any economic distress or major AI damage: Speaking of the economy, we're still tracking weekly U.S. jobless claims very closely, just because it's a weekly series. It would tell us if things were suddenly going pear-shaped. And the answer seems to be not, it’s still fairly low. These are actually quite low numbers – you wouldn't tell from the chart – but these are quite low numbers.

Really not trending higher in any major way. There's actually been one more print released earlier today that didn't make its way into this chart. It was actually down significantly. So I would say, certainly real concern about job losses in the context of an oil shock – but not really seeing it. Concern about AI job losses and some new workers in AI-specifically exposed sectors are doing a little bit worse.

But I have to say, despite all sorts of layoff announcements that you hear – and I can think of a big Microsoft announcement and in Canada, a Rogers announcement, and some others – we’re not really seeing it in the aggregate data that's showing up. For the moment, the interpretation is that sometimes companies do layoffs, but there isn't a broader trend afoot.

For the moment, the economy is holding together from that perspective.

Global economic growth momentum is surprisingly good: If we step back to the global perspective, this is manufacturing purchasing manager indices. It’s their view on how the economy is going. It's been fine for a number of years or okay. There had been an uptick earlier in 2026. We had sort of assumed that it would then retreat somewhat as the war data started to show up in the numbers.

Kind of curiously – and I don't have a great explanation for this – but we've actually seen the level of optimism actually rise further. So that's slightly mysterious to me. But I think the point here is just that, even globally, the economy seems to be continuing to move forward. This is not killing growth. And I think we might have shared a chart last go around, but essentially the global economy is much less geared towards the price of oil than it was 50 years ago.

It's just cars are more fuel efficient. The service sector is bigger. I think our math is that the average dollar of economic output requires 62% less oil than it did in the mid-1970s.

As a result, it’s less likely to induce big economic problems. And that's so far what we're seeing, which is welcome.

AI scare trade – new models disrupt software sector: Let's shift over to AI for a moment. And so not a comprehensive review, and I won't revisit some of the scenarios we laid out in prior months. But I can say, there is an underbelly to AI.

The AI scare trade came to prominence a couple of months ago and suddenly new models seemingly capable of writing computer code in quite a remarkable way, eroding the moat that many software companies had previously enjoyed. Possibly a competitor could emerge almost overnight, in theory, if AI is directed to a particularly useful software task. You can see here that essentially an AI software index has seen a notable drop.

So when that concern grew in February and March, we've seen a big drop. It has stabilized since. I know our analysts would emphasize there are a range of software companies and some are much better positioned to handle this than others. They are doing their best to sort through those buckets and figure out who's attractive and who perhaps remains unattractive.

But let's just appreciate that there is some pain that's emerged from this. It's not all just been chip companies to the moon.

Some signs that AI is boosting U.S. productivity growth: And then further on AI, as an economist, we tend to focus on the idea that AI probably does help productivity growth pick up. And so I would direct your attention to the blue line on the far right side.

This is productivity growth in the U.S. Again, it is accelerating and moving a little bit faster than we're used to it moving – and faster than the gold trend line would normally expect. And it's a matter of some conjecture whether this is truly AI or just some other happenstance or happy coincidences.

But we do think we're starting to see that. We think it makes sense that AI delivers productivity gains. And we are budgeting for further productivity gains in the years ahead. Again, we think we're starting to see that already. It's part of the reason we have an above- consensus growth forecasts.

Okay. New topic, radically new topic, very different on a number of fronts.

Africa: sleeping giant awakening? Africa, which is a part of the world we don't talk about that much on this webcast. A lot of that is that its stocks tend to be frontier markets. And so that's not always possible to invest in, even if you're in an emerging market fund. But nevertheless, we do need to care about this continent.

It has a huge population and it is also starting to grow notably quickly. And so that chart on the left essentially makes the point – these are International Monetary Fund (IMF) forecasts – makes the point that by 2030, sub-Saharan Africa is expected economically to outgrow essentially emerging and developing Asia. So Asia, of course, has been the champion of all these incredible countries – China and India and others that have been growing so quickly for so long, and Southeast Asian countries as well.

And so they're still doing very well. But Africa might be doing a little better than you thought – and is, if anything, accelerating a little bit as Asia decelerates a little bit. And again, according to the IMF, Africa could be the faster growing of the two, at least as defined sub-Saharan and so on.

And when you look on the right side, these are the 2030 growth forecasts specifically, which again is fairly distant.

But when you combine African and Asian countries, it certainly captures your attention, the number of blue bars on that bar chart on the right. And so by my count, I hope I got this right, six of the ten fastest growing countries, plausibly in Asia and Africa, are set to be African. So more from Africa than Asia.

I just saw an estimate from the Economist magazine quite literally today, as I was walking over to the studio, that was saying, I believe Africa’s set to have 12 of the 20 fastest growing economies in the world for, I believe, 2026.

So, Africa becoming more important, actually moving quite nicely. And so something that we're thinking hard about and you might want to be a bit more aware of and thinking about as well.

Okay. A couple more quick ones from me.

Even setting aside the energy shock, monetary policy regime is shifting: So this is our chart of the world's major central banks and what they're up to.

And so of course you had that rate-hiking cycle in gold a few years ago when inflation was so high. In blue and pointing downward, is kind of a negative mountain or valley over the last couple of years. This has been central banks cutting rates, unwinding that tightening that took place.

And that's been a very nice tailwind for economic growth. You'll notice though, that valley is closing up on the far-right side. And so we're actually back just about to the zero line, which really means that not all that many central banks are cutting anymore. And actually there are a few that are starting to raise rates.

Not to overstate this, this doesn't mean that there's going to be massive rate hiking for the next three years or anything like that. We'd be inclined to think it could be a period of pausing, with maybe a little bit of hiking and very much dependent on the country as well. Nevertheless, we're leaving a monetary easing regime.

We still think in the near term there was enough rate cutting in recent years that the economy can still grow pretty well over the next year in particular. But you start to experience a bit of a headwind if there is rate hiking and maybe growth isn't quite as unencumbered in subsequent years. So do be aware of that.

Combination of economic growth + rate hikes is fine, but less favourable than growth + cuts: I want to frame that in this context – and we've used this before – if you think of market regimes as a two-by-two matrix, the x axis here is, ‘Are you in a recession or are you not really? Are you expanding?’ And then the y axis is ‘Are central banks cutting rates or central banks raising rates?’

Specifically, we’re looking at the Fed in this case. Nevertheless, those ideas hold. And so we were for a couple of years in the top left quadrant, which is the best quadrant. The stock market does best in that regime and bonds actually often generate a return. They didn't do incredibly well this time, but historically they've done fairly well in that regime.

Arguably we are now shifting from that top left regime to where the big red circle is, the bottom left regime. And it's still a fine regime, that’s the main point here. It tends to be perfectly fine and not a bad time to be an investor. Usually stocks are able to rise, maybe not quite as quickly as in the prior regime, but they still rise pretty well.

Often the bond market doesn't generate quite the same returns, which makes sense because in theory, if central banks are raising rates, then there could be some capital losses kind of offsetting some of the coupons being clipped. Ultimately fine.

The regimes you don't want to be in are the ones on the right when you're in a recession, which seems pretty obvious, I suppose.

Nevertheless, not quite as friendly, maybe in the grand scheme, as the one we've been in in recent years.

Now for all of that, we do any number of things trying to gauge just what the near-term and medium-term market outlook is. And I will not say this is the only arbiter of what's good and what's bad.

I’ve just given you a sense that the returns could be decent, but not overwhelming over the next few years. I will say, though, we have a macro barometer, which is intended when it's high to say it's a good time for stocks and when it's low, it's a bad time for stocks. And it's done a reasonable job.

RBC GAM macro barometer is constructive for risk-taking: And actually, it caught our attention recently that it jumped to its highest reading in a number of years. It's come off a little bit since then, but it's still pretty high. So this would say, it’s still a decent time for risk taking. And I must say, as I abstract back to the economy and we're looking for growth, and we think that the oil shock is temporary and so on, that's arguably broadly consistent with what this is saying.

Looking for outliers: Interesting underperformance in luxury stocks: I'm going to finish with this. And I may yet regret this, because I don't really have a fundamental point here, but my job includes some market analysis. And sometimes a chart jumps out at you and I thought it would be interesting to share this with you and just talk through some of the pros and cons here.

So, this is a chart that shows essentially the performance of luxury stocks versus the overall S&P 500 index in the U.S. The fact that it's been falling recently means that luxury stocks have not necessarily been going down. I think they actually have been, but not necessarily going down, more so just underperforming, not doing as well as the broader index.

It’s notable that that line on the far-right corner is actually the lowest we've seen going back many years – and even lower than it was during the global financial crisis, when you could imagine not many people felt like buying a luxury item when the economy was crumbling around them. And so it's a notable outlier, surprising perhaps on the surface to the extent that here we are observing, first of all, a real inequality in the developed world in which wealthy people are doing very well and middle and lower income people aren't doing as well.

And so you would think that if a lot of money was accruing to the wealthiest people, they're the ones who buy the luxury items. And so maybe this is a great time for luxury stocks. Clearly not the case, though.

Similarly, we do see a middle class growing significantly across emerging market economies. You might think that would be a time for more luxury purchases, but again, certainly not.

And so I guess the question is what's going on here? And I think there's a few things happening. So one would be we're being tricked a little bit because the stock market has been so strong, in part due to tech stocks, that it makes everything else look bad. So some of this is just luxury stocks looking bad because the AI trade is doing so well, though it is more than that.

This is an underperforming sector in its own right. Another idea is just that China seems not to be buying luxury products as much as it once did. And so that's been a real shift. And it's unclear whether that will resume in the future or that's a permanent shift.

I think another item is just that people are shy about flashing their wealth at a time when there is inequality and there is a lot of polarization out there.

And so, people perhaps behaving a bit more modestly, that could be something that sticks around to the extent I don't see a quick off ramp to the polarization that perhaps helps to explain that. And so, that perhaps is in the mix as well.

And then it seems as though, the luxury companies as well probably pushed their luck too much in recent years.

And they were really hiking their prices in a pretty remarkable way. And I guess it just hit the breaking point for customers.

Luxury products are always fascinating. I remember my economics 101 course. You can argue they are almost a Giffen good, where if the price goes up, demand goes up higher. And of course that can't happen in perpetuity.

But the idea being if they are exclusive and so on that actually attract some appetite in and of itself. And it seems like CEOs and the like maybe push their luck a little bit too far and they need to reset going forward. And so the takeaway from our analys is actually not that luxury stocks are there for a buy.

There's still a degree of caution there. But I did want to flag that we've seen quite a notable underperformance. And there's I think a bit of an interesting macro story beneath that as I just conveyed.

Okay, that's it for me. And so I'll just say thanks so much for sticking with me to the end.

If you find this sort of thing interesting, you can always find more research online at rbcgam.com/insights. There's an insights tab that's probably the best place to visit. You can even find these webcasts there.

You can also follow along on LinkedIn. You can see the link there. And of course that QR code is available if you've got a camera on your phone with you.

And so I'll just say thanks again for your time. I wish you very well with your investing. And please do tune in again next month.