ROI-'See through' Iran war? Markets exploit permacrisis instead: Mike Dolan

What gets lost is the "peace dividend" and low inflation of the globalization decades, heaping pressure on already stretched government funding and sovereign bond markets. That is where the ⁠weakness in this new world resides. In this brave new world, the biggest risk is still a bubble. (The opinions expressed here are those of Mike Dolan, a columnist for Reuters.) Enjoying this column?

Dissonance between record-high stocks and a geopolitical shock puzzles many, and a common narrative is ​that investors are "seeing through" the Iran conflict. But there's another take: this is just the sort of world we're now stuck ​in, and blow-by-blow events matter less than mega-trends and long horizons. In an event-packed week like ‌this, ​arguments cut both ways.

Sky-high oil prices are real and do matter - but they could, and have, also dropped 15% to 20% in an hour in this frenetic war environment. Energy experts may fret about intrinsic, long-lasting damage to the physical energy market - but stock and bond markets ruthlessly price forward and assume eventual "normalisation" regardless. There's little doubt that concepts of "polycrisis" or "permacrisis" are gaining ground - not just in politics and international ‌relations but also how markets and underlying economies are being forced to cope.

A new world of rivalry, competition, conflict and tension may just see greater risk simmer and persist. That's easy to conceive of after Donald Trump's first year back in the White House. The 15 months since his inauguration have seen the world pinballed from a U.S.-sown trade shock to domestic institutional upheavals and a geopolitical rollercoaster in 2026 so far - involving both real and threatened U.S. interventions in Venezuela, Greenland and Iran.

Investors might try to "see through" the two-month-old Iran war. But even if that flashpoint cools, we are ‌likely to return to Washington's recriminations against NATO allies who refused to join the U.S.-Israeli attacks on Tehran. A potential end to the 77-year transatlantic alliance comes as the Ukraine war moves through its fifth year.

Next month's U.S.-China summit also becomes a lightning rod. An artificial intelligence ‌and tech arms race between the two biggest economies suggestsboth are digging in for a long and intensifying rivalry on numerous fronts. 'UN-ORDER' RATHER THAN DISORDER

If this were all down to Trump, the electoral cycle may bookend it. But the shape of this world has been emerging whether he's been in office or not, with the pandemic a critical catalyst for the retreat of once-dominant globalization. Mark Leonard at the European Council on Foreign Relations think tank nuances this emerging state of affairs as a more chaotic global "un-order" rather than "disorder" sown by a deliberate upending of a rules-based international system.

Writing in Project Syndicate, Leonard argues that "un-order" emerges when norms are overtaken by events, leaving "a deeper, irreducible uncertainty" in their ⁠place - a system "beset ​by episodic bursts of coercion and retaliation." He warns that Europe's reliance on rules-based ⁠structures leaves it vulnerable, and reckons global crises are becoming "more complex, less predictable, and potentially catastrophic," and often bleed into one another and amplify uncertainty.

POLLYANNAS OR POLYCRISIS? Or perhaps markets are not in denial at all - but are simply pricing in a world where defence, tech and energy dominance become a spur to some major economies.

Whatever the political ⁠solutions or even the trajectory of all this, it's a world you would instinctively assume economies and markets would balk at - a world riven with financial volatility and cowering savers. That has not happened. This is a world of still-steady GDP growth, even expanding trade despite the U.S. tariffs, and tech-driven stock prices at historic ​highs.

A world of conflict in which national defense and security are bound up with tech, AI, computing, cyber shields, drones and even space means total global demand for inputs, and the energy to drive it, goes up several notches compared with the one-size-fits-all ⁠U.S.-led tech world of yesteryear. If tech leadership and innovation are as important to economic and military dominance as this more dangerous world supposes, then national champions and key industries will not be allowed to fail.

As Societe Generale's Andrew Lapthorne points out, almost half the gains in MSCI's all-country stock index this year have been driven by just two sectors: chips and tech ⁠hardware. ​Of the near $400 billion rise in full-year consensus profit forecasts, 98% comes from chips, tech hardware and energy. Twelve-month forward profits are $600 billion higher than four months ago, a 12% increase and now the largest upward revision on record outside of a post-recession recovery, Lapthorne told clients.

Beyond tech, the scramble for relatively scarce resources, metals, rare earths and broad commodities meets repeated supply crunches - adding inflationary pressure at the margins. What gets lost is the "peace dividend" and low inflation of the globalization decades, heaping pressure on already stretched government funding and sovereign bond markets.

That is where the ⁠weakness in this new world resides. Would a debt crisis put all the other crises back in their box and prompt a re-embrace of old norms? Fiscal dominance and financial repression - governments effectively suppressing borrowing costs to manage debt burdens - are probably more likely.

Volatile? Not really - ⁠at least not on the measures typically watched. Wall Street equity volatility gauges such ⁠as the VIX sit near their long-term averages of the past four decades.

Even bond market volatility gauges seem resigned to governments cosseting their funding markets, with the U.S. Treasury measure back below 25-year averages. In this brave new world, the biggest risk is still a bubble.

(The opinions expressed here are those of Mike Dolan, a columnist for Reuters.) Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global ‌financial commentary. Follow ROI on LinkedIn, and X. And listen ‌to the Morning Bid daily podcast on Apple, Spotify, or the Reuters app. Subscribe to hear Reuters journalists discuss the biggest news in markets and ​finance seven days a week. (by Mike Dolan; Editing by Marguerita Choy)