While geopolitical uncertainty continues to reign in the Middle East and oil prices face upward pressure, private banks remain optimistic on the outlook and the prospects of peace talks.
The US has reportedly carried out strikes against Iran for the 10th consecutive night as President Donald Trump warned of “strong retaliation” over the death of American personnel. In the Strait of Hormuz, fewer oil tankers are transiting, according to LSEG data, with Greek shipping company Dynacom Tankers saying two of its managed vessels were hit by projectiles of unknown origin on Monday.
However, multiple banks believe that the outlook is still intact and hold the belief that Washington is motivated to achieve a deal.
According to a note from UBS Global Wealth Management, the US remains keen to resume peace talks, citing quotes from Iran that it had received “some proposals” from mediators on the war.
“We think both sides are incentivised to avoid a return to full-out war, as a prolonged closure of the waterway would be a drag on the US economy and deprive Iran of a key source of income,” said the note from the Swiss private bank’s chief investment office. “While shipping confidence and oil production may take longer than expected to be fully restored, we expect limited pass-through to core inflation, keeping central banks from tightening aggressively.”
“While there is a non-negligible risk that Trump follows through on his threats to escalate further still, we believe the US continues to face an incentive to avoid a larger oil price shock given the risk to US growth and upcoming mid-term elections,” Standard Chartered said in a commentary. “This means any temporary oil price spikes above USD90 per barrel are unlikely to be sustained for long.”
Equities: Earnings to fuel continued AI momentum
On markets, banks are still upbeat about equities with expectations for the artificial intelligence (AI) rally to continue on the back of earnings.
UBS anticipates a strong increase AI demand, especially within infrastructure, though it flags uncertainty over capex growth after 2027. Beyond the US, Korea is undergoing a deleveraging fiasco as an estimated 1.2 million retail accounts triggered a major margin call but RBC Wealth Management said in a note that the “unfolding AI growth story provides investors with an opportunity to reassess Korean equities and identify sustainable, longer-term growth drivers beyond the current cycle”.
“We expect investors’ AI enthusiasm to remain supported by earnings, but advocate a barbell approach, pairing AI exposure with sectors less exposed to the technology,” advised DBS in its investment outlook report for the third quarter of 2026. “In addition, investors should favour businesses with low energy intensity, as higher-for-longer oil prices could pressure margins across energy sensitive sectors.”
