Vontobel CIO Dan Scott Examines Global Economy and AI Spending Risks

Global economic growth continues despite a more uneven path, driven largely by oil price volatility and shifting central bank monetary policies, according to a recent global multi-asset report published by Vontobel. The ongoing economic environment features central banks adjusting interest rates upward to counter persistent inflation risks following a temporary surge in crude oil prices.

Iran Conflict Pushes Oil Prices and Interest Rates Higher

Conflict involving Iran temporarily pushed crude oil prices above 100 USD per barrel, fueling inflation and driving up bond yields. Although oil prices have since pulled back, the period of elevated costs has kept inflation risks at the forefront of central bank policymaking. Several institutions raised interest rates this year, marking a complete reversal from 2025 when rate cuts were widespread globally, with the exception of Japan.

The United States Federal Reserve joined this shift in September by voting unanimously to raise rates by 25 basis points. According to the Vontobel report, a quarter-point adjustment will not alter oil prices or severely restrict an economy that continues to grow. However, the tone of the Federal Reserve suggests additional tightening before the end of the year. Financial markets have adjusted their expectations, moving from an anticipation of three rate cuts by summer to roughly four rate hikes projected through July.

Treasury Yields and Artificial Intelligence Capital Expenditure Risks

Markets are also closely watching the yield on the 10-year US Treasury bond, which surpassed the 5 percent threshold last month for the highest level since 2007. Historical trends show that a single rate hike has rarely triggered a major sell-off in equities on its own, but climbing yields without accelerated growth present greater concern. Beyond monetary policy, investors are monitoring spending patterns within the artificial intelligence sector.

The Vontobel analysis notes that market participants worry about heavy reliance on American consumer spending and artificial intelligence capital expenditures. Companies such as Nvidia continue to exceed earnings expectations, and cloud computing demand from hyperscalers remains strong. Yet, any sudden scale-back in artificial intelligence investment programs could trigger heavy equity selling, particularly given the substantial gains investors have already secured within the theme.

Vontobel Maintains Optimistic Outlook for Equities

The Vontobel multi-asset team maintains an optimistic outlook for equities while monitoring potential vulnerabilities, noting that no current signs point to an immediate pullback in technology spending. The broader publication, Investors’ Outlook, also examines the potential market implications of upcoming United States midterm elections, the interaction between bond yields and equities, and the trajectory of the US dollar alongside other major global currencies.

While equity markets may offer somewhat more limited room for expansion, analysts at Vontobel still identify numerous opportunities for judicious capital deployment across international asset classes.

The 10-year US Treasury yield surpassed 5 percent last month, reaching its highest level since 2007.