Fubon Financial: Observing 3 Global Political and Economic Variables in H2; 50% Chance of Economic Soft Landing

(CNA, Taipei, July 2) Fubon Financial Chief Economist Robert Robles said today that in the second half of the year, three major aspects will influence global political and economic trends, including supply-side shocks, central bank monetary policy, and AI capital expenditures. The economy in the second half of the year is expected to have a 50% chance of a soft landing. If the results of the US-Iran agreement and the US Federal Reserve's (Fed) future monetary policy are confirmed between late August and September, global markets may see an upward trend.

Fubon Financial held its mid-year press conference for the "2026 Fubon Financial Trends Forum" this morning. Robles stated that three major themes will impact global political and economic situations in the second half of this year: supply-side shocks, central bank monetary policy, and AI capital expenditures. Investors need to closely monitor risks such as the continuation of geopolitical conflicts, reflationary pressures, and the domestic and foreign political and economic actions of US President Trump.

Robles said, first, how the global economy will respond to supply-side shocks. The US and Iran have reached a phased agreement, aiming for a final agreement within 60 days. If an agreement is successfully reached by the end of August, the conflict will end, which would be unequivocally good news for the market. The impact of the US-Iran war on the real economy was not as severe as initially imagined, and in the short term, the risk of Middle East conflict has cooled, but continued attention is still required.

Second, the monetary policy directions of central banks worldwide are diverging. Developed countries face reflationary pressures, while emerging and frontier market countries need to balance exchange rates and economic growth.

Robles pointed out that central banks in Japan, Europe, and Australia have successively raised interest rates, and Asian countries like Indonesia and the Philippines have also raised rates to prevent currency depreciation. In contrast, central banks in countries like Russia have adopted interest rate cuts. Although the Fed kept rates unchanged in June, Chairman Kevin Warsh emphasized "maintaining price stability," which has also led to a decline in market inflation expectations.

Robles analyzed that, third, current AI investment has gradually evolved from a craze into a gamble. The proportion of cloud service providers' (CSPs) capital expenditures to their operating cash flow is about to exceed 98%, indicating that every dollar earned is being invested in the AI arms race. Investors need to be aware of the "financing vulnerability" risk of overvalued tech stocks.

Regarding exchange rate fluctuations, Robles noted that global capital is currently concentrated in the US, and the dollar is at a relatively high level. If this eases, capital may flow from the dollar to non-dollar currencies. However, the Fed has already established its independence, making it unlikely for the dollar to weaken significantly.

As for Taiwan's stock and currency movements this year, Robles said that compared to the Japanese yen and Korean won, the New Taiwan dollar has depreciated less and has shown overall relative support. Although corporate profits are outstanding and the trade surplus has increased significantly, foreign exchange reserves have not grown in tandem. This is mainly because many exporters' profits are still held overseas, partly to earn interest rate differentials and partly in consideration of continued future overseas investment. Therefore, we see a strong stock market, but the New Taiwan dollar has not appreciated significantly.

Looking at Taiwan's overall economic performance this year, Robles stated that driven by substantial exports of information and communication technology products, Taiwan's exports are expected to exceed the US$1 trillion mark this year, with economic growth potentially reaching 9% to 10%. Taiwan's central bank should remain on hold this year. If the economy continues to develop steadily and AI demand continues to expand, it may consider raising interest rates.

Fubon Financial forecasts three scenarios for the global economy in the second half of the year: a 50% chance of a soft landing, a 30% chance of a worse stagflationary scenario, and a 20% chance of a better growth scenario. Robles pointed out that if a soft landing is possible, the Fed may stop raising interest rates, and the dollar may decline slightly. If the results of the US-Iran agreement and the Fed's future monetary policy intentions are confirmed between late August and mid-September, global markets may see an upward trend.

If the worst-case stagflation scenario occurs, Robles said that if US-Iran negotiations break down again, it could lead to the worst outcome. Since countries have already released strategic petroleum reserves, the amount that can be further released in the future is limited, which could cause oil prices to skyrocket. The stock market might not just correct by 10% as it did in March, but could fall by 20%. At this time, the dollar would strengthen, driving gold prices above US$5,000. (Editor: Wan Shu-chang) 1150702

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