Dollar Strength, Energy Resilience, and the Future of Work

Jeffrey Roach (00:04):

I am Jeffrey Roach, Chief Economist for LPL Financial, with three key talking points for the current macro landscape. The first one is this, dollar benefits from safe haven status. So in this recent spike in volatility from Middle East fighting, the dollar increased in value as investors find safety in dollar denominated assets. So the U.S. dollar rallied against the Euro since the initial strikes on Iran. Even more interesting, the U.S. dollar rallied against the Swiss Franc. A recent paper by Fed officials entitled "The International Role of the U.S. Dollar" makes the case that the dollar is deeply embedded in global finance and will likely remain dominant. And this is a quote for the foreseeable future. Second, U.S. economy is less reliant on petroleum. An important metric to help contextualize how markets are responding to these conflicts is what we call oil intensity. This measures the amount of oil consumed per unit of economic output, typically expressed in barrels per thousand dollars of gross domestic product.

Speaker 1 (01:06):

And this serves as a key indicator of energy efficiency and it's shown a consistent linear decline since the late eighties, dropping by 56% from that time period until today. And of course, another key factor is our shift to being a net exporter for the past six years. The most obvious risk to the macro outlook right now is the geopolitical fighting in the Middle East and the secondary effects spilling into global logistics and commodity prices and overall supply chains. Two key factors to handicap the outlook given the geopolitics are magnitude and duration of the shock. Commodity prices would have to stay elevated for at least several weeks for the outlook to materially change. And given the declining oil intensity metrics, oil prices would need to breach $140 per barrel, maybe even more. A more sustaining risk to growth in 2026 is the warning signs we have from the job market.

Speaker 1 (02:06):

Third, entry level workers will likely be the most impacted by AI. The rise of AI tools is a game changer. Like the technological revolution of the early 1900s and the digital revolution of the late 1990s and early 2000s. Work was reimagined during these periods, and the current setting will be similar. Employment dynamics are very different for younger workers versus more experienced workers, and that's what I show in this chart now. Look for ways to do what current AI tools can't do. Be relational. Grow your intuition, increase your eq. Stay human. What's the antidote to artificiality? Your own humanity. We know without a doubt that we'll most likely experience what the Austrian economist Joseph Schumpeter called creative destruction, actually wrote about that in the mid 1940s when the economy was experiencing, rapid industrialization, electrification, the rise of mass production, internal combustion engines impacting virtually all sectors. Energy, transportation, medical field, telecommunications with key advancements including the widespread adoption of the automobile, airplane, the expansion of radio broadcasting, the introduction of household appliances. So innovation, continuously dismantles longstanding economic structures. There's the destruction he's talking about to create new, better ones. The creation component that Schumpeter talks about often leading to productivity gains and economic growth. Well, that's all for now. If you want more insights on global market trends, follow us on social media and take care.