The Decisive | Season 6 | Ep.13 - The Age of Agility: Midyear Signals for 2026 - Part 2

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Kristen Hallam:

You're listening to the Decisive Podcast. Insights and analysis to empower confident decision making. Hello and welcome to the Decisive Podcast. I'm your host, Kristen Hallam. This week's episode is the second half of a client webinar I hosted on June 17th with S&P Global Market Intelligence, experts in economics, country risk, and trade and supply chain. In last week's episode, we revisited the key strategic themes for 2026 from our Age of Agility report: shaky economic foundations, shifting asymmetric power, and adapting to trade realities. This episode picks up where that conversation left off with a closer look at how AI is showing up across those strategic themes. We also look ahead to the rest of 2026 and into 2027, including what potential conflict resolutions could mean for sanctions and reconstruction opportunities, and how USMCA discussions could shape the future of North American trade. Admit it, you're already thinking about next year too. So let's get back to the conversation with the Age of Agility Midyear signals for 2026 part two.

I'd like each of you to give our audience the 90-second view on how AI is showing up in each of these three strategic themes. Laurence, since you were just in the hot seat, let's start with you.

 

Laurence Allan:

We're thinking about the AI from the shifting asymmetric power lens in a couple of different areas. The first is the kind of global regulation piece and what we said at the start of the year that we didn't expect any of the big players to get complete control of the regulatory environment. So this is we do not think we're going to see a situation where one set of regulatory coherence globally sets a bar and that's what everyone needs to adhere to. It's pretty clear that again, if we go back to the three kind of big blocks, the U.S., Mainland China and the EU, that they've all got slightly different approaches or radically different approaches in some areas. Why is that important? Apart from being important in and of itself, it's important because it means that companies that are out there operating are going to face different regulatory conditions, different compliance demands, different operational conditions, depending on where they're operating, and quite radically different in some ways. And also clearly, if we're talking about an attempt to get your own regulatory regime out there and be influential elsewhere, that there is competition going on there which may well be affected by other aspirations and goals that these actors have. The second, and probably more prosaic but I think no less important issue for us is what are the challenges to the rollout of the hardware, and particularly here we're talking about data centers, right? How possible is it for data centers to be rolled out in certain places? What are the challenges that are going to be faced on the ground? And we think that a pretty significant part of that is about basically local community acquiescence to operation, given some of the considerations that are going on. Eric Johnson earlier mentioned El Niño in some regions, in some places there are very severe water scarcity issues.

When El Niño hits, that's likely to be a restraint, as is any trajectory that local grassroots groups have had over the years of understanding how to pro policy levers, political levers, legal challenges to block things that they don't want to see happening in their area. So we're keeping a very close eye across our different regional coverage for areas where we know we see this different kind of confluence of factors coming together.

 

Kristen Hallam:

All right, Eric, your turn in 90 seconds or less. How is AI showing up in trade and supply chains?

 

Eric Johnson:

So it's been front and center for me. I am tracking kind of the software that's developed on behalf of supply chain operators and logistics partners. So it's been very much, in my view for a long period of time. Very interesting to see it interact with the physical world more recently. So I tend to think of it from two different prisms. First, you have the infrastructure perspective that Lawrence just went into and how that impacts freight flows. So, you have everything from container, flatbed truck, project vessels, brake bulk operators, all benefiting from this activity right now. And I think the question for them is how long is this boom? Is it 1 year, 2 years, 5 years, 10 years? Is it ad infinitum? So that the first level of impact.

But obviously I think of it in terms of impacting the way people work in trade and shipping and logistics and how that work is conducted. Essentially every single company that's moving cargo is having to weigh their own appetite and desire for investment in into AI against the investment that's being made by their commercial partners. But also maybe most importantly, regulators. Right? Customs authorities are absolutely using AI extensively right now. So if you're an importer or an exporter, you have to take that into account. The demand for tools that help importers think about their multi-tier supply chains has never been more in demand. That's because you need some sort of symmetry with what's going on in the regulatory side.

Big picture demand within trade and supply chains is rising for AI just as it is within most industries. But I think we should be clear. The AI revolution right now is having the biggest impact by far on the software industry itself. So the development of software. As an example, SpaceX, which we know had a massive IPO last week, they just bought yesterday a company called Cursor which does code AI based code development for $60 billion. That's with a B. So that's just to put some context around this. That's 10 times the price of the biggest acquisition that I can recall in the world of supply chain software over my career covering this space.

So we have to be quite realistic about how AI is impacting work right now in various industries related to trade and logistics versus what it means from a freight perspective to support all the infrastructure that's needed for data centers and the power consumption that they generate. It's very much tilted toward the infrastructure side more than the actually changing workflows in a really huge way yet.

 

Kristen Hallam:

All right, thanks Eric. Those were some big numbers there and it dovetails nicely with Ken. I'm going to come to you on this, but with a twist because you've already given us your insights on AI and the global economy. But what are your thoughts about a potential stock market correction?

 

Ken Wattret:

It's been interesting because in the early part of June we saw tech stocks coming under pressure and then in the recent past because we had the agreement signed in the Middle East and risk appetite has come back, equity markets have rebounded. Our feeling is it's quite likely that the concerns about a potential correction in equity prices will persist. There are a number of reasons to think that. One is because valuations are so elevated. Two is because market capitalization relative to GDP is extreme in some economies. A third is the concentration in the market, another way that smaller number of companies accounting for a bigger share of market cap. Then there's the issue of leverage, including in the shadow banking sector, which has been growing for some time. And then ultimately the potential for overcapacity and disappointing returns.

Now, to be clear, in terms of what we're forecasting, a major correction in equity prices is not in our base case. But were it to happen, that would be a game changer for our assessment of the economic and financial outlook and probably much more so than we saw in the early 2000s after the dotcom bubble burst. There are a few reasons for thinking it would be bigger, but one of them is the lack of policy ammunition that's available to try and limit the damage. And that ties in with the general theme of shaky economic foundations. You can counter some shocks, but when the policy space to do so is limited, it leaves economies much more vulnerable.

 

Kristen Hallam:

All right, thanks, Ken. So another one round robin here. Is there one event or indicator that maybe isn't front of mind that we haven't talked about yet in this discussion that you're keeping an eye on, especially as we look toward 2027? Ken, how about we start with you?

 

Ken Wattret:

I'm going to cheat here and I'm going to give you two, but I promise you I'll keep them very brief. So first we've got a new person running the world's most important central bank, and he's about to chair his first policy meeting. Now, Kevin Warsh has talked about reining in the size of the Fed's balance sheet, and that could be a really big deal for global markets. It could matter a lot for Treasury yields, so borrowing costs in the real economy, the shape of the yield curve, the dollar, and so on. He's also expressed the preference for alternative trimmed measures of inflation, and we've been writing about that recently. Now, that could be interpreted as moving the goalposts, in other words, shifting attention onto a measure of inflation which is lower than the one the Fed currently targets, PCE inflation, in order to engineer a situation where policy rates can come down to keep the US administration happy. Now, that speculation could end up being wide of the mark, but one of a number of uncertainties about the direction of travel for the Fed, which could have major implications for financial conditions in the US and globally. The second issue in brief, is rising global imbalances.

And by that what I mean is the increasing current account deficits and surpluses in some of the world's biggest economies, including the US and China in particular. Now, the reason for highlighting those is that rising imbalances in the past have been a harbinger of financial trouble and crises with long-term economic consequences. So think about the global financial crisis back in the late 2000s that was preceded by the US running a sustained very large current account deficit, while mainland China, Japan, Germany were running big surpluses. And it's the same countries now. Now, one positive difference between then and now is that the scale of the current account deficits and surpluses are smaller relative to national and global GDP. So that's some comfort. But even if a crisis doesn't materialize, those imbalances prolong the trade tensions, and that also has detrimental effects on global economic conditions. And the real concern we have is that the causes of those imbalances are not being addressed. And there's two key areas there. One is the huge US budget deficit and the other is a lack of growth rebalancing in China.

 

Kristen Hallam:

All right, thank you, Ken. Those two are really good, so I'll allow you to have two. And Eric, let's come to you next. Is there an event or indicator that we haven't talked about yet you're keeping your eye on?

 

Eric Johnson:

Yeah, I'll be brief and I'll only do one. I won't cheat. Even though Ken’s were great and worth cheating. Freight demand, I think the supposition going into 26 and certainly going into Q2 with all that occurred in Q1, was that we would have a muted sort of freight demand environment, which is obviously downstream of economic conditions. We're seeing very healthy demand going into the end of Q2 and into Q3, with freight rates rising virtually across all global trades and also in some domestic truckload trades, North America, I'll point out specifically. So that's a bit counter to maybe what most people would have guessed at the beginning of the year. The question now is that just due to front running a little bit ahead of potentially more trade or tariff policy changes ahead of the year, was it front running to get ahead of what most people assumed were going to be significantly higher fuel costs in the second half of the year? That is unclear right now. But if there is sustained freight demand, that's going to have a compounding effect on the supply constraints that we've already touched on here. So that's what I'm going to be watching.

 

Kristen Hallam:

All right, thank you, Eric, and Lawrence, how about you?

 

Laurence Allan:

I'm going to be cheeky. I'm going to give you three. But very quickly, one, we haven't yet mentioned the US midterms, which are always material. I'm not going to dwell on that. I'm sure everyone has their views in terms of elections. We also have Brazilian presidential elections coming up in October this year. That's very meaningful for a number of reasons. It's a major agricultural exporter. It is a locus of critical minerals. It's a major market. It's an anchor for Latin America. So keeping a very close eye on that, see how that's going to play out in 2027. And the third one is just to refer back again to El Niño impact. And we're thinking about that in terms of the violent risk, the political risk, the economic risk, because it's global and it can manifest in so many different ways. So we're tracking this from a kind of local level to look for the indicators that tell us it's having an impact and what that impact might be.

 

Kristen Hallam:

All right, that was quick. Well done. Now it's probably obvious by now, but we are thinking about 2027 already. So what is front of mind at this point as you look ahead to next year? Laurence, let's start with you.

 

Laurence Allan:

I think in a thematic way we're going to be looking at conflict indicators, especially movement towards meaningful resolution of conflicts that are having a global impact right now. So obviously the Iran, wider Middle East conflict situation and also the Russia-Ukraine situation, because that could start us moving towards a slightly more predictable environment. But over and above that could have some specific outcomes such as changes to the sanctions regimes and also potential reconstruction opportunities. So that would be the one at a kind of thematic level that I would identify.

 

Kristen Hallam:

All right, thanks for that. Ken, how about you? What's front of mind as you look ahead to next year?

 

Ken Wattret:

A lot can happen in a very short period of time. Just think about what's been going on in the last few days. So as a person who's in the forecasting business, what's front of mind is how difficult it is to make predictions further into the future. But we've done a reasonable job, so hopefully we'll continue to do that. I think it feels like we're at a pivot point in some respects. So if I think about what's been going on in the Middle East, if the oil shock continues to dissipate, inflationary concerns recede, central banks stay calm, financial markets carry on their merry way, then economic prospects are going to improve. The counter to that is if we get persistent inflationary pressures, further rate hikes and economic and financial conditions can end up being much less positive. Recent events are clearly aligned more to the former than the latter. But obviously as I mentioned, things can change quickly. The final point I'd make on this is even in a benign outcome, I think it's reasonable to assume that the theme of shaky economic foundations will still apply because a lot of the concerns that we're highlighting are structural in nature, be that global imbalances, trade tensions, fiscal fragilities and so on. They're not going away.

 

Kristen Hallam:

All right. And Eric Johnson, how about you, front of mind looking to next year?

 

Eric Johnson:

Yeah, I would say I have an eye on the USMCA renegotiation that was—that's slated for in the upcoming weeks. It's not entirely clear how this all plays out from a number of different reasons. Obviously there's a lot of distractions going on right now in terms of conflicts and other trade agreements and just general positions on trade policy from the U.S. perspective. So the question around the USMCA, and it obviously governs a huge volume of trade and associated revenue with trade of the amount of volume that's moved between North American countries. So the question is, is it reworked, is it abandoned entirely, which I think is unlikely, or are the discussions around this just essentially pushed down the road for a year or two? It's unclear at this point. I think everyone has an opinion on that, especially people who are close to the thinking amongst the three governments. But in either case, we should be getting some clue as to which path those discussions take relatively soon.

Even if the path is simply to wait and push the decisions, the really big decisions, around what the future shape of this agreement looks like down the road. But it obviously affects a huge amount of trade and it could influence how much intra-regional trade there is in North America and the Western Hemisphere, or whether we, the US in particular, continues to rely upon a huge volume of imported goods from the Eastern Hemisphere.

 

Kristen Hallam:

Thank you for listening to the Decisive Podcast from S&P Global. Please subscribe and join us for next week's episode. Until then, stay curious and stay informed.