Must Read Research
March 29, 2026
Candace Browning, Head of BofA Global Research
Some forces generate lift; others keep us firmly on land. This week, we show how demand for AI tokens should keep cloud providers flying high, while the associated power demand could keep some jet engines grounded. Meanwhile, our Volatility Insights explores the crosswinds causing market turbulence, and Japan looks for a better flight path for its shipbuilding industry.
Software Analyst Tal Liani argues that agentic AI will fundamentally rewrite cloud economics.
Because autonomous workflows can generate 10x to 1,000x more tokens than a standard chat query, they are shifting cloud consumption from per-seat subscriptions to usage-based models, with tokens becoming the new unit of compute. Tal views this shift as underpinning the monetization of massive capex investments at hyperscalers, full-stack enterprise cloud platforms, and others. In this framework, cloud providers capture the lion’s share of revenue because they meter token traffic.
Turning jet engines into baseload generators is quickly becoming one of the more unusual ways to feed AI's energy appetite.
Aeroderivative turbines, adapted from aircraft engines such as the CFM56, are gaining traction because they can be installed quickly, deliver reliable baseload power, and offer very high uptime. The catch is that converting propulsion engines into stationary power systems is far from simple. For one, cooling is no longer provided by the engine flying through the stratosphere. Scaling this market could further strain an already tight aviation parts supply chain. AI-driven demand could tighten jet-engine core availability and shrink used serviceable material by 25% per year for the CFM56, boosting pricing power for suppliers.
Markets seem stuck in a vacuum of certainty. Our Global Equity Volatility Insights (GEVI) argues that investors lack conviction on both the economic and geopolitical outlook, so they keep chasing what's been working.
That makes momentum trades more fragile and bubble-like assets vulnerable to sharp reversals. In March, the KOSPI, gold, and silver, all previously flagged by our Bubble Risk Indicator, sold off sharply. Today, Brent crude and Bloomberg Commodities show elevated bubble risk. Volatility markets are sending a similar message: risk premia remain elevated, with the VIX well above realized volatility (mid-20s versus mid-teens) and the VIX curve unusually flat, signaling persistent uncertainty. We continue to favor hedges such as the grind-lower and long forward volatility. Another growing feature of U.S. equity markets is mean reversion rather than trend persistence, with sharp moves increasingly snapping back intraday. We believe this reflects inconsistent policy signals, surprise-driven repositioning, and thin overnight liquidity.
Japan’s share of the global shipbuilding market fell to 12% in 2025, from 33% in 2000.
China has established strong price competitiveness across a wide range of vessel types, while Korea maintains an edge in high-value segments, including liquefied natural gas (LNG) carriers and naval vessels. However, the Japanese government released a roadmap in December 2025 aimed at restoring domestic market share and doubling production capacity by 2035, partly through efficiency measures. With Japanese shippers’ capital expenditures expected to remain robust for fleet replacement and the domestic green transition, Asia Machinery Analyst Yuri Nishizaki sees potential for repatriating newbuilding orders.
Featuring Commentary from Global Economics Weekly
Claudio Irigoyen, Head of Global Economics, BofA Global Research
The anatomy of an energy shock
The global economy is less dependent on oil, but it has become far more sensitive to natural gas and fertilizers, which represent a major risk for Europe and developing economies relative to the U.S. This is an important distinction compared with past oil shocks. While the global economy is indeed less sensitive to oil shocks, it is no longer just about oil. The Iran conflict is not an oil shock – it is an energy shock.
An energy shock is a supply shock with a significant impact on relative prices. As prices for energy-intensive goods and inputs rise, it acts as a tax on consumers and businesses, reducing real income and profits, constraining spending and investment, and putting downward pressure on demand for other goods and services. At the same time, given the stickiness of nominal prices, the shock manifests as higher inflation, which inevitably leads markets to price in tighter monetary policy and financial conditions, placing additional downward pressure on economic activity.
As such, an energy shock affects inflation and growth in ways that fundamentally depend on energy dependency, financial fragility, energy sensitivity, and the persistence of the shock. The same shock has a more negative impact on aggregate income for energy-importing countries, as it effectively acts as a transfer from energy importers to energy exporters. In other words, it represents a negative terms-of-trade shock. For this reason, the U.S. is more insulated than Europe, Korea, India, China, or Japan from a similar shock.
More energy-sensitive countries are impacted more severely. Because energy markets are interconnected and indirectly affect food prices, developing economies with higher food and energy shares in their consumption baskets are particularly exposed. Since gas is used more heavily than coal as an input into electricity generation, this represents another first-order transmission channel for Europe and Southeast Asia.
