Weekly Newsletter March 2nd to March 6th
RECAPPING LAST WEEK
The conflict raging across the Middle East spiked oil prices to the highest level in more than two years, pressuring risk assets across the globe. U.S. equity indices held up better than their international counterparts, with the Nasdaq Composite down just over 1% while the S&P500 fell 2%. The MSCI EAFE and Emerging Market indices both tumbled close to 7% as disruptions to energy supplies threatened to derail economic growth in Europe and Asia. A sharp rally in the U.S. dollar also weighed on international stocks and most commodities outside of oil. Gold fell 2.3% while silver plunged 10%. Crude oil futures soared to $92.61 before settling around $91, up 35% for the week. Fears of rising inflation spurred by higher energy prices led to a jump in U.S. Treasury yields. Friday’s shocking non-farm payrolls report only briefly slowed the ascent: the U.S. economy unexpectedly shed 92,000 jobs in February and the unemployment rate ticked up to 4.4%. While a strike by healthcare workers and severe winter weather were cited as contributing factors, there was enough weakness across the report to raise concerns about broader labor market deterioration. In other economic news, January’s delayed retail sales figures revealed a 0.2% decline MoM, coming in below the expected flat reading. However, other data suggested that economic growth may yet accelerate in the first quarter of this year. U.S. business activity continued to expand last month, with the ISM manufacturing PMI registering 52.4 while services jumped to 56.1, its highest reading since July 2022. Survey respondents remained wary of tariffs, as the manufacturing prices paid subindex soared to 70.5 from 59.0. On Wednesday, Treasury Secretary Bessent said a 15% global tariff—rising from its current 10% rate—will likely be implemented soon under Section 122 of the Trade Act of 1974. Overseas, Eurozone inflation rose last month and may rise further if war in the Middle East leads to sustained higher energy prices. CPI increased to 1.9% YoY from 1.7% while the core measure jumped to 2.4% from 2.2%. Producer prices also rose in January, ahead of the consumer data. UK government bond yields surged as a doubling in gas prices cast doubt on the central bank’s ability to cut rates this year. In a budget update speech, finance minister Reeves acknowledged the risks facing Britain, which has the highest inflation among developed economies and is heavily exposed to energy cost impacts from the assault on Iran. Australia’s economic growth gained momentum in Q4 2025, reigniting price pressures and keeping further rate hikes on the table. Finally, China’s official PMIs stayed in contraction territory last month as domestic demand remained weak.
THE WEEK AHEAD
The sudden outbreak of war in the Middle East has changed everything. Artificial intelligence, private credit, and other concerns took a back seat as investors were consumed by skyrocketing energy prices and a sharp rise in both volatility and interest rates. President Trump’s demand for Iran’s “unconditional surrender” suggested that a swift end to hostilities may prove difficult. Qatar’s energy minister said that producers may need to invoke force majeure, which could shut down production and send oil and gas prices even higher. The conflict also puts the Federal Reserve in a tough spot, attempting to balance the impact of last week’s surprise decline in payrolls—which could lead to a drop in economic growth—against the potential that inflation could spike. While traders still think the Fed will not adjust rates at the March or April meetings, odds for a cut at the June gathering crept back above 50% after the weak jobs report. This week’s U.S. economic data is focused on inflation, with February CPI arriving on Wednesday followed by the delayed January PCE price index on Friday. Both readings are expected to be steady compared to prior levels but still higher than the Fed would prefer and now vulnerable to increases in the coming months. There are 10- and 30-year Treasury auctions this week along with housing data, the second estimate of Q4 2025 GDP, and this month’s preliminary consumer sentiment reading. Oracle will report quarterly earnings after market close on Tuesday. The international calendar features China’s inflation update and monthly GDP figures from the UK.
CHART OF THE WEEK
Dollar catches a bid
The events of last week reinforced the United States’s role as a financial haven for liquidity and perceived stability. The U.S. dollar index ($DXY) jumped to the highest levels since late last year and hinted at a potential reversal of the downtrend that started in early 2025. The outbreak of war has triggered fears of energy supply shocks that could lead to a global economic slowdown. The strong outperformance of non-U.S. assets that has been in place for months took a hit last week, reflecting Europe’s and Asia’s sensitivity to energy disruptions in the Middle East. The U.S., as a net energy exporter, is less susceptible to these effects, but would not be able to increase production fast enough to replace volumes that travel through the Strait of Hormuz to Asian countries like Japan and South Korea. Meanwhile, Europe faces the challenge of refilling natural gas storage, and although the U.S. is the region’s second-largest supplier it cannot fully replace sources like Europe’s pipeline from Qatar. The rotation in equity markets was evident last week with the S&P500 down only 2% while the MSCI Asia-Pacific and EAFE indices suffered drawdowns of 6-7%. Japanese equites sank 5.5% while South Korea tumbled more than 16%. From a technical perspective, $DXY poked back above its 200-day exponential moving average and probed long-standing resistance levels. The energy supply risks, regional economic vulnerability, and renewed risk-off mentality seem to be pushing capital toward U.S. markets.
Source: Charles Schwab Corporation
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