Weekly Newsletter March 9th to March 13th

RECAPPING LAST WEEK 

Escalations in the Middle East conflict raised fears regarding the largest potential oil supply disruption in history. During the week, crude oil soared to $119.50, then plunged below $77 before again ascending to nearly $99. It ended the week higher by 8% despite the International Energy Agency’s largest-ever release of 400 million barrels to try to reign in prices. The nauseating volatility left U.S. equity indices lower for the week; the S&P500 and Nasdaq Composite indices fell around 1.5% while the Russell 2000 dropped nearly 2%. Although the major indices avoided severe carnage, heightened volatility kept investors on edge. The VIX jumped above 35 before settling near 27, which still implied a 1.7% daily move for the S&P500. Nine of 11 sectors lost ground, with financials tumbling more than 3% on palpable private credit worries. JPMorgan Chase reportedly marked down some loan values held as collateral, reducing the ability of private credit firms to borrow against those loans. Gold and silver ended down 3% and 5%, respectively, while Bitcoin rose 4%, decoupling somewhat from the weakness in equities. U.S. Treasury yields surged as the risk of inflation from energy prices drove bond prices lower. Weak demand at auctions of 3- and 10-year notes also weighed on sentiment, along with investors digesting a record $66 billion in new corporate debt on Tuesday. In economic news, U.S. CPI rose 0.3% MoM in February, slightly above the prior reading. The delayed core PCE price index from January showed a 0.4% increase MoM and 3.1% YoY. Both reports suggested that prices were on the rise even before the outbreak of war this month. The second estimate of Q4 2025 GDP was revised lower to 0.7% growth from 1.4% on downgrades to exports and government spending. Final sales to private domestic purchasers, a closely-watched measure of domestic demand, slipped to a 1.9% gain from the initial estimate of 2.4%. Consumer sentiment slid to 55.5 this month from 56.6, with about half of the survey responses collected after the start of the U.S.-Israeli war with Iran. Inflation expectations for the next year were flat at 3.4%. Finally, housing starts and existing home sales rose to start the year as affordability improved and multifamily construction boomed. On the international side, major equity indices fell around 2%, pressured by a rising U.S. dollar and sensitivity to higher energy prices. In China, consumer inflation jumped by the most in three years while deflation in producer prices moderated. At an economic policy-setting meeting last week, the country lowered its GDP growth target to a range of 4.5% to 5%, its lowest goal since the early 1990s. China’s trade surplus rose to the highest level on record as exports surged 21.8% YoY in the January-February period.

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THE WEEK AHEAD 

In his first comments on Thursday, Iran’s new supreme leader Mojtaba Khamenei vowed to keep the Strait of Hormuz shut, leveraging the country’s strategic position in the Persian Gulf to hold the global economy hostage. Although an Indian oil tanker on Friday was among limited ships that have moved through the strait, and despite the IEA’s aforementioned release and the U.S. allowing countries to buy Russian oil from ships stranded at sea for the next 30 days, experts fear that only an end to the conflict would resolve the currently untenable situation. Any disruption in oil flows lasting more than a few more weeks would likely necessitate more inventory releases, and getting those barrels to market is a formidable challenge. In the midst of turmoil, investors will have six central bank decisions to mull over this week. In the U.S., the Federal Reserve is likely to hold rates steady as it faces prospects of higher inflation and a weaker labor market. The Fed will also update the Summary of Economic Projections midweek. Plenty of fresh uncertainty has been added to the outlook due to the Iran conflict. Fed funds futures aren’t indicating better than a 50% chance of a rate cut until the October meeting. The economic calendar features housing data, producer prices, and regional manufacturing surveys, while chip giant Micron Technology reports earnings on Wednesday after market close. Central banks in Australia, Canada, and Japan have rate decisions earlier in the week, followed by the UK and Europe on Thursday. While all are expected to leave rates unchanged, their statements will be scrutinized for any hawkish shifts in tone. Releases on the international economic calendar include China’s monthly data dump, German economic sentiment, Canadian CPI, and UK employment figures. 

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CHART OF THE WEEK

Shock at the pump

The surge in oil prices has consumers concerned about gasoline costs, which were already rising ahead of the war in the Middle East. Looking at the chart of the S&P GSCI Unleaded Gasoline index (SPGSHU), gas prices rose steadily from the beginning of the year, then gapped higher in early February when initial signs of trouble arose around the Strait of Hormuz. The oil price shock didn’t appear until nearly a week after the strait was effectively closed, but gas moved well ahead of that date. The gasoline index is now up 75% from pre-war levels. Prices at the pump tend to lag oil by one to three weeks, and the national average may move closer to $4 per gallon if oil remains near $100 or spikes higher. Governments around the world are scrambling for solutions, including reductions or temporary elimination of fuel taxes, in addition to oil stockpile releases. As long as the strait remains effectively closed, prices may continue their aggressive rise. 

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Source: Charles Schwab Corporation

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