this week
Since the conflict with Iran broke out on Saturday, markets have been trying to assess its economic impact – the main medium being higher energy prices.
That’s because the conflict has essentially halted traffic in the Strait of Hormuz – which transports 20%-25% of global oil and liquefied natural gas (LNG) – and Close Energy facilities in the area.
This week, international and US oil prices are up 30% and 35% respectively to their highest levels since 2023, and European LNG prices are up 65%, while US LNG prices are up just 10%. JPMorgan estimates that, if oil prices remain at these levels, they will increase US headline inflation by 0.3 percentage points and reduce US GDP growth by 0.6 percentage points. Given this potential rise in inflation, markets have reduced their expectations for a Fed rate cut this year by 20 basis points (bp) to around 40bp.
And today, expectations of a rate cut have increased after a big decline in the number of jobs. economy lost 92,000 jobs in February – against expectations of 55,000 to get – And the losses were widespread across all sectors. Still, it’s best not to read too much (good or bad) into a single month, and the private sector has gained an average of about 20,000 jobs per month in the last 3 months.
Even with this backdrop, the Nasdaq-100® is down just 1% this week, although rising inflation expectations have caused 10-year Treasury yields to rise nearly 20bp to 4.15%.
next week
Here are the top shows I’m watching next week:
- Tuesday: NFIB Small Business Optimism (February)
- Wednesday: CPI Inflation (February)
- Thursday: unemployment allowance
- Friday: PCE Inflation and Spending (January), Real GDP (Q4 Revision), JOLTS Job Openings (January)
