This week, markets will remain fixated on geopolitical developments, which have added further uncertainty to global energy markets. Brent crude rose to around $120pb earlier this morning, and is currently trading near $105pb, while gas prices have spiked roughly 30% higher as investors reassess potential supply disruptions linked to the Strait of Hormuz and force majeure on operations in the region. The reported death of Ali Khamenei and the succession of Mojtaba Khamenei have intensified regional uncertainty, contributing to heightened volatility across commodities and risk assets. For global markets, the key dynamic remains the balance between energy-driven inflation pressures and the potential “growth tax” that sustained higher oil prices can impose on consumption. While energy shocks can temporarily push inflation expectations higher, history shows they also tend to slow economic activity over time.
Today, Germany’s industrial production data will be released. US existing home sales and Aramco earnings are due on Tuesday. Germany CPI and US CPI prints will attract attention on Wednesday, alongside speeches from ECB’s Guindos and Schnabel, and Fed’s Bowman, ahead of the Fed’s blackout period. Thursday will see US housing starts, trade data, and initial jobless claims, while BoE Governor Bailey will make opening remarks at the Financial Stability Board payments summit. Eurozone industrial production, US consumer income, PCE price index, GDP, and the University of Michigan consumer sentiment survey will garner market focus on Friday.
Asset classes were increasingly volatile last week amid US-Israeli led strikes in Iran and the ensuing regional conflict. The closure of the Strait of Hormuz prompted markets to price in higher inflation expectations and rising global growth concerns. Further market stress followed the February non-farm payrolls report, which plunged by 92,000, far below modest growth expectations, marking a sharp downturn for the labour market. Wage growth remained steady at 0.4%, but unexpected job losses and a slight rise in the unemployment rate to 4.4% reinforced concerns over labour market health. Combined with private credit concerns, these developments intensified fears of significant economic cooling.
The yield on the 10-year UST rose 20bps to 4.14% amid inflation worries, while the S&P 500 Index tumbled 2.02%. The dollar rose 1.41%, supported by safe-haven demand, though weaker than expected jobs data limited gains on Friday. The VIX Index, a measure of market volatility, also spiked above the psychological 30 level amid investor concerns.
Elsewhere, China’s energy security remains relatively resilient due to strategic crude reserves, limited reliance on oil and gas for power generation, and rapid adoption of renewables and electric vehicles. The industrial sector faces some exposure through higher petrochemical input costs, but demand flexibility mitigates immediate risks. Rising oil prices could also support reflation by boosting China’s PPI and GDP deflator, aiding nominal growth recovery. China’s CPI hit a three-year high of 1.3% following a Lunar New Year spending surge, while PPI deflation narrowed to -0.9% as manufacturing costs stabilised. Policymakers have set a 2026 GDP growth target of 4.5%–5% and introduced a CNY100 billion fiscal financial package to stimulate domestic demand, while the overall fiscal deficit is slightly lower than expected, underscoring a cautious but supportive policy stance.
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