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.
(Schwab)
Short-term yields rising
Global equity markets remained remarkably resilient last week despite another sharp rise in interest rates, elevated energy prices, and the first rate hike from the Federal Reserve in more than three years. U.S. equities initially came under pressure following Wednesdays widely anticipated 25 basis point increase in the Fed Funds target rate to 3.75%-4%, but the selloff was relatively short-lived, with most major indices recovering from their knee-jerk response to the rate announcement.
September 24, 2026
