This Week
Since the conflict with Iran began on Saturday, markets have been trying to assess its economic impact – the main channel 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 shuttered energy facilities in the region.
This week, international and U.S. oil prices are up 30% and 35%, respectively, to their highs since 2023, and European LNG prices are up 65%, while U.S. LNG prices are up just 10%. JPMorgan estimates that, if oil prices stay at these levels, they’d increase U.S. headline inflation 0.3 percentage points and lower U.S. GDP growth by 0.6 percentage points. Given this likely boost to inflation, markets have reduced their expectations for Fed rate cuts this year by 20 basis points (bp) to around 40bp.
And that’s after today’s big miss on the jobs number increased those rate cut expectations. The economy lost 92,000 jobs in February – against expectations for a 55,000 gain — and the losses were broad-based across sectors. Still, it’s best not to read too much into a single month (good or bad), and the private sector has averaged a gain 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, though rising inflation expectations has the 10-year Treasury yield up nearly 20bp to 4.15%.
Next Week
Here are the top events I’m watching next week:
- Tuesday: NFIB Small Business Optimism (Feb.)
- Wednesday: CPI Inflation (Feb.)
- Thursday: Jobless Claims
- Friday: PCE Inflation and Spending (Jan.), Real GDP (Q4 revision), JOLTS Job Openings (Jan.)
