Highlights
U.S. equity markets ended a turbulent week with losses as investors reacted to escalating tensions in the Middle East following military strikes by the U.S. and Israel on Iran. Among the major stock benchmarks, Dow Jones Industrial Average and the S&P 500 dropped 2.92% and 2.02% respectively. The Nasdaq Composite performed comparatively better but still slipped 1.27%. The conflict raised fears about disruptions to global oil supply, driving energy prices higher and increasing concerns about inflation. Uncertainty surrounding the length and broader consequences of the conflict also affected Treasury markets, pushing bond yields upward as investors reconsidered inflation expectations and potential actions by the Federal Reserve. Meanwhile, data from the Institute for Supply Management suggested that the U.S. economy continued expanding in February. In contrast, labour market indicators during the week produced conflicting signals. Payroll processor ADP reported that private employers added 63,000 jobs in February, surpassing expectations and improving significantly from January’s revised total of 11,000. However, sentiment weakened later in the week when the Bureau of Labor Statistics reported that nonfarm payrolls declined by 92,000 in February, far worse than the expected gain of about 60,000. The unemployment rate also rose to 4.4%. The weaker data complicates the Federal Reserve’s policy outlook as officials weigh a cooling labour market against the inflationary impact of rising energy prices. Across the Atlantic Pond, European equities dropped sharply ending a two-week winning streak. The pan-European STOXX 600 fell 6.45% for the week as geopolitical tensions increased following the expansion of the Middle East conflict. Even before the escalation, data from Eurostat showed eurozone inflation rising to 1.9% in February, above both January’s reading and market expectations. As a result, market participants began pricing in a higher probability—above 50%—that the European Central Bank could raise interest rates. Further, Eurozone unemployment fell unexpectedly to a record low of 6.1% in January, slightly below the previous month and analysts’ forecasts. In the UK, the British pound weakened to its lowest level since early December, and the Office for Budget Responsibility warned the Middle East conflict could significantly affect the UK economy. Over in Asia, Japanese stocks joined in the decline as the Nikkei 225 fell 5.49%, while the broader TOPIX declined 5.63%. Investors were particularly concerned about rising oil prices given Japan’s heavy dependence on energy imports from the Gulf region. Nevertheless, Kazuo Ueda, governor of the Bank of Japan, reiterated that the central bank would continue raising interest rates if economic and inflation conditions align with its projections. Meanwhile, Chinese equity markets also moved lower, with the CSI 300 falling 1.07% as investors evaluated the Middle East conflict alongside China’s newly announced economic goals. At the National People’s Congress, China outlined its economic agenda for 2026, setting a GDP growth target between 4.5% and 5%—the lowest target in decades and the first reduction since 2023.
Data Highlights
USD Non-Farm Payrolls (Feb) fell from 146K to -86K, consensus only priced a decrease to 59K. USD Non-Farm Payrolls Private (Feb) fell from 126K to -92K, consensus only priced a decrease to 65K. USD Unemployment Rate (Feb) painfully rose 10bps, from 4.3% to 4.4%, against the flat consensus. EUR Inflation Rate YoY (Feb) rose 20bps above the previous and flat expectation of 1.7%, to 1.9%. EUR Core Inflation Rate YoY (Feb) was 20bps above the previous and flat expectation of 2.2%, to 2.4%. EUR Unemployment Rate (Jan) pleasantly fell 10bps, to 6.1% from 6.2%, consensus held it still at 6.2%. EUR PPI YoY (Jan) shed 10bps, to -2.1% from -2%, consensus priced a 70bps decrease to -2.7%. EUR GDP Growth Rate YoY (Q4) fell 20bps, from 1.4% to 1.2%, consensus was shy by 10bps (1.3%). CHF Unemployment Rate (Feb) stayed still at 3.2%, when expected to fall -10bps to 3.1%. CHF Inflation Rate YoY (Feb) held still, at 0.1%. JPY Unemployment Rate (Jan) rose 10bps above the previous and flat expectation of 2.6%, to 2.7%.
Week Ahead
JPY PPI YoY (Feb), Germany Inflation Rate YoY (Feb), USD CPI (Feb), USD Core Inflation Rate YoY (Feb), USD Inflation Rate YoY (Feb) – Wednesday | GBP GDP YoY (Jan) – Thursday | USD GDP Growth Rate QoQ (Q4), USD PCE Price Index YoY (Jan), USD Core PCE Price Index YoY (Jan), CAD Unemployment Rate (Feb) – Friday
