Energy Surge Fuels Stagflation Fears (9-13 March)

Escalating Middle East tensions and rising energy costs dominated global markets.

Brent crude surged 15% above $100 after producers cut output amid the ongoing Iran conflict and the closure of the Strait of Hormuz. The US dollar strengthened on safe-haven demand, while Treasury yields rose as soaring oil prices reignited inflation concerns, overshadowing weak US labor data. Gold and silver faced pressure from a stronger dollar and shifting rate cut expectations despite the geopolitical risk.

In the US, the unemployment rate rose to 4.4% in February, with nonfarm payrolls unexpectedly dropping by 92,000. However, the service sector showed resilience as the ISM Services PMI climbed to 56.1, its fastest expansion since 2022.

Currencies

Dollar Index (DXY): The dollar index declined to 99.1 on Friday following weak labor data that increased pressure on the Fed to consider rate cuts. Despite this dip, the index gained 1.5% over the week. Safe-haven demand and Europe's energy dependence supported the Dollar as the conflict between Israel and Iran intensified.
Euro: The euro fell to $1.156, its lowest since late November. Investors pivoted toward the dollar as Middle East tensions escalated following Israeli strikes in Beirut. Rising energy costs have stoked inflation fears in Europe, leading markets to price in potential ECB interest rate increases later this year.
British Pound: Sterling declined toward $1.33, hitting its weakest level since early December. The intensifying regional conflict and higher energy prices have heightened inflation concerns. This has reduced expectations for near-term Bank of England rate cuts, forcing a more cautious monetary outlook.
Japanese Yen: USD/JPY traded near 157.5, with the yen marking its third straight weekly loss. Japan's heavy reliance on energy imports put additional pressure on the currency as oil prices climbed. Officials warned of significant economic impacts, signaling potential intervention to stabilize the yen.

Commodities

Gold Faces Pressure Below $5,120

Gold prices fell to $5,118 per ounce on Monday. While the Middle East conflict provided some safe-haven support, the metal was weighed down by a stronger dollar and reduced expectations for immediate Fed rate cuts. Rising oil prices have delayed the timeline for monetary easing as inflation risks persist.

Brent Surges Past $100

Brent crude jumped 15% to trade above $100 per barrel. The effective closure of the Strait of Hormuz led major producers like Kuwait and Iraq to slash output. Iraq's southern oilfield production dropped 70% to 1.3 million barrels per day, while the UAE managed offshore output to handle storage constraints.

Silver Slips as Dollar Strengthens

Silver fell over 1% to below $84.5 per ounce. Like gold, silver faced headwinds from a strong US dollar and a shift in interest rate sentiment. Ongoing supply disruptions in the Gulf and high energy costs continue to fuel global inflation concerns, tempering the metal's momentum.

Fixed Income

US 10-Year Treasury Yield: The yield rose to 4.16% on Friday. Soaring energy prices, with WTI crude approaching $88, offset the impact of weak February payroll data. Traders are now weighing whether the Federal Reserve will begin cutting rates in July or maintain a pause through year-end.
UK 10-Year Gilt Yield: The yield surged above 4.6%, its highest since mid-October. This weekly rise of 40 basis points reflects intense reaction to inflation risks stemming from the Middle East. Higher energy costs are expected to keep European inflation elevated, limiting the Bank of England's room to move.
Japan 10-Year Government Bond Yield: Japan’s yield rose to 2.15% following a strong 30-year bond sale. Despite geopolitical uncertainty, the 30-year yield climbed to 3.4%. The Bank of Japan remains watchful, with officials signaling that policy adjustments are possible if external risks drive inflation higher.
Germany 10-Year Bund Yield: The yield climbed to 2.87%, the highest since early February. Markets are reacting to potential oil supply disruptions that could keep the Eurozone's inflation above target. Investors now see an 85% probability of an ECB policy tightening by December.

Economic Data

US Unemployment Rate: The US unemployment rate climbed to 4.4% in February 2026, nearing a four-year high. The number of unemployed persons increased by 203,000, while total employment fell. The participation rate dipped slightly to 62.0%, though the broader U-6 measure eased to 7.9%, showing a complex labor market landscape.
Euro Area Inflation Rate: Annual inflation in the Euro Area rose to 1.9% in February. Service sector pressures were strong, climbing to 3.4%. While energy prices fell, they did so at a slower pace than in previous months. Core inflation rebounded to 2.4%, with France, Spain, and Italy seeing accelerated price growth.
US ISM Services PMI: The services sector expanded at its fastest pace in years, reaching 56.1 in February. Business activity and new orders surged to multi-month highs, while employment growth in the sector reached its quickest pace in a year. Despite persistent cost pressures, the price index fell to its lowest since March 2025.
US Non-Farm Payrolls: The US economy lost 92,000 jobs in February, far missing expectations for a gain. Significant losses occurred in health care, information, and manufacturing. Downward revisions to previous months further lowered the employment picture, showing that payrolls remained largely stagnant throughout the past year.

Latest Analysis

Energy Markets Under Siege

The crisis in the Strait of Hormuz has transitioned from a localized geopolitical standoff into a systemic global supply shock. With over 10 million barrels per day effectively removed from the market, the energy landscape is facing its most significant challenge in recent years. This structural deficit is no longer just a theoretical risk; it is actively reshaping physical markets and straining global economic stability.

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