Week in review and thoughts for the upcoming week of March 9, 2026

Markets have been taken aback by the intensity of the conflict and the Iranian retaliatory strikes on at least 14 different countries. Investors were also shaken by the severe disruptions to oil and gas flows coming out of the Persian Gulf.

Widening shocks from the Iran war

We have not seen massive destruction to oil-producing facilities per se. But tanker passage through the Persian Gulf has become severely restrained, straining supply. Some 20 million barrels a day of crude flows through the Persian Gulf and the 40-mile-wide Strait of Hormuz. Both are currently in a state of paralysis.

A few hundred ships are trapped inside the Gulf, while even more are seeking to get in. Meanwhile, some Gulf producers are stopping production altogether. Kuwait said that it will cut crude oil output given that its storage depots are getting full. And QatarEnergy has stopped processing LNG, saying it cannot afford to export through the perilous Strait. At least nine vessels have been attacked in the Gulf this past week. And on Thursday, Iran’s Revolutionary Guards warned ships not to cross the Strait.

Meanwhile, we have seen a spike in carrier insurance rates that has chilled the shipping market further. The Trump administration is drawing up plans for naval escorts and possible backstops for insurance carriers. But these plans have yet to be implemented. Not surprisingly, overall traffic has collapsed.

Energy prices surge, aluminum in short supply

The energy price impact emanating from the conflict has been dramatic. We saw a $15/barrel surge on Brent this past week, a $23 spike in WTI, and 25%-50% gains in LNG. Pump prices in the US are already up by about $0.30/gallon basis the national average. (As an aside, it is uncanny how quickly gasoline prices move up on rising crude oil prices but seem to take their time coming down when we see crude price declines.) Elsewhere in energy, US distillate futures spiked by almost $1 /gallon this past week, while gasoline futures and natural gas tacked on $0.40/gallon and $.30/bcf, respectively.

Although oil traditionally commands the most attention when it comes to Mideast conflicts, aluminum has come in as a surprising second. About 6.2 million tons of Gulf Cooperation Council (GCC) aluminum was produced last year, making the region the second largest supplier outside of China. With aluminum now also unable to move easily, Aluminum Bahrain and Qatar’s Qatalum both declared force majeure on their shipments this past week. Other producers are looking to draw down stocks from outside the region in an attempt to fulfill their obligations but will likely invoke force majeure declarations of their own if the Gulf remains bottled up.

The Europeans are particularly concerned with the aluminum situation, as the Gulf stoppage comes just as the region’s long-term supplier in Mozambique (Mozal) is going offline this month. Meanwhile, Century Aluminum’s Grundartangi smelter in Iceland is also down until October. And of course Russian aluminum has been missing from the European market for some time now.

Aluminum premiums rise

Not surprisingly, physical aluminum premiums on both sides of the Atlantic are soaring. US Midwest premiums are now at $1.12/pound. European duty paid aluminum is trading at about $450/ton, about $100/ton higher on the week. LME aluminum futures ended up by almost 10% last week. But other base metals finished lower, with tin experiencing the biggest decline (13%). Copper finished down by 3.6%, nickel was off by 2.1%, while there were marginal declines in zinc and lead. 

Precious metals mixed

In precious metals, gold’s performance was somewhat surprising this past week. Although prices spiked to an intraday high of $5,434/ounce on Monday – the first day the markets had a chance to discount the war – gains faded rapidly over the course of the day. By midweek, the complex was clearly struggling as prices came within $5/ounce from taking out the $5,000/ounce mark. Prices recovered going into the balance of the week but still ended down by about $100/ounce for the period. Silver prices rose to $97.30/ounce on Monday as well. But they ended down about $4.40/ounce on the day and finished the week off by roughly $9/oz.

Equities down, Treasury rates up

Not surprisingly, US equity markets fell hard last week. The S&P 500 declined by 2.0%. NASDAQ was off by 1.2%. And the Dow closed down by 3%.

US Treasury rates saw their biggest one-day rise since June of last year on Monday. Rates have continued to slowly move up since, settling on Friday at 4.13%, up 17 basis points on the week. However, we believe this is a relatively modest increase and does reflect undue concern in the credit markets. We think yields have been restrained for the most part as investors are perhaps harboring doubt about how long the current conflict will last.

Moreover, the bond market has been reassured by recent inflation data. Prices continue to move in the right direction, although the latest February PCE number was somewhat of an aberration. In addition, the yield on five-year nominal treasuries and five-year inflation protected treasuries – a decent proxy for inflation expectations – is currently at 2.5%, virtually unchanged from prewar levels. Nevertheless, when the Fed meets on March 18, it will come across as more hawkish. Indeed, the odds for two rate cuts for this year have dropped from 75% prior to the conflict to below 50% right now.

The big question: how long does the conflict last?

It is very difficult to provide any sense of price direction in the middle of a war taking place in a region that is arguably the most critical area on the planet in terms of market importance. All we can say is that an open-ended conflict (i.e., several months or longer) would be a worst-case scenario for global growth. It would keep energy prices elevated and contribute to higher inflation – thus negatively impacting consumer spending, trade, and investment. A shorter campaign (four to six weeks) will generate far less damage and should have only a limited impact on inflation. Therefore, taking a view on conflict duration and on crude prices are both going to be the critical variables for commodity prices going forward. It will not be an easy exercise.

Macro readings and other news from the past week

• The February nonfarm payroll report was disappointing, showing 92,000 job losses. In addition, the BLS revised job gains for January and December downward by a combined 69,000. The US labor market is basically treading water. About 28,000 of the job losses in February came from healthcare. But this was attributable to a large strike that recently ended. Other industries that shed jobs include leisure and hospitality (27,000), manufacturing (12,000), construction (11,000), and motion-picture production (9,500). The February unemployment rate came in at 4.4%, about 0.1% higher than the previous month. However, average hourly wages rose 0.4% and are up 3.8% in the past year. Workers are keeping ahead of inflation for now. The private payroll ADP number, released two days earlier, showed job growth of about 63,000.

• We had a decent ISM manufacturing report out last week. The February number came in at 52.4% (consensus 52.1%, prior 52.6%) and is now at a 3.5-year high. The only negative was the fact that input prices increased and are expected to rise further heading into next month’s report given the recent spike in energy prices. Separately, the February ISM services index rose by a much stronger-than-expected reading of 56.1% as well (consensus 53.9%, prior 53.8%).

• January retail sales decreased 0.2% month-over-month (consensus -0.1%) following an unchanged reading in December. Excluding autos, sales were unchanged month-over-month (consensus 0.2%). However, sales activity was disrupted by winter storms, so the results are not as disappointing as they appear. Moreover, non-store retail sales were up a robust 1.9% month-over-month.

• Q4 productivity increased by 2.8%, coming in below the 4% expected and also below the 5.2% reading seen in Q3. Unit labor costs jumped 2.8% after a 1.8% decline in Q3.

• The mortgage applications index rose by 11% in the latest week from 0.4% in the week prior.

• China announced its five-year plan envisions a 2026 GDP target of 4.5%-5%, a slight downgrade from the 5% achieved last year. (We never attached much importance to the veracity of the Chinese GDP numbers. They have an uncanny ability to come in exactly as forecast.) There was a laundry list of new initiatives and expansion of existing ones also introduced by Chinese Premier Li, most of which are a repeat of what has been said before. Li noted that free trade is under severe threat. Domestically, he highlighted the “acute” imbalance between manufacturing supply and weak demand. Shifting to new growth drivers is necessary, although this would be challenging, he noted. “Rarely in many years have we encountered such a grave and complex landscape, where external shocks and challenges were intertwined with numerous domestic difficulties and tough choices,” Li said.

• Reuters reports that Morgan Stanley remains bullish on aluminum and sees a $3,700/ton target for this year.  “With China’s aluminum capacity capped and other supply limited by power availability and price, the aluminium market looks tight despite expanding smelter margins.” The bank noted that events in the Middle East bring further supply risks.

This week’s US macro readings

Nothing comes out on Monday. On Tuesday we get the February existing home sales (expected 3.85 million, last 3.91 million).

Wednesday brings us February CPI (expected at 0.3%, last 0.2%) with the year-over-year reading coming in unchanged at 2.4%. February core CPI is expected to come in at 0.2% (last 0.3%) while the Y/Y comparison is expected unchanged at 2.5%.

Thursday brings us weekly initial jobless claims (expected at 250,000, last 213,000), the January US trade deficit (expected at $-65 billion, last $70 billion) along with February housing starts (expected 1.33 million, last 1.4 million) and February building permits (expected at 1.4 million, last 1.45 million).

On Friday we get the first revision to Q4 GDP (expected at 1.5%, last 1.4%), along with January personal income and spending (expected at 2.5% and 0.2%, respectively, prior 0.4% and 0.3%). The January PCE readings come in on Friday as well. But this is delayed and will likely not have much of an impact as the disappointing February numbers. January durable goods come out Friday (expected a 1.5%, last -1.4%), along with January job openings (expected 6.8 million, last 6.5 million). Finally, we get consumer sentiment readings on Friday (expected at 55, lines 56.6).