Things you need to know
- Epic Fury is now one week old – and the fight continues.
- Markets down, inflation worries UP,
- Bonds down, inflation worries UP, Gold down, Inflation worries UP.
- Oil UP, inflation worries UP.
- Anyone see a pattern? – More below.
- Try the Lemon Tea Spaghettini.
Wake up, wake up – it’s Friday and the conflict known as Epic Fury is now one week old….and markets around the world continue to price in all kinds of risks –
Risks that this will drag on longer than expected, risks that Iran will not give up, risks that the conflict will cause the region to tire of the impact on their lives, risks that the closure of the Strait of Hormuz will continue to send oil prices higher and risks that global inflation will begin to reignite and that is causing investors to sell financial assets – think stocks and bonds.
In addition to these concerns, we can’t forget that investors are also beginning to price in a broader set of macro risks. Oil prices have now surged more than 25% in just the past seven days and higher energy prices act like a tax on consumers and businesses, raising the cost of transportation, manufacturing, and distribution — increasing the possibility that global growth could slow if oil continues its climb toward the $90–$100 range.
This morning WTI crude is up another $3, trading near $84 a barrel, while Brent crude is up $2 at $87.50 and all this is doing is reigniting fears of a renewed round of inflation. This morning a story in the Financial Times only accelerating the angst by reporting that Qatar’s energy Minister warned that oil could go to $150/barrel IF the conflict intensifies forcing Middle East exports to stall.
And then there is the question of global central bank reaction — will the risk of renewed inflation pressure force the Fed, the ECB, the BoE, the BoJ along with a list of others to delay any plans to ease policy, keeping interest rates higher for longer – or gasp! – Force those same central banks to consider raising rates again?
Now to highlight his point – the chances of a June rate cut have FALLEN from 55% to 21% in the last week. In fact – the chances of any 2026 rates cuts are fading fast as investors begin to reprice that very possibility….. How do you think Kevy Warsh is feeling right about now? Can he possibly justify that June rate cut that he ‘assured’ Trump he would make? Come on – it’s not like that’s NOT the narrative.
Markets are also watching the security of ‘regional’ infrastructure, shipping routes, and tanker traffic through the Gulf, because any disruption in tanker traffic will amplify the move in oil prices — something we are already beginning to see.
Qatar telling the world that this conflict may cause Persian Gulf Countries to halt energy exports and that would be expected to cause all kinds of economic damage. Recall this week – an Iranian drone attacked an LNG plant in Qatar – forcing a shutdown.
This morning Maersk announced it is suspending tanker services linking the Gulf region to both Europe and Asia, citing rising shipping and insurance costs as well as the need to protect its assets and crews. That news is helping push global stocks lower.
Now add in the strengthening U.S. dollar, and the reality that global markets are heavily influenced by headline-driven algorithmic trading, and you have an environment where volatility can spike quickly as investors attempt to handicap not just what has happened, but what might happen next.
And yesterday the VIX – fear index – did spike – rising 12.3% and this morning it is up another 3.2% and it’s only 6 am! The VIX is now trading at 25.54 – and that is causing US futures to decline again…. a move up and thru 30 – which happened in April 2025 (think Tariff Tantrum) will cause stocks to trade lower again.
Now, yesterday – Industrials and Transports took the brunt of the selling and stocks declined again as all these concerns continue to build. At 4 pm – here is what the scoreboard looked like – the Dow lost 785 pts or 1.6%, the S&P lost 39 pts or 0.6%, the Nasdaq lost 58 pts or 0.3%, the Russell lost 50 or 2%, the Transports lost 578 pts or 2.9% (think oil prices), the Equal Weight S&P lost 90 pts or 1.1% while the Mag 7 gave up 10 pts or 0.1%.
Now this narrative is now ripping through the bond market, triggering a selloff in Treasuries and sending yields sharply higher. To put that into perspective, the 10-year yield hit a low of 3.92% on March 3rd and rose to 4.17% yesterday—a 25-basis-point move, or about 6%. The 30-year bond climbed from 4.60% to 4.77%, a 17-basis-point increase, or about 4%.
Those moves represent the largest weekly gain in yields since April, suggesting investors are beginning to price in the risk that higher oil prices could trigger another surge in inflation.
Gold also came under pressure yesterday, falling $58 to close at $5,082, leaving it down about 6% on the week. This morning gold is up $10 at $5,092. The move can largely be attributed to the strength in the U.S. dollar, which is up 1.7% this week alone and now about 3.5% above its January low, along with the growing belief that rate cuts may not be coming anytime soon if inflation raises its ugly head.
Remember – a stronger dollar and higher interest rates act as a headwind for commodities and precious metals, making them less attractive relative to interest-bearing assets. And in a new twist –
A headline this morning is telling us that in Dubai – traders are discounting gold as buyers ‘step back’ because the conflict is grounding flights and halting suppliers’ ability to move it due to higher shipping and insurance costs…
European markets are all lower this morning as investors across the continent digest all of these headlines and concerns around oil, its inflationary impact, next steps etc. Markets across the zone are all down better than 0.3%…
U.S. futures are lower as well…..(No one should be surprised). Dow futures -135 pts, S&P’s down 25, Nasdaq down 130, while the Russell is down 11 pts.
Yesterday’s economic data was mixed. Challenger Job Cuts fell 71.9% year-over-year, which was the positive headline, suggesting fewer announced layoffs. But Unit Labor Costs surged, coming in at +2.8%, a sharp reversal from the -1.9% reading previously, and that raises concerns about persistent wage pressure and inflation.
This morning the focus is on two key reports — Retail Sales and the February Nonfarm Payrolls report. Retail Sales are expected to decline 0.3% m/m, while sales ex-autos and gas are expected to rise 0.2%.
Then comes the jobs report, which is expected to show an increase of about 55,000 new jobs. While that’s not particularly strong, it is still positive. Recall that on Wednesday the ADP report surprised to the upside, so markets will be watching closely to see where the jobs were created and where they were lost. Investors will also be focused on Average Hourly Earnings, expected to rise 0.3% month-over-month and 3.7% year-over-year, both unchanged from the prior reading, while the unemployment rate is expected to hold at 4.3%, still near historically low levels.
The S&P closed at 6,830 — down 39 points. And once again, it’s all about the trendline at 6,830. Yesterday we breached it at 9:31, again at 9:44, and then once more at 10:21, leaving the index below that trendline for the rest of the day. Technically, that weakens the story. The fact that the market closed right at – essentially kissing -the trendline also suggests that buyers may be getting exhausted defending that level.
And if that’s the case, then we should expect the next test lower — something we’ve been discussing for weeks now. The next KEY level to watch is the 200-day moving average, which currently sits around 6,580, about 3.6% below here. But don’t despair — even if we get there, it will represent only about a 6.5% pullback from the highs, which in the context of this market is hardly catastrophic.
Yes, individual names will (and have) experience larger declines, and that’s where the opportunity begins to emerge. The real question investors need to ask is: are those declines warranted by fundamentals, or are they simply the result of investor angst? Because those are two very different things and two very different opportunities for savvy investors.
The tone remains skittish…..the headlines will cause ongoing concerns… a test of the long term trendline at 6580 is not out of the question.
Call me at 561-931-0190. Let’s talk about whether the risk in your portfolio actually matches your tolerance — because this works both ways. You may be taking too much risk… or not enough to reach your goals.
Take good care,
Kp
[email protected]
Source: Bloomberg, CNBC, Reuters, Wall Street Journal
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Lemon ‘Tea’ Spaghettini
Simple, easy and so good.
You need only a handful of ingredients. Lemon zest, lemon juice, butter, fresh grated parmegiana, a pot of boiling salted water and of course the pasta.
Begin by bringing a pot of salted water to a rolling boil – add in the peel of 3 whole lemons and let it boil to create a ‘lemon like tea’ – it should take on a ‘lemony color’.
Now – using a large sauté pan – add 4 ladles of the water to the pan. Add the linguine (like ½ lb.) to this sauté pan – making sure to just cover the pasta with the lemon water.
Bring to a boil and cook the pasta in this lemon tea. You will need to add a bit more lemon water as the pasta cooks – the goal here is to cook the pasta and let it absorb the water leaving just a splash.
When it is done – add in ½ stick of butter and a splash more of the lemon tea. Now add fresh grated parmegiana and mix well. Here is where you can also add a squirt of lemon juice – if you want more flavor.
Do not let it get dry. Add a bit more of the water to create a creamy lemony delicious pasta.
When serving twist and top with a bit of lemon ‘zest’.
Buon Appetito.