By: Jose Torres, Senior Economist

Escalating weekend violence in the Middle East sent the price of crude oil north of $119 last night prior to news that G7 officials are looking to jointly coordinate supply injections from their domestic reserve stockpiles. The development drove WTI back below $100, breaching the key physiological figure that helped to quell nervousness on Wall Street. Stocks and Treasuries continue to suffer losses overall, but the retreat is far more modest than it was before the opening bell, as the intraday alleviation in energy costs is bolstering buying activity in equities and fixed income. Still, the four major US benchmarks are now down year to date, as the cyclically oriented Dow and Russell were initially leading in 2026 due to expectations of a reaccelerating economy amidst several rate cuts, however, risks to the outlook have worsened meaningfully, with investors managing slowdown anxiety against the backdrop of central banks that may begin hiking if charges at the pump don’t take a dive soon. Indeed, real-time inflation metrics are already reacting to the geopolitical conflict and moving away from monetary policy objectives, raising worries that increasingly tight financial conditions could weaken labor markets and dent growth. Elsewhere, the greenback, bitcoin and forecast contracts are catching bids, while volatility protection instruments are stabilizing following a VIX spike to the loftiest level since April’s tariff-induced turbulence.

Paths to No Fed Cuts, ECB Hikes Widen

With real-time inflation metrics signaling that March’s Consumer Price Index may arrive near 2.8%, significantly above January’s 2.4% result amidst the same figure expected in February, the war in the Middle East risks taking interest rate cuts off the table this year. Both the fed funds curve and the closely associated Treasury complex illustrate this hawkish development, as fixed-income observers signal odds of a little more than one reduction this year while the monetary policy sensitive 2-year yield has jumped from 3.37% to 3.64% in just seven calendar days. The 27-basis point climb is significant, because it essentially signals that the central bank is very close to neutral, since the organization’s benchmark is at a midpoint of 3.63%. Meanwhile, things are increasingly complicated across the Atlantic in the UK and the EU, as well as in Japan and South Korea. Those governments are heavily vulnerable to energy shocks as supplies are scarce in the regions and the nations are importers of crude oil. The repricing occurring in expectations for those non-US authorities are pronounced to a greater extent as a result, and European and Asian investors alike are preparing to potentially see hikes from policymakers if the violence and corresponding surge in gasoline doesn’t settle down soon.

International Roundup

In China, Gate Prices Fall but CPI Climbs

Output prices in China continued their long free fall last month, with the Producer Price Index (PPI) dropping 0.9% year over year (y/y) after January’s 1.4% descent, but retail inflation came in hot. February’s factory price weakness was slightly better than the economist consensus estimate for a 1.1% fall. Nevertheless, it points to a prolonged slump for manufacturing and the country’s economy—the last positive reading for the PPI was in the fall of 2022. Perhaps more encouraging, the gauge was up 0.4% month over month (m/m), matching February’s rate of increase. Higher commodity prices, slightly strong demand in certain economic sectors and the country’s stimulus programs have contributed to the positive m/m result, according to the National Bureau of Statistics.

The Consumer Price Index, meanwhile, indicated that retail prices last month were up 1% m/m and 1.3% y/y. In January, the two gauges were both up 0.2%. Economists anticipated that the y/y metric would show retail items being 0.9% more costly. The CPI results were driven, in part, by the lunar New Year celebration increasing demand for travel and holiday related items.

Wages in Japan Climb

January was a good month for Japanese workers with nominal and real wages climbing 3% and 1.4% y/y, according to the Ministry of Economy, Trade and Industry. The nominal increase, which doesn’t reflect the impact of inflation, exceeded the economist consensus estimate of 2.5% and accelerated from December’s 2.4% gain. The real wage gain, furthermore, was the first positive print since late 2024. In the last month of 2025, real wages were 0.1% lower relative to the year-ago period. The higher compensation levels are increasing the likelihood of the country’s central bank hiking its key interest rate.

And Leading Indicator Strengthens

Japan’s Leading Index climbed from 110.3 in December to 112.4 in the subsequent month, nearly hitting a three-and-a-half year high, according to a flash print released this morning from the Cabinet Office. Easing inflation and a tight job market contributed to the strong result but the print fell short of the 113 expected by economists.

Economy Watchers Grow Less Downbeat

Japan’s Economy Watchers Index, which tracks conditions in industries with direct interactions with consumers, including restaurants and livery services, climbed from 47.6 in January to 48.9 last month, exceeding the 48.1 estimate from economists. Nevertheless, the score was still considerably below the pessimism-optimism threshold of 50. Housing, services and the food and beverage segments all recorded increases. Corporate activity also strengthened due to factory activity growing. Businesses’ outlook, however, fell from 50.1 to 50.

Originally posted on March 9, 2026 on Traders’ Insight blog

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