Middle East Volatility Enters Second Day: March 3, 2026

Escalating Middle East violence amidst an effective shutdown of the Strait of Hormuz is sparking volatility for the second consecutive day on Wall Street. Emblematic of the worsening situation is WTI trading just shy of $78 today, which exceeds yesterday’s peak at $75.33 and represents rising risk of a sustainable shortage of critical energy supplies. President Trump, meanwhile, has estimated that the conflict could continue for several weeks, and the potential for crude oil to climb higher is weighing on rate cut prospects and corporate fundamentals in the short run. Indeed, yields and the greenback are jumping in response to heavier inflation expectations while stocks, particularly the cyclical ones that especially benefit from monetary policy accommodation, are being indiscriminately sold. Still, equities are well off their lows, as bulls try to repeat another powerful intraday recovery. Things don’t look good from a sector standpoint either, as all 11 majors are retreating significantly while the top 4 domestic benchmarks are losing more than 1.4%. Non-energy commodities are getting battered too, as the safe-haven characteristics of precious metals are being offset by loftier costs of capital that increasingly incentivize fixed-income buying rather than holding gold or silver.

March CPI Is Not Looking Good

It’s only the third day in March and conditions can certainly improve by the middle and/or end of the month, but as of right now, the Consumer Price Index (CPI) is going to get back to the high 2s if crude oil costs don’t tumble in short order. Indeed, if energy costs don’t decline this quarter, they are poised to propel the CPI from 2.4% in January and February, to 2.9% this month. The reversal in progress would likely send Treasuries and stocks further lower, as rate cut optimism amidst decelerating cost forces were what sparked the rallies in fixed-income and cyclical benchmarks early in 2026. Against this backdrop, Fed Chair nominee Kevin Warsh may stand to face a similar scenario as his predecessor if the violence doesn’t settle down soon. A troublesome occurrence for the central bank is a familiar one, as President Trump may demand imminent monetary policy accommodation even as inflation figures are far too above target. Trimming duration and equity holdings and/or adding hedges to portfolios seems prudent at this juncture in my opinion, unless of course, investors can see the light at the end of the tunnel. From here, however, things look bleak.

International Roundup

Inflation Picks Up Modestly in Europe

Prices in the euro area were up 1.9% year over year (y/y) in February, according to a flash estimate of the Harmonised Indices of Consumer Prices (HICP), which surpassed the economist consensus estimate for 1.7%, which would have been unchanged from the preceding month. On a monthly basis, costs for consumers are expected to have climbed 0.7% after slipping 0.6% in January. For the month-over-month (m/m) result, unprocessed food climbed 1% and non-energy industrial goods were up 0.7%. Energy costs also experienced a 0.6% gain while the processed food, alcohol and tobacco category was 0.1% more expensive.

Japan Payrolls Decline

Japan payrolls in January sank by 30,000 workers y/y, the first decline in 42 months, according to the Statistics Bureau of Japan. The contraction pushed the unemployment rate up from 2.6% to 2.7%. Economists anticipated no change. In a press release, the country’s Ministry of Internal Affairs and Communications noted that 450,000 workers were dismissed and 820,000 voluntarily left their employers. Many resigned after receiving annual bonuses and deciding to seek better employment conditions. In another change, the country’s ratio of jobs to applicants sank from 1.20 in December to 1.18 last month.

Australia’s Net Exports to Trim GDP

Net exports are projected to trim 0.1% from Australia’s fourth-quarter GDP. The country’s current account balance contracted by $2.8 billion during the final three months of 2025 despite a $1.3 billion surplus in goods and services trade. The positive goods and services number, which is down significantly from $41.3 billion in the second quarter of 2022, is no longer large enough to offset a primary income deficit of $21.7 billion, which has expanded largely due to increasing dividend payments from Australian companies, including those sent to foreign investors. Meanwhile, dividends from companies located abroad declined, resulting in less income flowing into Australia.

While Building Approvals Disappoint

Approvals for new construction in January were up 8.1% y/y in Australia, a considerable deceleration from the 16.40 gain in December. On a m/m basis, the volume sank 7.2%. Economists anticipated a 5.4% increase following December’s 14.9% descent. Approvals for private houses were somewhat stable, climbing 1.1% following the 1.2% jump in the preceding month.