MOOSPEAK
Markets: March 6-13
Financial markets during the week of March 6–13 were dominated by the second week of war in Iran. The escalation of the conflict involving US and Israeli forces raised fears of supply disruptions through the Strait of Hormuz, a route responsible for roughly 20% of global oil flows. This risk triggered a sharp surge in crude prices—briefly pushing oil above $100 and at one point near $120—while increasing volatility across global equities and currencies. Oil is now overbought as a result, as are commodities in general.
Energy markets were the primary transmission channel. Oil prices jumped more than 30% in the week as traders priced in supply disruptions and possible production halts across Gulf exporters. The surge revived inflation concerns and delayed expectations for central bank easing, while benefiting energy producers and pressuring fuel-sensitive industries such as transportation and consumer sectors. Expectations of a Fed rate cut have been pushed off until December. Technical strength in US large-caps, small-caps, and US long bonds dipped from bullish into neutral this week. Gold is down 5%, since the war began, but still bullish. Gold miners on the other hand are down 20%.
The geopolitical shock produced a risk-off reaction in global financial markets. Equity markets declined—especially small-caps and cyclical sectors—while the U.S. dollar strengthened and volatility increased as investors shifted toward perceived safe-haven assets. Weak US labor market data released during the period further unsettled sentiment and reinforced uncertainty about the economic outlook.
By the end of the week, policy responses were emerging, including discussions of coordinated strategic petroleum reserve releases aimed at stabilizing energy markets and limiting further inflation pressure. Nonetheless, market conditions remained volatile as investors continued to assess the duration and potential escalation of the conflict.
In sum: the dominant exogenous driver of markets during March 6–13 was the sudden escalation of Middle East conflict and the resulting oil shock, amplified by weaker US economic data and policy uncertainty. The notion among investors seems to be that the market’s difficulties could end quickly or drag on for weeks if not months.
Iran’s conventional military has been destroyed, along with its leadership and its centralized command and control. Its drone aircraft carrier and 19 mine laying ships have been sunk. Some asymmetric capabilities to block the straits of Hormuz, however degraded, apparently remain. According to the International Maritime Organization ten ships had been damaged, and seven crew members killed by Iranian missile or surface or air drones in the two weeks up to March 11. A tug was the only sinking.
Iran’s response may seem weak, but it has been enough. Traffic through the strait is reportedly down 92%. The ships getting through are mostly shadow fleet carriers. About 400 tankers are backed up waiting to get through. Once they begin to move, oil prices should come back to earth. Until then plan on $5 a gallon gasoline coming to a US filling station near you-- and you won’t even have to move to California.
