Futures rose slightly this morning after several days of losses as oil prices slipped back below $100 per barrel, offering some relief to markets rattled by the Iran conflict. The U.S. dollar strengthened to near a two-month high as the euro and yen weakened, reflecting ongoing concern that the war could continue disrupting energy flows and fuel (no pun intended) inflation. Investors are increasingly cautious as volatility rises and expectations for rate cuts from the Fed have been reduced. This comes as investors assess the economic data out of the U.S. which showed core personal consumption expenditures price index, the inflation gauge closely watched by the Fed, rising 0.4% month over month and 3.1% year over year, signaling that underlying inflation pressures remained elevated. This data comes with a big caveat though as it predates the rise in energy prices tied to the Iran conflict, suggesting inflation could face additional upward pressure in the months ahead. Economic growth was also slower than expected in the final three months of 2025, with GDP rising at a seasonally and inflation-adjusted annual rate of just 0.7%, lower than the estimates of 1.4%.
Canada’s labour market weakened significantly in February as the economy lost 83,900 jobs, the largest monthly decline in more than four years, pushing the unemployment rate up to 6.7%. The losses were concentrated in full-time and private-sector positions, with sectors such as wholesale and retail trade particularly impacted. The drop follows a smaller decline in January and suggests the labour market remains soft as businesses contend with U.S. tariffs and uncertainty ahead of a review of the CUSMA. The weaker data complicates the outlook for the BoC, which must balance growing economic slack with inflation pressures from higher oil prices linked to the Iran conflict, though markets still expect policymakers to hold the policy rate at 2.25% at the upcoming March meeting.
Gold prices have remained relatively flat despite tensions in the Middle East, even though geopolitical crises typically boost demand for the metal as a safe-haven asset. After briefly rising following U.S. and Israeli strikes on Iran, gold pulled back and has since traded in a narrow range as a stronger U.S. dollar and higher government bond yields reduced its appeal. Rising oil prices have also revived inflation concerns, which could push interest rates higher, making yield-bearing assets more attractive than non-yielding gold. Some investors may also be selling gold during market volatility to raise liquidity, a pattern that often occurs during major shocks. Despite the recent lack of momentum, strategists remain bullish, with some forecasting gold could reach roughly $6,000–$6,300 per ounce by the end of the year.
Canada’s trade deficit widened to $3.65 bln in January as exports dropped significantly, driven largely by a steep decline in auto shipments. Data from Stats Canada showed overall goods exports fell -4.7% during the month, with motor vehicle and parts exports plunging -21% to $5.4 bln, the lowest level in over four years. Passenger car and light-truck exports fell -33%, partly due to seasonal production shutdowns and ongoing disruption from U.S. tariffs that have strained the integrated North American auto supply chain. The weak trade data points to a soft start for the Canadian economy in 2026, though some of the decline may reverse as auto plants resume production. In response to pressures on the sector, Mark Carney has proposed new incentives aimed at boosting domestic vehicle manufacturing and investment in Canada.
Companies in the U.S. may face stubbornly higher oil prices this year even if the Iran war ends soon, potentially forcing investors to rethink optimistic corporate earnings forecasts. Earlier expectations assumed oil would average around $60 per barrel, but supply disruptions from the conflict have pushed prices much higher, prompting analysts to raise their 2026 Brent crude forecasts to roughly $79–$80. Higher energy costs could squeeze corporate margins across sectors like transportation, manufacturing, retail, and food, while also reducing consumer spending as gas prices rise. Although energy companies may benefit, they account for only about 4–5% of S&P 500 earnings, meaning the broader market could still see profit pressure, especially if higher oil prices slow economic growth or increase costs for energy-intensive industries such as AI data center development.
Cutting season on pause. Expectations for U.S. interest rate cuts have been pushed back as rising oil prices and inflation fears linked to the U.S.-Israel conflict with Iran reshape market outlooks. Traders who previously expected the Fed to begin cutting rates again in June have largely abandoned that view, with some now pricing in only one cut late in 2026 or even into 2027. With oil hovering around $100 a barrel, investors have become concerned that inflation could remain elevated, making policymakers more cautious about easing. Meanwhile, Trump has urged Fed Chair Jerome Powell to cut rates immediately, even as markets expect the central bank to hold rates steady at its next policy meeting. The rate outlook isn’t looking too good for Canada either, with markets now pricing in the possibility of a rate hike as early as September if oil prices remain elevated.
Canadians appear to be pumping the brakes on U.S. road trips, at least for now. Canadian returns from the U.S. by car fell to just over 1 million in February, the lowest level in nearly four years and down -14.5% from a year earlier, marking the 14th straight month of annual declines. The pullback comes amid lingering tensions tied to U.S. tariffs, border policies, and political rhetoric, which appear to be weighing on cross border travel sentiment. Travel demand itself remains healthy, however. Overseas trips by Canadians rose 7.2%, while American visits to Canada increased 6.1%, suggesting Canadians are still travelling but seem to be choosing destinations beyond the U.S. border. We’ll see if summer travel plans follow suit.
Diversion: And they say wrestling is fake…
