Today
Stock futures edged lower this morning as rising oil prices once again pressure markets following new attacks on energy infrastructure in the Middle East. Brent crude climbed toward $103 a barrel, while U.S. diesel prices surpassed $5 a gallon for the first time since 2022, raising concerns over the inflationary impact of the ongoing conflict. Investor sentiment has turned more cautious, with surveys showing increased bearishness and higher cash allocations. Markets are now focused on upcoming central bank decisions, particularly from the Fed and ECB, as policymakers weigh the inflation risks from elevated energy prices against potential downside risks to economic growth. This has led bond investors to move into a more defensive position, increasing exposure to short-term U.S. Treasuries ahead of the upcoming decision by the Fed. Policymakers are widely expected to keep the benchmark rate in the 3.50%–3.75% range while assessing how the conflict and higher oil prices could affect inflation and employment. Rising energy costs and persistent inflation have pushed two-year Treasury yields higher, while many investors are avoiding longer-term bonds until there is more clarity on the war and the Fed’s policy outlook. Despite the caution, some investors believe the conflict will remain contained, and that stable inflation could eventually allow the Fed to cut rates later in the year, potentially supporting a rally in Treasuries. For now, however, markets are pricing in fewer rate cuts as geopolitical tensions, inflation risks, and signs of labour-market weakness cloud the outlook.
Looking for friends. U.S. allies are showing reluctance to join a military effort proposed by Trump to reopen the Strait of Hormuz, fearing involvement could escalate the war with Iran. EU foreign ministers signaled they do not want to expand their naval mission to the strait, while countries such as Japan and the UK have also declined to commit to escorting tankers through the waterway. Leaders including UK Prime Minister Keir Starmer said they would explore options with allies but stressed the importance of avoiding a broader conflict. The hesitation comes despite the strait’s critical role in global energy supply, with roughly one-fifth of the world’s oil passing through it and disruptions already pushing energy prices higher. European officials emphasized that NATO should not automatically be involved unless member states are directly attacked, though some countries remain open to discussing possible support if a formal plan is presented, although that hasn’t really been Trump’s M.O.
Not the same playbook. Investors are drawing comparisons between the current Middle East conflict and the market reaction following Russia’s invasion of Ukraine in 2022, as the war with Iran has triggered volatility in energy markets and renewed inflation concerns. Oil prices have risen about 40% since the U.S.-Israel strikes, briefly nearing $120 per barrel, while the U.S. dollar has strengthened and global equities have fallen, similar to 2022. However, some key differences have emerged, like how European gas prices have risen far less than during the Ukraine crisis, gold has declined rather than rallied, and bond yields have risen as markets quickly price in inflation risks. European stocks have dropped roughly 5% so far, about half the decline seen early in the Ukraine war, while overall market volatility remains elevated but below crisis levels, suggesting investors are wary of another energy-driven inflation shock but not yet expecting the same scale of disruption we saw in 2022.
Home prices in Canada declined again in February, with the benchmark price falling 0.6% month over month to about $661,100, as economic uncertainty continued to weigh on buyer demand. Data from the Canadian Real Estate Association showed transactions dropped 1.3% and new listings fell 3.9%, reflecting a cautious market environment. Concerns around the ongoing U.S. trade tensions and rising costs linked to the Iran conflict have added to uncertainty, while steady interest rates from the BoC have kept borrowing costs elevated. With inventory levels higher than a year ago, buyers are gaining leverage and pushing for discounts, while many potential buyers remain on the sidelines waiting for clearer signals on mortgage rates and home prices.
Special purpose acquisition companies (SPACs) are raising capital again this year, but the number of actual deals taking companies public remains small. So far this year, 53 IPOs have raised about $11.7 bln, the busiest start since the 2021 boom, yet only 13 SPAC mergers have been announced, leaving many blank-check firms still searching for targets. The lack of completed transactions could raise questions about the viability of the SPAC model, which depends on merging with private companies to take them public. According to SPAC Research data, nearly two-thirds of more than 400 companies that went public through SPACs over the past six years have lost more than 80% of their value, highlighting the sector’s struggles. Some recent deals involve emerging industries such as quantum computing, including a planned listing of IQM Quantum Computers via Real Asset Acquisition Corp., but investor interest remains lukewarm. Analysts expect merger activity may pick up later in the year, though for now many SPACs remain stuck waiting for targets.
New bank lending in China fell in February to 900 bln yuan, well below expectations and down from a seasonally strong 4.71 tln yuan in January, highlighting weak credit demand in the world’s second-largest economy. Loan growth slowed to a record-low 6% year over year, driven largely by a decline in household borrowing as the ongoing property slump and cautious consumer sentiment weighed on mortgage demand. Household loans dropped by 650.7 bln yuan, while corporate lending also fell significantly despite some support from policy rate adjustments by the People’s Bank of China. Although credit typically dips in February due to the Lunar New Year slowdown, the weaker-than-expected figures underscore continued economic softness, prompting officials to rely more on fiscal stimulus and targeted support measures to boost domestic demand and stabilize growth.
Blackout. Cuba’s electric grid suffered a total collapse yesterday and suffered a nationwide blackout with 10 mln residents being subject to rolling outages as the government struggles with a chronic lack of fuel. The Ministry of Energy and Mines is investigating the cause, but said that there was no damage to the power plants operating at the time of the failure. Cuba’s thermoelectric power plants require about 100,000 bpd to meet demand and domestic production accounts for just two fifths of that and the island hasn’t received a major fuel shipment in three months as Trump’s administration is trying to use economic pressure to make the country more financially dependent on the U.S. in a bid to bring about political change after 67 years of one-party rule. Even when there is fuel, Cuba’s aging power plants fail regularly and earlier this month, about two-thirds of the country was left without electricity for hours after the island’s main power plant went off line. It suffered a half dozen nationwide blackouts in the span of a year before fuel shipments were cut off.
Diversion: Now that’s fancy
