Equity futures are looking to open lower to start the week, as oil prices rose above $100 a barrel, raising inflation fears. Oil prices spiked after Middle East producers cut output amid the continued closure of the Strait of Hormuz, with WTI jumping to around $103 and Brent nearing $105. The rise in energy prices has increased concerns that prolonged conflict could pressure growth while keeping inflation elevated, complicating the Fed’s policy outlook. Stocks most sensitive to economic growth, including financials and industrials, have led declines, while energy and defense shares rose. Volatility has extended across the globe with European markets hit particularly hard. Blue-chip European stocks are now nearing a -10% drop from February highs with traders now pricing in potential interest-rate hikes from the ECB and the BOE. Although news that G7 finance ministers may discuss releasing oil from strategic reserves briefly tempered the selloff, investors remain focused on the risk that a prolonged conflict could drive stagflation pressures and keep central banks from easing policy.
Last week U.S. equity funds saw their largest weekly outflows in months as investors reduced risk exposure amid escalating tensions between the U.S., Israel and Iran and concerns about rising inflation. Investors pulled a net $21.9 billion from equity funds in the week ending March 4, with growth funds seeing the biggest withdrawals, while value funds recorded modest inflows. Higher oil prices driven by the conflict raised fears that inflation could persist and delay potential Fed rate cuts. At the same time, investors shifted toward safer assets, directing $22.5 billion into money market funds and $7.3 billion into bond funds, while sector funds focused on industrials, utilities, and metals and mining also attracted inflows.
Investors are debating how quickly AI could reshape certain business models, not just jobs, creating what some are calling the AI scare trade. While economists expect AI to support productivity and long-term economic growth, the transition could bring significant turbulence, leaving some companies and industries to lose relevance, similar to how the internet era replaced travel agents and video rental stores (RIP Blockbuster). Recent market volatility partly reflects this adjustment, with some companies benefiting from AI driven efficiency gains while others face questions about how their business models may evolve. Economists generally see the near-term impact as uncertain, though areas such as back-office services, content creation, customer support, legal analysis, and coding are often cited as sectors where AI could augment or automate certain tasks.
Cue the stagflation headlines. A surprise drop of 92,000 in February nonfarm payrolls and a rise in the unemployment rate to 4.4% have complicated the Fed’s view that the labour market was stabilizing. The weaker jobs data comes as oil prices surged past $100 per barrel amid the Middle East conflict, raising concerns about a potentially uncomfortable mix of slowing growth and persistent inflation. While policymakers are unlikely to react to a single report and still signal a preference to keep rates on hold for now, the combination of softer employment data and higher energy costs adds uncertainty to the policy outlook in the months ahead. All of which leaves the Fed with a little more complicated policy backdrop.
Inflation ripples. Rising oil prices linked to the escalating Middle East conflict could increase costs across Canada’s supply chains and eventually push prices higher for consumers. Because roughly 20% of global oil flows through the Strait of Hormuz, fears of disruption have lifted crude prices and already pushed Canada’s average gas price up about 12 cents this week. Although Canada does not import energy from the Gulf region, global commodity pricing means supply risks there still affect domestic costs. Higher fuel prices are expected to raise freight and transportation expenses, which companies typically pass on to consumers with a lag of several weeks or months. Experts say the effects may first show up in grocery prices, as fresh food supply chains are particularly sensitive to shipping costs, while airlines and other transport-heavy industries could also face profitability pressures if elevated energy prices continue.
Speaking of which, U.S. airlines are taking one on the chin. Airline stocks have fallen sharply as rising oil prices push jet fuel costs higher, squeezing profit expectations across the sector. The S&P Composite 1500 Airlines Index is now down about -23% from its recent high, pushing the group into bear market territory after a six-day slide (starting on February 27th). With fuel accounting for roughly 25%–30% of operating costs, airlines are sensitive to sustained increases in energy prices, and jet fuel prices have already surged alongside crude. Carriers may attempt to offset some of the pressure through higher ticket prices and hedging strategies, but if oil remains elevated, the squeeze on margins could persist and potentially weigh on travel demand particularly among more price sensitive consumers.
Heated Rivalry, burger edition. A now viral video of McDonald’s CEO Chris Kempczinski taking a small bite of the company’s new Big Arch burger is sparking a (playful) social media feud among fast-food brands. It all started when viewers noticed the lack of a taste test from Kempczinski, raising skepticism from viewers if the burger is indeed that good if the company’s CEO won’t even eat it. This then prompted competitors such as Burger King, Wendy’s, and A&W to release videos of their executives enthusiastically eating their own burgers. Other chains are now joining in, with rival chicken chains like Popeyes and KFC throwing jabs.
Diversion: No words needed
