North American markets are steadying this morning with both the S&P 500 and TSX futures edging higher and gold is back up ~2% at the time of writing as the Middle East conflict enters its fifth day. Overseas, markets also stabilized by mid-session with Germany’s DAX, France’s CAC, and London’s FTSE up about 1.5%, 1.0%, and 0.7% respectively. Meanwhile, selling pressure continued in Asia with South Korea’s Kospi dropping a record -12% and China’s CSI falling -3.6% today. Investors reacted to the surge in oil prices and the risk of disruptions to shipping through the Strait of Hormuz, a critical route for Middle East crude supplying energy-importing economies across the region. And if a war with Iran wasn’t creating enough uncertainty, U.S. Treasury Secretary Scott Bessent said this morning that Trump is likely to raise the current 10% universal tariff to 15% later this week, a measure that can remain in place for up to 150 days while the administration works to reinstate its previous tariff framework under other trade laws.
The rebound follows a volatile session yesterday. Markets reversed part of an earlier selloff yesterday after Trump said the U.S. would escort vessels through the Strait of Hormuz to ensure the free flow of energy, easing fears of a prolonged supply disruption. Oil, which had surged more than 9% at one point, pared gains, helping trim losses in equities and stabilize Treasury yields as inflation concerns moderated. The S&P 500 was down as much as -2.5% intraday but finished with a loss of less than -1%, while 10-year Treasury yields rose modestly to around 4.06%. In Canada, volatility was more pronounced, with the S&P/TSX Composite falling -2.2% after being down more than 4% earlier in the session, its largest decline since the April tariff retreat. A sharp pullback in gold, down as much as -6%, weighed heavily on the mining-heavy materials sector, which declined as a stronger U.S. dollar drew safe-haven flows into cash and put pressure on the metal. Overall, it was an unusual market reaction, with stocks falling even as Treasury yields rose and gold declined, suggesting investors were reacting less to traditional risk-off dynamics and more to the surge in oil prices and the dollar’s strength as attention shifted to energy supply risks.
Euro-area inflation unexpectedly accelerated to 1.9% in February from 1.7%, just shy of the ECB’s 2% target, while core inflation rose to 2.4% and services inflation climbed to 3.4%, reinforcing the ECB’s cautious stance on interest rates. The uptick was driven mostly by Italy, where inflation hit 1.6%, likely boosted by Winter Olympics-related spending. At the same time, the escalating conflict around Iran has sent oil and gas prices higher, adding fresh upside risks to inflation and prompting traders to price in a greater chance of an ECB rate hike this year. Policymakers, including Chief Economist Philip Lane and several national central bank governors, signaled they are closely monitoring energy markets but noted that they are not rushing to adjust policy just yet.
Despite geopolitical shocks, inflation concerns, and AI disruption fears, Wall Street strategists remain bullish on U.S. equities, with the average year-end 2026 target for the S&P 500 still about 10% above current levels. Optimism to be centered around expectations for above-trend U.S. economic growth and solid corporate earnings, even as the U.S. war with Iran pushes energy prices higher. Firms have framed any conflict-driven pullback as a buying opportunity, citing history that geopolitical selloffs tend to be short-lived. However, some analysts warn that complacency is rising, noting muted market reactions, deteriorating market indicators, and rising stress in private credit markets, raising the risk that if elevated oil prices or tighter financial conditions begin to dent earnings forecasts, the long-anticipated correction could be more painful than investors expect.
Strategists are arguing the U.S. should deepen, not dilute, its alliance with Japan following Prime Minister Sanae Takaichi’s electoral victory, which gives her a mandate to strengthen Japan’s military and expand its regional security role. Takaichi has signalled support for higher defense spending, easing weapons export restrictions and potentially revising Japan’s postwar constitution, steps that could reinforce coordination among Indo-Pacific partners in countering China’s influence. Rather than using Japan’s growing capabilities as an opportunity to shift more security burdens onto Tokyo, strategists note the White House can work with Japanese forces by advancing joint missile defense and munitions production, deepen supply-chain cooperation, and move toward a more unified wartime command structure. A stronger alliance should provide the U.S. with more leverage ahead of high-level talks with China.
For quite some time, China has aimed to shift growth toward consumption but faced political trade-offs that make reform difficult. Options include expanding welfare benefits such as pensions and unemployment insurance, which the IMF estimates could lift consumption but would require higher debt or tax reforms. China could also invest more in services to create jobs, though without faster income growth this strategy could backfire. Additionally, some have suggested overhauling the tax system and stabilizing the property market, both strategies seen as crucial for long term growth. Finally, measures such as child subsidies or allowing a stronger yuan could support consumption, but each carries economic or employment risks, underscoring Beijing’s dilemma between rebalancing toward households and preserving short-term stability and export competitiveness.
Faith and AI. We can all agree that AI can be a highly effective tool to drive efficiencies and improve performance. It can draft emails, summarize reports, prepare presentations, codes, analyze data, and even generate lesson plans. But what about sermons? How would you feel if your local priest, rabbi, imam or minister relied on AI to prepare for services? Pope Leo XIV addressed that question last week in Rome, asking clergy to use their own intellect rather than outsource homilies to machines. “The brain needs to be used,” he said, warning that unused talents will weaken over time and that faith communities want lived experiences, not algorithmic output. While still encouraging thoughtful use of technology to spread religious messages, the Pope advised against the temptation to let AI replace reflection, prayer and human connection. It won’t be the first, nor the last time we question where AI truly belongs in our day-to-day lives.
Diversion: It’ll grow back…
