A Crude Awakening

0:00The situation in the Middle East goes from bad to worse and massive uncertainty in our remains about how and when it is all going to end. Meanwhile it's looking more likely that oil prices will get over the hundred dollar mark. They're not really that far from it now but how much higher beyond that. And weak jobs data from the US on Friday. So what does Central Banks do? We get economies and rising inflation. Let's not mention the stagnation word again thus we. So what do they do about it? It's Monday. It's the 9th of March, 2026. It's the morning call from now. Good morning. Well, oil prices really did kick higher and faster on Friday with that 12% rise in WTI and 8.5% for Brent. Both over $90 a bound now. Brent close to $93. The US dollar fell a little on Friday just below 99 on the DXY. Remembering of course it was around 97 before Iran or kicked off. Despite the falling US dollar, the Aussie dollar managed to rise by a third of 1% on Friday. So it's only momentarily dip below the 70 US

1:00cent mark. US equities took another hit. The Nasdaq down 1.6% on Friday. The Euro stocks 50 lost 1.1% in the US. It was consumer discretionary and materials and IT that all lost close to 2%. And bond yields were generally high and not so much in the United States. But a nine basis point rise in 10 year guilt in the UK. And many European countries seeing five or six basis point gains in yields. Aussie 10 years grew up four basis points to 4.84% on Friday. Up six basis points for two year yields. So Nams Ken Compton is here today. I mean, Ken, you are a rates man. So two year yields in Australia at 4.37%. When were they last this high? It would have been, it would have been a fair while Phil. A few years at least. I think if we, if you look at the two year in particular, we may have been, we were still a smidgin hard on the current levels back in, you know, back at the peak of the ratehiking cycle a couple of years ago. But, but I guess the point being obviously that that was in a point where every central bank was was implementing 50 even 75 point ratehikes in a

2:04couple of cases, mostly New Zealand. But, you know, we were taming a wild inflation beast at that point. And it was on and upward globally, whereas obviously now, very different situation. Potentially, I wouldn't say the inflation beast is back in as broad as we were facing in that immediate post pandemic period. But obviously we are facing an all-power shock and bond yields are extremely sensitive to that for obviously. Yeah. But I mean, if there's two arguments on this, isn't that? And I, you know, I've heard many people talking about this. It's all with overreaction because it's all short term. It's all going to be over very quickly. Versus the, no, oil prices are here to stay. And $100 is almost certain. We're close to it anyway. And, you know, some people saying, well, it might even get up to 150. So that will be an inflationary impact, which obviously would explain rising yields. And you'd expect central banks are going to have to react to that. But if it's all over quickly and it comes back down again, I think we can't call a storm in a teacup, but yields are clearly

3:04too high. Well, I think it's, yeah, it's a bit hard to argue that that point quite yet that yields are too high. And obviously even the point is to the extent and in depth, the conflict is clearly still up in the air. I mean, nothing that's happened over the weekend has moved towards this being a quicker resolution, or even more, or even more to the point, a quick resolution at all. Obviously, we're now seeing Israel and Iran trade attacks over civilian infrastructure now, which is particularly the headlines this morning out of, well, stories across the weekend of Israel attacks on oil infrastructure around around Tehran. We've seen retaliatory attacks on Israeli oil infrastructure and the port of of high further refinery complex there. You know, that's also broadening out into the Iranians attacking deceleration plans in Iran. Exactly. Well, and that's and the Iran says that's because they're attacks on their deceleration plants by the US. So, yeah, once you start, I mean, this is that's their Achilles heel in this region.

4:06They need water, but they were pulled to this morning. Yeah, the interior and you just can't breathe the air. Everyone's having to stay indoors because it's there. It's just thick with the effects of that attack on the oil depots and refinery. Yeah, I mean, there probably was one sort of vaguely conciliatory headline on Saturday where the where the president of Iran did say that did did make a statement that the central government had directed the military to stop attacking countries that weren't participating in actions against the US. Although, you know, in practice, not much seems to have changed over the weekend. And sorry, no, this isn't a tax against Iran, which would include countries hosting attacks by the US, which is obviously still a very broad swath of the Middle East anyway, but you know, we're sort of not seeing actually much practical change on the ground there. Yeah, Iran has the Iran has appointed a new supreme leader, although they're not declaring the name of the person. I guess that's probably it's with some some difference to their respect for these where we threats to take out whoever that person happens to be as soon as they're announced. So, they're

5:08keeping that one under their head at the moment. Yeah, well, it's with us for a while, isn't it? So, even without that Iran backdrop, I mean, markets would have been still a little uneasy, maybe not to the same extent, but the data that we got from the US on Friday, there was an expectation the employment numbers would grow in February, but instead of 50,000 more jobs, there were 92,000 less jobs. And the unemployment rate is back up at 4.4%. Yeah, big surprise on the on the US Labor Labor Force report, you know, I think if you look at the Bloomberg poll, not only was the consensus 55, but I think only one single economist at Bloomberg poll had any chance of it being a negative print at all, and that was minus nine. So, at minus 90, we're a drastic undershoot. Yeah, the unemployment rate didn't move as much, but still let that tick up one tenth is not something that the Fed will be sort of overly keen about while they're trying to balance a, you know, in an energy price shock at all. So, you're looking at through some of the

6:09detail that was, that has been written up, you know, I think often you can point to seasonal factors, such as whether around this time of the year that may help explain why you've got a labor print that's landed on the weak side, but this time around, that was actually a positive anything. There was less snowfall around some key parts of the US around the time the survey was taken, you know, the pantheon macroeconomics who we followed did note that, you know, the births and deaths model, which is how the, how the Bureau of Labor Statistics accounts for jobs that are being created or lost even firms that have only just come into existence, that actually provided a, you know, a smaller than usual contribution this time around. So, even if you're able to take all those effects out, you still would have had a deeply negative print and that really caused some conniptions for the bond market in particular, you know, where we traded the 10-year treasury, you know, traded across quite a quite a wide range and the market's expectation for the fed, which has actually pulled back dramatically over the past week or so, obviously,

7:12with the, with the Iranian conflict, a week ago we were pricing 60 points of cuts that had pulled back to less than 40, although they've got five points added back in on the back of the payroll starter in net after, after all that. Yeah, and it wasn't just that month, was it? So, the, the visions as well of the December and January. So, January we've vised down a little bit just 4,000 jobs, but December changed from 48,000 gains to 17,000 losses. So, that's quite a, quite a big shift as well. So, it wasn't just that one month, but the, the, the reason for that unemployment rate, I mean, also, there was a falling in the participation rate, wasn't that? And it was, so the government, there's a government partial government shutdown as well. So, maybe that influenced their part of this. So, is that, is, does that fit with the timing? It does a bit, yeah. And there was also the, the other factor to include too was a health care strike in California, which probably took about 3,000 jobs away as well. But, yeah, the, the scope of that outright negative print wouldn't have been outweighed. Had you even been able to adjust for all those factors? So, still an unavoidably weak, an unavoidably weak

8:14print. So, yeah, this is a difficult job for the Fed. So, you've got, you know, and, and every other central bank right now, because you've got the potential for, for slow down and growth and also an increase in inflation brought about by what's happening in around at the same time you've got a weaker jobs market. So, what direction do they go? We've had a few Fed officials out, haven't we? What have they been saying? Yeah, they're about ahead of the blackouts. There was a few people on the, on the wise on the weekend, you know, and most sort of tinny to find ways to confirm their previous bias to a large extent, you know, I mean, I mean, if a government Bowman, you know, already sort of on the more dovish side of the spectrum, and she was looking for three rate cuts this year anyway, you know, she said, oh, after the payroll started, she said, the lab market continues to be weak, it could use some support from the policy rate. Yeah, others were sort of still talking of growing risks as opposed to shifting their views drastically as well, like Cleveland Fed President Hammock, similarly, you know, two side of risk to her case that should be unhauled and, you know, Colin saying similar things. And there's a few other officials on the wires. No one sort of offering a definitive change of view from from the data we're seeing.

9:17So for all for the all from the, from the conflict in the Middle East, beyond the sort of usual mantra that the first, the first thing should be to look through it. So I'm still very divided, very divided views publicly from what we're seeing from the Fed. But as I said, they're in blackout now ahead of that meeting at the, at the end of the week after next. And yeah, retail sales came out in the US as well about the same time. They were a little less than expected. And I suspect they're not going to get any better. I mean, who's in times of uncertainty? I'm not certainly going to go out and buy a new fridge freezer until I completely certain that World War II is not just around the corner. Well, I made that sort of investment. Well, you might need to save you money to spend on gas. The way that's looking, you know, I guess probably sort of probably shouldn't look back to the beginning of the podcast right now, but still probably is worth noting in there on that front in particular that, you know, the energy price complex is starting to price a greater chance in the forwards. The calendar spreads as they call them a picking up. So the market is starting to price longer term disruption to energy now as well. And so there's there is there is that factor. But, you

10:22know, the retail sales for January, so that was actually earlier than the payroll start, which was for February, but still, you know, that data, I think I've described it. So it's not not overly disappointing relative consensus, but also not particularly not particularly inspiring, you know, the control measure for retail sales will go into GDP, you know, that was up point three percent. So in live with expectations. So once again, shows that, you know, the US consumer spending, at least in January, was, you know, was was tepid at best, you know, not not not disappointing, but also not not shooting the light. Tell you who does gain from rising all prices and that's Russia, obviously. And in fact, the US has signed this waiver to India so they can now import Russian oil for a month without, you know, facing the sanctions or higher tariffs. So, yeah, Mr Putin will be loving all of this. Yeah, and I think that did give oil markets a bit of a glimmer of hope during our session on Friday, but obviously that, you know, but that's that that quickly faded as we got into Friday night and then saw, you know, Brent escalating above, above 90 dollars a barrel and, and WTI, you know,

11:28the US benchmark beginning to close some of that gap as well. Once again, another point at towards markets considering this to now be a bigger chance of a longer-run thing. Now, today, inflation for China, CPI and PPI, this is for February. Of course, looking ahead, you know, they're not exempt from rising all prices as well. So we can look at the inflation data and go, that's interesting, but perhaps a bit of a historic record. Yeah, I mean, I mean, I mean, US, sorry, he's trying to PPI out as well, that he's that he's expected to remain in deflation. So I think, to the extent that, you know, Chinese goods inflation has still been a helpful boost for tradeable inflation globally, then I guess we're still hoping to see signs of that in the data today, but more broadly, it is actually actually relatively quiet. Don't really quite week for data. Actually, we do some Japanese wages data today as well, but once again, probably not expected to be a major driver, amidst all the, all the current turmoil and even Japanese policy makers are probably more focusing upon their net energy import position more so than their, rather than their cash earnings from, from Marissa Monthio. Yeah, so is it going to be important? I mean, he's looking more likely

12:30that the, the Bosch is not going to do anything at all, isn't it? I've just said a little in that way. The market still got some chance of a, of a high capning this year, but obviously things are probably going to, I'm going to start to lean against that, more precipitously, and the, and the year is back down towards its, back then getting towards the lows now with USDJPY back above 157. Yeah, as you say, it is very quiet though today's never German, in fact, we orders. That's just about the only other thing today. And then this week, US inflation again, you know, it's sort of like, well, that's what it was, but what's it going to be now? Yeah, even recent, even with the US finally catching up to its calendar on terms of data releases, then our starting look pretty dated to get all of a sudden. So, you know, I think the consensus there is for point 2.3 on core. Once again, holding pretty steady. And we do get the core PCE deflator as well. So forecast for that are creeping towards 3%, which is obviously, you know, well above the fed targets. They're just sort of playing more into the, the, the tensions in that market and probably down there, the other key thing to look out for too, I think is going to be Canada Labor Market on

13:31Friday. Yeah, and some big bond auctions going up in the US this week as well. So how do you even attempt to price bonds when, you know, at a time like this was such massive uncertainty? Well, I guess that's what we've a market for to find out, I suppose. I guess we'll see how those clear, but I'm almost yields have backup a fair bit. So it's going to be a but for, for very valid reasons. So, you know, we'll look, we'll be in our view. We'd still be more comfortable seeing Treasury's trading at 10-year Treasury's trading at much higher yields, even absent, what's being going on the Middle East. So, you know, we'll, we'll see how we go. But yeah, big week, Tuesday, Wednesday, Thursday, we've got three at 10-year, 30-year auctions back to back. In the US, I think she's here. Let's clear. Yeah. All right. And today, the anniversary, 250th anniversary of the publication of World of Nations, I wonder how Adam Smith would take to the world of the Mars. I suspect he might not be a Trump supporter, because, you know, he's Donald Trump obviously didn't read that, the chapter on free trade. No, I guess because Donald Trump may not have been a visitor when the invisible hand was formulated, though, I guess. But anyway, interesting historical benchmark, I wasn't

14:32aware of that one. We'll, you know, they all wear that one little list of chats in the office today. Thanks. Exactly. It's the non-invisible hand. It's Donald Trump's hand that's driving it all, isn't it? Very good to talk. We'll catch you again soon. Thanks, Phil. And Ken is off touring Japan and to Asia, seeing that clients over the next couple of weeks. So, he's off the agenda for a little while. But I'm back tomorrow morning. Sully, old joining me tomorrow. I'm Phil Dobby for NAP. I'll see you then.