Middle East Conflict Rattles Market

For the week ending 6 March 2026

As of midday Friday, global equities were lower on the week. The yield on the US 10-year Treasury note increased to 4.18% from 3.94% a week ago. The price of a barrel of West Texas Intermediate crude oil increased about $21 from last Friday to $88.03. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 27.69 from 19.86.

MACRO NEWS

US-Israel war on Iran reaches day seven

Over the weekend, the US and Israel began airstrikes on Iran following a collapse in negotiations over Iran’s nuclear and missile programs. The US and Israel have framed their objectives as weakening and possibly replacing the current regime in Iran, weakening its regional power, and containing Iran’s nuclear ambitions. The airstrikes killed Iranian Supreme Leader Ayatollah Ali Khamenei along with other senior Iranian officials. In response, Iran has launched missiles targeting Israel as well as US bases across the Middle East while also closing the Strait of Hormuz, a major shipping lane for global oil supply. Oil prices have moved up significantly in response, and global stocks markets are seeing increased volatility.

Eurozone monetary policy expectations flip

The Middle East conflict has spilled over to interest rate expectations across Europe. Europe is more heavily reliant on imported energy, including from the Middle East, making it more vulnerable to energy price shocks. Bets on ECB policy moves flipped from pricing in a cut in 2026 to a hike, a significant change from the prior week. The UK saw a similar rate expectation trajectory over the week as interest rate cut expectations shifted from pricing in two cuts for 2026 to one or even none.

US non-farm payrolls unexpectedly declined in February

US non-farm payrolls posted an unexpected decline of 92k jobs in February versus an expected increase of 55k jobs. The unemployment rate increased to 4.4% as a result. Health care employment dropped due in large part to a strike at Kaiser Permanente and severe winter weather; this accounts for a significant portion of February’s overall decline in jobs. Job growth had jumped in January, but this new report has reignited some concerns that the labor market may not be steadying following a weak 2025, which was the worst year for hiring outside of a recession. Treasuries rallied and market expectations for Fed rate cuts increased in response.

QUICK HITS

Global purchasing managers’ indices (PMIs) mostly gained ground in February, led by improvements in Japan’s manufacturing and US services.
  

Federal Reserve Governor Christopher Waller stated on Friday morning that the recent increase in energy prices is not likely to result in sustained inflation or demand a Fed response.

The Trump administration announced it is considering permits for global AI chip sales. US Commerce Department officials have drafted regulations that would restrict AI chip shipments outside of the US without government approval, establishing greater government control over whether other countries can develop their own AI infrastructure.

Eurozone fourth quarter GDP was revised down from 0.3% to 0.2%, primarily driven by a larger-than-expected decline from Ireland. Eurozone GDP is still expected to expand by 1% in 2026 despite the Middle East conflict potentially muting eurozone economic growth.

Eurozone headline CPI was up 1.9% year-over-year in February, above expectations of 1.7%. Core CPI increased 2.4% year-over-year versus 2.2% consensus expectations. Services costs and rising energy prices contributed to the price acceleration and have complicated the ECB’s disinflation story.

US retail sales fell 0.2% month-over-month in January, better than expectations for a 3% decline. Some downward pressure on sales was expected given the impact of Winter Storm Fern and weaker auto sales.

Average house prices in the UK increased 0.3% month-over-month (1.3% annually) to a new high of £301,151 in February.

Australia GDP increased 0.8% quarter-over-quarter, below forecasts of 1%; the annual rate of growth of 2.6%, however, was the highest in almost three years.

China expects GDP to increase by more than $870 billion in 2026, with officials reiterating plans to cut interest rates and reserve ratio requirements.

THE WEEK AHEAD

Sunday: China CPI and PPI

Monday: Japan GDP (final)

Tuesday: US existing home sales

Wednesday: US CPI

Thursday: US housing starts and existing home sales

Friday: UK GDP; US GDP (second prelim); US PCE; Canada employment

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.