Global Highlights for Next Week: Oil Prices Target $100, Inflation Data Incoming. Can Middle East Turmoil Shake the Federal Reserve's Rate Cut Path?

Caixin March 8 News (Editor: Niu Zhanlin) Investors will closely monitor how the Middle East conflict unfolds over the next week and the impact on energy supplies, while also digesting the upcoming U.S. inflation data.

Following U.S. and Israeli strikes on Iran and the escalation of conflict across multiple Middle Eastern countries, global markets will focus on the latest developments in the Middle East situation.

This conflict has become a key variable in financial markets, with oil prices soaring, causing significant volatility across various assets, and prompting investors to sharply reduce expectations for Fed rate cuts.

This week, the S&P 500 index declined a total of 2%, and the VIX fear gauge on Wall Street reached a nearly one-year high on Friday, with weak U.S. non-farm payrolls further weighing on U.S. stocks.

Investors are currently weighing two forces: on one hand, historical experience suggests that stocks often rebound after major geopolitical shocks; on the other hand, the future direction of Iran’s situation remains highly uncertain.

Rick Meckler, partner at Cherry Lane Investments, said, “This is a very significant event, and the direction of development seems highly uncertain. To some extent, this causes investors to be hesitant to sell or buy.”

One market focus is the surge in energy prices triggered by the conflict and its effects on inflation and economic output. The war has paralyzed shipping through the Strait of Hormuz, which accounts for about one-fifth of global oil and liquefied natural gas supplies.

Brent crude oil prices broke above $90 per barrel on Friday, a sharp increase from $70 before the conflict began. Rising oil prices could negatively impact the stock market outlook through various channels, including higher gasoline prices that could weaken consumer spending.

Michael Arone, chief investment strategist at State Street Investment Management, said, “In the short term, oil prices will be an important indicator for risk asset performance.” He added that a break above $100 per barrel would be a psychological milestone, potentially increasing market panic.

Dominic Pappalardo, chief multi-asset strategist at Morningstar Wealth, said, “Next week, the development of the Middle East situation will truly influence all financial markets.”

Inflation data will also be a key focus for Wall Street. The U.S. February CPI will be released next Wednesday, after January’s data unexpectedly fell below market expectations. The Fed’s preferred inflation indicator—the PCE Price Index—will also be released next Friday.

If inflation data remains moderate, markets may not overreact, as the reporting period largely predates the outbreak of the Middle East conflict. However, an unexpected surge in inflation could pose particularly tricky problems.

Isaac Stell, investment manager at Wealth Club, said, “The simultaneous occurrence of weaker-than-expected employment and rising inflation pressures presents a tough balancing act for policymakers. Uncertainty still dominates the market environment, making it harder for companies to plan and for policymakers to gauge the outlook.”

Concerns about energy prices driving inflation higher have led investors to delay expectations for the Fed’s next rate cut. However, weak employment data on Friday has somewhat renewed expectations for a rate cut. Currently, the market prices in a 45% chance that the Fed will cut rates by at least 25 basis points at the June meeting.

Pappalardo said, “If energy prices continue to rise and fuel inflation worries, it will be significantly more difficult for the Fed to implement two rate cuts by 2026.”

In terms of earnings reports, the Q4 earnings season is nearing its end, with next week’s highlights including results from Li Auto, NIO, Kohl’s, Futu Holdings, and Oracle.

Notably, starting next week, North America will observe daylight saving time, and trading hours and economic data release times in the U.S. and Canada will be moved one hour earlier than during standard time.

Key Events Next Week:

Monday (March 9): Japan January Trade Balance, China February CPI Year-over-Year, Eurozone March Sentix Investor Confidence Index, U.S. February New York Fed 1-Year Inflation Expectations, Domestic refined oil prices to enter a new adjustment cycle

Tuesday (March 10): Germany January Seasonally Adjusted Trade Balance, U.S. February NFIB Small Business Optimism Index, U.S. February Existing Home Sales (Annualized), China February M2 Money Supply (Year-over-Year), U.S. Department of Commerce hosts roundtable with U.S. robotics manufacturers

Wednesday (March 11): U.S. API Crude Oil Inventories for the week ending March 6, U.S. February Unadjusted CPI Year-over-Year, U.S. February Seasonally Adjusted CPI Month-over-Month, U.S. EIA Crude Oil Inventories for the week ending March 6, OPEC Monthly Oil Market Report

Thursday (March 12): U.S. 10-Year Treasury Note Auction, U.S. Initial Jobless Claims for the week ending March 7, U.S. January Trade Balance, U.S. EIA Natural Gas Inventories for the week ending March 6, IEA Monthly Oil Market Report

Friday (March 13): UK January Three-Month GDP Monthly Rate, Eurozone January Industrial Production Monthly Rate, U.S. January Core PCE Price Index Year-over-Year, U.S. January Personal Spending Monthly Rate, U.S. Q4 Real GDP Annualized Revised, U.S. January Durable Goods Orders Monthly Rate, U.S. JOLTs Job Openings, U.S. March One-Year Inflation Expectations Initial, U.S. University of Michigan Consumer Sentiment Index Initial