Oil price soars above $100 p/b
While Friday’s jobs report in the US was a good deal weaker than forecast – the economy shed almost 100k jobs in February – it didn’t do much to dent the dollar. The latter closed only marginally lower on the day, while gaining ground over last week as whole as it benefited (albeit modestly enough) from a ‘flight to safety’ bid amid the escalating conflict in the Middle East and rising oil and gas prices. Energy prices have surged further overnight – Brent crude is up almost $15 to over $107 per barrel – as fears grow of persistent disruption to supply, leading to renewed gains for the US currency. EURUSD and GBPUSD are trading at around $1.1530 and $1.3320 respectively this morning, both down around a cent from last week’s closing levels of $1.1615 and $1.3415. After falling by around a penny last week, EURGBP is largely unchanged from Friday’s close at about £0.8660.
The softer than expected jobs data resulted in a marginal decline in US 2-year bond yields on Friday. They were still up circa 20bps on the week though, while equivalent German and UK yields rose by 30 and 36bps respectively, as rising energy prices triggered fears of higher inflation and a rapid re-pricing of central bank rate interest rate expectations. Not surprisingly, yields are higher again this morning given the latest jump in energy prices. Along with the surge in oil prices overnight, European gas prices have climbed by 15% this morning (to EUR 61 per MWh). The market is now pricing in almost 50bps of hikes from the ECB by the end of this year, having been pricing in circa 15bps of cuts before the conflict in the Middle East erupted, and around 15bps in hikes from the Bank of England, having previously been expecting two quarter-point cuts in 2026. The market still sees rate cuts from the Fed with about 35bps of easing expected, down from 60bps just over a week ago.
US stocks had their worst day of the week on Friday on the back of the employment report with the S&P 500 shedding just over 1%. This brought its decline over the week to 2%, considerably smaller though than the 5-7% fall in European stocks. Asian markets are a good deal lower overnight – the Nikkei in Japan is off 5% – while futures pricing points to falls for European and US stocks today.
Employment in the US fell by 92k in February according to Friday’s dat, which was considerably weaker than the circa 50k increase expected and followed a gain of 126k in January, while the unemployment rate edged up to 4.4% from 4.3%. Hourly earnings growth was a bit firmer than expected though, ticking up to 3.8% y-o-y last month from 3.7% in January. The report overall casts some doubt on the Fed’s view, outlined at its January monetary policy meeting, that the labour market might be stabilising following a sharp slowdown in the pace of jobs growth over the second half of last year.
ECB member Schnabel says the central bank needs “to be vigilant as the current geopolitical environment creates upside risks” to the inflation outlook, adding that it must “carefully monitor the persistence of the energy-price shock, its impact on inflation expectations and any indication that firms start passing through higher input costs to their customers.”
Looking to the week ahead, clearly markets will be focused on developments in relation to the conflict in the Middle East. In this regard, the Financial Times reports this morning that G7 finance ministers will discuss a possible joint release of oil reserves in coordination with the International Energy Agency. Economic data due include CPI inflation (for February) and PCE inflation (January) in the US on Wednesday and Friday respectively, and GDP (January) in the UK on Friday.