Key Highlights

• Brent hits $100 a barrel on fears of prolonged energy market disruption.
• China becomes the latest country to ban some fuel product exports.
• U.S. Treasury is initiating Section 301 investigations into 16 trading partners.

Chart of the Day

Surge in commodity-linked EM FX flows hints at stagflation

^{Source: BNY}

Although pricing of stagflation risk continues to rise in markets – and we believe such concerns are valid – there are already key differences between the current official reaction compared with 2022-23. Central banks are no longer framing events as “transitory,” and governments are still hoping for de-escalation in the conflict, or at least measures which can help transportation normalize.

In fiscal and practical terms, constraints are also harder: energy price guarantees are no longer considered affordable across much of the developed world, so an initial release of strategic reserves is being deployed instead. However, many countries are not in such a position to act: price guarantees or large subsidies have been initiated across many European and Asian emerging markets, undoubtedly at a fiscal cost. In doing so, financial conditions risk becoming too loose, and a stagflationary environment is likely the result.

This will be a good environment for commodity-linked assets to perform in, and we note that this has been the case over the past week. For example, our EM Commodity FX basket has generally been performing well this year, but we can see clear surge flow over the past four sessions. While the initial reaction at the beginning of the conflict was liquidation, the move cleared the way for positioning to become far more attractive for new positions. This is a different reaction function, positioning for a more prolonged period of supply difficulties and sub-optimal policy support. Overall, out of the top 15 net-bought assets over the past week (five for each asset class), we identify seven where the underlying economy has a clear commodity link, indicating that an evident hedging preference is in place.

What's Changed?

The reasons why markets have responded differently to higher energy prices today start with how information about the war and oil has already been priced in. Traders are moving up and down the same path without surprise. The focus remains on the Strait of Hormuz and the disruption to global energy markets. Risk sentiment has continued to decline, but with far less urgency and momentum in equities. Notably, moves in bonds and USD are more conscribed. Rate hikes linked to inflation caused by energy prices have already been priced in for the ECB, while U.S. cut hopes have been pushed out further. The most striking shift in correlations comes from oil, as its ongoing volatility and higher pricing have had less effect on other markets, even as the IEA calls the Iran war the biggest-ever oil market disruption.

• Strait of Hormuz and the off-ramp. Six tankers have been attacked in the Strait and Gulf by Iran over the last 24 hours. Confirmation came yesterday of mines being laid in the Strait. Most political analysis sees the free flow of shipping as a prerequisite to any ceasefire deal between the U.S./Israel and Iran. While President Trump wants to get the job done, some advisors see an ongoing drag from the war, translating into higher oil prices and voter discontent. Regime change is looking less important, given the Iranian government’s ability to continue with its war efforts and the lack of fresh protests.
• Private vs. public credit. Markets have not been focused on the worries in private credit about redemptions and default rates, but the negative newsflow continues. What stands out is the supply of IG debt issuance this week: the third-largest of all time at $107.5bn, with $41.7bn yesterday. This is despite higher rates and volatility. What we see in iFlow remains key, i.e., demand for quality IG vs. HY.
• Oil and products. The upstream disruptions from the conflict will take weeks if not months to fix. The IEA sees the conflict reducing supply by 8 million barrels/day (b/d). The U.S. Strategic Petroleum Reserve and other releases of oil, led by the IEA’s 400 million b/d plan, have not slowed oil’s upward price momentum, in part because markets had already priced in the news. There has been less of an intense focus on the downstream products of oil, but they may be the next key barometer. The closure of the Strait is also forcing export-oriented refineries to cut runs or shut completely as product storage tanks top up, with more than 5% of global refining capacity at risk. Gulf producers exported roughly 3.3 b/d of refined products, and 1.5 million b/d of LPG in 2025.

Bottom line: The U.S. trading session would like to focus on domestic issues such as jobs and rates and credit, but the tensions of the conflict – while not surprising – still dominate. There is a slowing in volatility across markets that may not fully reflect the uncertainty, as investors and traders move into wait-and-see mode, hoping that the worst-case outcomes are already priced in. What matters most will be any new breakouts across asset classes; in FX the EUR 1.15 or JPY 159.25 marks will be important for intervention fears. Elsewhere that could mean 10y U.S. bonds over 4.31% or the S&P 500 below 6,600 points, while the market seems less fearful of oil at $120 again. Markets want to be efficient, but that requires open and accurate information flows – something that becomes a strategic risk in war. 

What You Need to Know

Global oil demand in 2026 is projected to rise by 640k b/d, revised down from a February forecast of 850k b/d and 930k b/d in January, according to the IEA. This reflects the impact of the war in Iran. The agency expects widespread flight cancellations and disruptions to LPG supplies to reduce consumption by around 1 million barrels/day in March and April relative to previous estimates. Incremental demand is now seen below last year’s increase of 813k barrels/day, with non-OECD demand growth forecast at 680k b/d y/y, 150k b/d lower than last year and 170k b/d below last month’s outlook. Global oil use is expected to average 104.77 million b/d, up from 104.12 million b/d in 2025. Brent +6.165% to 97.65, WTI +5.238% to 91.82.

The Israeli press has reported that officials from Oman, Egypt, Pakistan and Türkiye are engaged in behind-the-scenes discussions with senior Iranian counterparts aimed at opening dialogue with the Trump administration with a view to a potential agreement or ceasefire. Pakistan’s Prime Minister Shehbaz Sharif is also heading to the Middle East for urgent talks. The intermediaries are reportedly seeking to persuade Tehran to enter negotiations with Washington. However, the source indicates that Iran has so far declined to begin formal talks, maintaining a hardline stance and outlining preliminary demands that would need to be addressed as part of any prospective deal between Tehran and the U.S. TA-35 -0.522% to 4189.83, EURILS +0.135% to 3.1258, 10y IGB +3bp to 3.86%.

Four sources report that China has ordered an immediate ban on refined fuel exports for March, covering petrol, diesel and aviation fuel shipments not cleared by customs as of March 11. The National Development and Reform Commission (NDRC) issued the order to prevent a domestic fuel shortage amid the U.S.-Israeli conflict with Iran. This ban extends beyond previous advisories urging refiners to halt new export agreements and cancel existing ones. Jet fuel for aviation bunkering is reportedly exempt. China, the world’s largest oil importer and a major fuel exporter, had planned higher exports in March but actual shipments remain significantly lower. CSI 300 -0.36% to 4687.56, USDCNY +0.032% to 6.8763, 10y CGB -0.3bp to 1.82%.

China has called the latest Section 301 trade probes by the US “political manipulation,” but there is no sign that the expected month-end summit between Presidents Xi and Trump will be affected. The U.S. trade representative’s latest investigation into “structural excess capacity and manufacturing overproduction” involves China, the European Union, Singapore, Switzerland, Norway, Indonesia, Malaysia, Cambodia, Thailand, South Korea, Vietnam, Taiwan, Bangladesh, Mexico, Japan and India. Ambassador Jamieson Greer stated that the action reflects the administration’s commitment to reshore critical supply chains and address foreign overproduction that it argues has displaced U.S. manufacturing output and constrained domestic investment. The process includes consultations, a public comment period opening on March 17, submissions due by April 15 and hearings beginning on May 5. S&P Mini -0.553% to 6742, DXY +0.18% to 99.409, 10y UST -0.6bp to 4.224%.

What We're Watching

U.S. January trade balance is forecast at $-66bn deficit from -$70.3bn.

U.S. weekly initial jobless claims is expected at 215k vs. 213k the week prior.

U.S. January housing starts are forecast to ease to 1.341 million from 1.404 million in December, while building permits are expected at 1.410 million from 1.455 million in December.

U.S. Treasury sells $100bn in 4-week bills, $90bn in 8-week bills and $22bn in a 30y bond reopening.

What iFlow is Showing Us

Mood: iFlow Mood drifted further into negative territory in risk aversion mode. Investor demand for core sovereign bonds increased, while equity buying was scaled back.

FX: INR and TRY continued to be aggressively sold, followed by EUR and SGD, while CNY and ZAR saw strong inflows, followed by BRL, COP, HKD, JPY, CAD and USD.

FI: Broad sovereign bond selling across EM APAC and EMEA, especially in China, South Africa and Türkiye. LatAm saw mixed flows, against better buying in the G10 complex, led by Eurozone and Australian government bonds along with U.S. Treasurys.

Equities: Peruvian, Czech and Thai equities were bought, against selling across the rest of the iFlow universe. Swiss, Colombian, Chinese, South Korean and Taiwanese equities were significantly sold. Within EM APAC, the utilities and energy sectors were bought, against aggressive selling in the information technology, communication services, health care, financials, industrials and materials sectors.

Quotes of the Day

“Nowadays people know the price of everything and the value of nothing.” – Oscar Wilde

“Age is a very high price to pay for maturity.” – Tom Stoppard

Economic Details

Italy’s labor market in Q4 saw hours worked flat q/q and up 1.6% y/y, while GDP rose 0.3% q/q and 0.8% y/y. Employment increased by 0.2% q/q (+37,000) to 24.121 million, driven by permanent employees (+0.5%) and self-employed workers (+0.4%), partly offset by a decline in temporary workers (-2.4%). The unemployment rate fell to 5.6% (-0.3 percentage points q/q) and 5.5% y/y (-0.5 percentage points), while the inactivity rate rose to 33.7% q/q and 33.9% y/y. On a y/y basis, employment increased by 0.4%, with permanent and self-employed gains offsetting a sharp drop in temporary contracts (-8.6%). Labor costs per full-time equivalent rose 0.3% q/q and 2.9% y/y, while the vacancy rate was 1.9%. FTSE MIB -0.295% to 44640.98, EURUSD -0.182% to 1.1546, 10y BTP +1.9bp to 3.687%.

The U.K.’s February 2026 RICS Housing Market Survey for England and Wales showed a balance of -12% for house price changes, slightly down from -10% in January. Price expectations fell sharply to -18 from -6. Sales expectations declined to -2 from 3, while new buyer inquiries dropped to -26 from -15. New instructions rose marginally to 2 from 0. Agreed sales decreased to -12 from -9. Average homes on books increased to 46.0 from 44.9, with the number of houses sold slightly down to 15.3 from 15.7. The sales-to-stock ratio fell to 33.3% from 35.1%. Overall, the survey reveals fragile market confidence amid rising geopolitical and macroeconomic uncertainties, notably due to the Middle East conflict. FTSE 100 -0.522% to 10299.68, GBPUSD -0.246% to 1.3379, 10y gilt +3.1bp to 4.717%.

Swedish CPI inflation in February was 0.5% y/y, unchanged vs. January, while prices rose 0.6% m/m. Electricity prices increased by 18% y/y and contributed 0.7 percentage points to the annual rate, representing the largest upward impact, alongside higher rents and overall housing costs. Restaurant visits and food prices also rose, though food inflation softened compared with previous months, while meat saw sizable increases. Interest expenses reduced CPI inflation by -1.0 percentage points, continuing to offset housing-related pressures, though the dampening effect was somewhat smaller. The CPIF inflation rate slowed to 1.7% y/y from 2.0%, and CPIF excluding energy fell to 1.4% y/y from 1.7%. Lower prices for fuels, home electronics and furniture partially offset broader increases. OMX -0.076% to 3056.621, EURSEK -0.222% to 10.6806, 10y Swedish GB +0.3bp to 2.839%.

Sweden’s unemployment rate in February stood at 6.8%, down from 7.2% y/y, with 360,335 individuals registered as unemployed compared with 378,300 a year earlier. Youth unemployment among those aged 18-24 fell to 7.4% from 8.1%, corresponding to 39,626 individuals. The reduction was driven by those unemployed for 0-6 months, while long-term unemployment increased marginally, with 153,167 individuals out of work for 12 months or longer versus 152,402 a year earlier. The open unemployment count was 198,549, and 161,786 people participated in employment programs with activity support. During the month, 29,993 individuals registered as jobseekers, 27,667 secured employment and 4,217 were notified of redundancy.

Czech industrial production increased by 2.8% y/y but fell 2.6% m/m in real terms in January. Growth was primarily driven by motor vehicle production, fabricated metal products, and electricity, gas and steam supply, while output fell in non-metallic mineral products, computer and electronic products, and machinery. The value of new industrial orders rose by 9.8% y/y, supported by motor vehicles and related parts, with domestic orders up 11.4% and non-domestic orders up 8.9%, although orders dropped 11.3% m/m due to a high December base. The average registered number of employees in industry decreased by 1.0% y/y. In December, EU27 industrial production rose by 1.4% y/y, while Czech industry increased by 4.9% y/y. Prague SE -0.951% to 2565.22, EURCZK +0.074% to 24.408, 10y CZGB +5.1bp to 4.851%.

Czechia’s retail sales increased by 5.0% y/y and rose by 1.0% m/m in real terms in January. Excluding motor vehicles, sales grew by 1.0% m/m, driven by non-food goods (+1.7%) and automotive fuel (+1.2%), while food sales were flat. On a y/y basis, non-food sales advanced 7.8%, fuel rose 7.3% and food edged up 0.3%. Online and mail-order sales surged by 18.7% y/y, contributing most to overall growth. Sales increased across most specialized retail segments, notably cultural and recreation goods (+9.1%) and cosmetics (+8.5%), while other household equipment fell 3.0%. Sales of motor vehicles and repairs declined by 5.2% y/y and 0.9% m/m.

South Africa’s current account recorded a surplus of ZAR 50.2bn (0.6% of GDP) in Q4, shifting from a deficit of ZAR 72.0bn (-0.9% of GDP) in Q3 and marking the first surplus since Q3 2023. For full-year 2025, the current account deficit narrowed to ZAR 35.2bn (0.5% of GDP) from ZAR 48.0bn (0.7% of GDP) in 2024. The trade surplus widened to ZAR 282.2bn in Q4 from ZAR 169.0bn in Q3, as exports of goods and services rose by ZAR 51.1bn on higher prices while imports fell by ZAR 54.4bn due to lower prices. The services, income and current transfer deficit narrowed to ZAR 232.1bn, and terms of trade improved over the quarter. JSE TOP 40 -0.848% to 108670.7, USDZAR +0.435% to 16.561, 10y SAGB +14.7bp to 8.767%.

South African mining production increased by 4.6% y/y in January, driven mainly by platinum group metals (PGMs; +10.8%, contributing 2.7 percentage points), chromium ore (+37.3%, contributing 1.8 percentage points) and manganese ore (+12.5%, contributing 1.0 percentage point). Iron ore fell by 1.9%, subtracting 0.3 percentage points. Seasonally adjusted output rose by 2.9% m/m but fell by 3.1% over the three months to January compared with the previous three months. Mineral sales at current prices surged by 31.7% y/y, led by PGMs (+122.4%, contributing 23.1 percentage points) and gold (+35.9%, contributing 8.4 percentage points). Seasonally adjusted mineral sales decreased by 9.1% m/m but increased by 12.6% over the three-month period.

Türkiye’s current account balance recorded a deficit of $6.807bn in January, while the deficit excluding gold and energy was $1.228bn. The balance-of-payments-defined foreign trade deficit widened to $6.967bn. On a 12-month cumulative basis, the current account deficit reached $32.9bn, with the foreign trade deficit at $71.2bn. The services balance posted a $63.1bn surplus over the same period, while primary and secondary income recorded net outflows of $24.1bn and $695mn, respectively. In January alone, net services inflows amounted to $2.639bn, driven by transportation and travel revenues of $1.687bn and $2.471bn, respectively. BI 100 +0.165% to 13222.22, USDTRY +0.062% to 44.1151, 10y TGB +38bp to 32.16%.

Türkiye’s gross external debt stock in Q4 rose by 4.0% q/q to $519.9bn. Short-term external debt increased by 0.4% to $167.4bn, while long-term debt climbed by 5.8% to $352.6bn. Public sector external debt expanded by 5.4% to $196.8bn and private sector debt rose by 4.5% to $298.2bn, whereas the CBRT’s external liabilities fell by 10.0% to $25.0bn. Loans accounted for 45.8% of total debt, followed by debt securities at 19.5% and deposits at 17.6%. By currency, 48.1% was denominated in U.S. dollars, 29.7% in euro, 12.0% in Turkish lira and 10.1% in other currencies. iFlow data indicate that outflow pressure on external debt is picking up as markets question the balance of payments amid the current energy crisis.

The Japanese Q1 2026 Business Outlook Survey (BSI) showed mixed business conditions. Large corporations (capital ≥ ¥1bn) reported a slight deterioration in business sentiment (4.4 percentage points vs. Q4 2025: 4.9 percentage points), with manufacturing weaker at 3.8 percentage points (Q4: 4.7 percentage points) and non-manufacturing at 4.6 percentage points (Q4: 5.1 percentage points). The Q2 2026 outlook for all industries is expected to deteriorate further to 2 percentage points before climbing back to 5.6 percentage points in Q3 2026. Sentiment among medium-sized firms (¥100mn-1bn) dropped sharply to 0.2 percentage points from 4.7. Small firms (¥10-100mn) remain negative at -12.9 percentage points. Among large firms, domestic economic conditions improved to 8.0 percentage points (from 6.9 percentage points). Employment sentiment remains positive but softened slightly. Sales growth expectations were steady at 2.2 percentage points for FY 2026, while ordinary profits are expected to decline by 1.0 percentage points. Investment growth dropped to 3.5 percentage points. Nikkei -1.04% to 54452.96, USDJPY -0.265% to 158.71, 10y JGB +1.6bp to 2.188%.

Tokyo’s February 2026 office vacancy rate increased by 0.05 percentage points m/m to 2.20%, according to Miki Shoji Co. The rate covers five main business districts: Chiyoda, Chuo, Minato, Shinjuku and Shibuya. The vacancy rate for new buildings rose to 9.57% from 6.45% in January, while the existing buildings measure remained steady at 2.04%. Monthly rent per tsubo increased by 1.48% overall, with new buildings seeing a 6.26% rise against 1.38% for existing buildings. This indicates a slight softening in office space availability alongside continued rent growth. Japan’s latest portfolio updates for the week of March 6, 2026 – the first of the Iran conflict – showed continued demand for Japanese equities (net buying of ¥386bn vs. ¥974bn the previous week, and a record YTD pace of ¥6.745tn). Foreign investors sold ¥964bn of Japanese bonds, but YTD performance remains at record pace (¥6.641tn). Japanese investors bought ¥400bn of foreign bonds for the first time in five weeks, along with ¥163bn of foreign equities.

Australian March inflation expectations rose to 5.2% y/y, the highest since July 2023, up from 5.0% in February and 3.6% a year ago. The Melbourne Institute noted that inflation expectations, which had remained below 5% for an extended period, have now exceeded 5% for the second consecutive month. While several indicators, including the weighted mean, point to elevated inflation expectations, wage expectations have remained unchanged over the past four months. This rise signals growing concerns about inflation pressures ahead, potentially influencing the RBA’s monetary policy decisions. The market has shifted toward expecting consecutive hikes in upcoming RBA meetings as global inflation risks rise. ASX -0.556% to 5548.6, AUDUSD -0.238% to 0.7145, 10y ACGB +10.3bp to 4.952%.

In New Zealand, business financial data for the December 2025 quarter showed total sales of NZ$212bn, up 5.9% y/y (NZ$12bn). Purchases rose 5.4% y/y (NZ$7.6bn), salaries and wages increased by 1.8% y/y (NZ$594mn) and operating profit grew 13% y/y (NZ$3.5bn). Seasonally adjusted sales rose in 13 out of 14 industries q/q, with sizable increases in information media and telecommunications (+9.9%) and wholesale trade (+1.1%), while electricity, gas, water and waste services decreased by 23%. The volume of total manufacturing sales fell 0.5% q/q following a 1.2% rise in Q3 2025, led by decline in meat and dairy products (-3.1% q/q).  The value of total manufacturing sales rose NZ$218mn (0.6%), following NZ$871mn (2.6%) in Q3 2025. NZX 50 -0.706% to 13199.29, NZDUSD -0.355% to 0.591, 10y NZGB +10.2bp to 4.666%.