Week 11 - 2026

The yield curve steepened again. The 10-year/2-year spread widened to 55 basis points from 51 the prior week, and in the current environment that is not a sign of returning health. It is long-end rates repricing for an inflation shock that the Fed cannot easily cut into.

CPI for February printed at 327.46, up from 326.59 in January. That is a monthly gain of roughly 0.27 percent, and the acceleration is landing right as energy costs are still working their way through supply chains. Brent jumped from $71.36 to $85.28 in a single week. Those input costs have not fully arrived in consumer prices yet. They will.

The Fed held at 3.64 percent, exactly where it sat last week. That was the right call seven days ago. It is becoming a harder call to defend. Unemployment ticked up to 4.4 percent from 4.3, a move small enough to ignore in isolation but awkward when paired with rising prices. The labor market is not collapsing, but it is softening at the precise moment the Fed needs room to stay restrictive.

Thirty-year mortgage rates crept to 6.11 from 6.0. Eleven basis points in a week will not make headlines, but it represents the bond market doing its own tightening, independent of the Fed. Housing affordability was already stretched. This does not help.

GDP from Q4 2025 showed nominal output at $31.44 trillion, up from $31.10 trillion the prior quarter. Solid enough in level terms, but that number predates the current oil shock entirely. Whatever momentum existed in late 2025 is now running into a wall of energy-driven cost pressure and consumer caution.

The Fed is boxed. Inflation is reaccelerating, growth is decelerating, and the next move on rates will be wrong no matter which direction they choose.

The Nasdaq dropped nearly a full percent on the week, the worst showing across the four major indices. That gap between it and the Dow, which lost only a quarter of a percent, tells you everything about where money is moving and where it is leaving.

Growth is getting sold. Defensives are getting bought. The rotation is not subtle. The S&P 500 sits at 6,632, roughly 5.3 percent below its 52-week high of 7,002. The Russell 2000 is 9.3 percent off its own high. Small caps, which need cheap credit and confident consumers, are feeling the squeeze harder and faster than large caps with global pricing power. That spread in drawdowns is widening, not narrowing.

The VIX at 27.19 is the more interesting tell. It fell slightly on the week, down about a third of a percent, which seems strange given the geopolitical backdrop and the broad equity weakness. But volatility markets are not pricing panic. They are pricing sustained unease, the kind that grinds rather than spikes. A VIX in the high 20s that refuses to retreat toward its 52-week low of 13.38 reflects a market that has accepted elevated risk as the baseline condition. That is different from fear. It is resignation.

Breadth is poor. When all four major indices decline in the same week but the magnitude varies this much, the selling is discriminate. Traders are not dumping everything. They are making choices, and those choices consistently favor short-duration cash flows over long-duration promises. The Nasdaq's sensitivity to rate expectations makes it the natural casualty in a regime where the front end stays frozen and the back end keeps repricing higher.

The concentration trade that carried markets higher for much of 2025 is now working in reverse, and the exits are not as wide as the entrances were.

The money is chasing commodities, and it is not being quiet about it. Aluminum hit a four-year high this week on supply disruption fears tied to the Middle East conflict. That move, coming alongside the broader energy repricing, tells you capital is rotating hard into real assets and away from anything that requires a discount rate assumption to justify its price.

China is the other gravitational pull. Exports surged over 21 percent in early 2026, far above consensus, and consumer prices rose 1.3 percent in February, the fastest in three years. That combination, strong external demand paired with reflating domestic consumption, makes Chinese equities and yuan-denominated assets suddenly interesting to allocators who spent most of 2025 underweight the region. The Australian dollar caught a bid on the back of both energy tailwinds and rate hike expectations, which tells you the flow is already reaching commodity-linked FX as a second-order trade.

Asian airlines and energy-intensive industrials are on the other side of this. Fuel costs are doing exactly what you would expect to capital-light, margin-thin businesses in the region. Money is leaving those names and moving upstream, toward producers and extractors. The Brent-WTI spread widened to nearly $6.91 per barrel, a gap that reflects European and Asian buyers paying a geopolitical premium that domestic U.S. producers do not face. That spread is a direct measure of where supply anxiety is concentrated, and it points east.

Australian pension funds heading to the U.S. for a major investment summit this week is a small headline with a larger signal. The superannuation system sits on roughly A$3.9 trillion. When that pool starts shopping for American infrastructure and energy assets, it moves markets in ways that quarterly earnings cannot.

Capital is migrating toward scarcity, toward barrels in the ground and tons of metal not yet smelted, and away from projected earnings twelve quarters out. That trade has room to run.

The Brent-WTI spread is the story, but the absolute levels matter more for what comes next. WTI at $78.37 is up nearly 10 percent in a single week from $67.12. That is not a gradual repricing. That is a market that woke up to the possibility of sustained physical shortage and priced it in over five trading sessions.

What has not moved enough yet is natural gas. Henry Hub remains range-bound in the low $3s even as crude rips higher, which tells you the supply disruption narrative is concentrated in seaborne oil flows, not broader hydrocarbon markets. That divergence will not hold if the Strait of Hormuz stays in the headlines. Roughly 20 percent of global LNG trade transits that chokepoint, and the options market has barely begun to price that tail risk.

Copper is the quiet mover. Front-month COMEX copper settled near $4.42 per pound on Friday, up about 3.8 percent on the week. The driver is not war premium. It is the China export data reinforcing that industrial demand from the world's largest metals consumer is running hotter than anyone modeled three months ago. When Chinese factory output accelerates and global supply chains are simultaneously under stress, copper does what copper always does. It goes up, and then everyone writes the think piece about why.

Agricultural commodities remain oddly calm. Wheat and corn futures barely budged, which makes sense when you remember that Black Sea grain flows have normalized relative to 2022 levels and Southern Hemisphere harvests are tracking above trend. The inflation impulse from food is muted. Energy is carrying the entire commodity complex right now.

Gold is conspicuously absent from the panic trade, hovering just below $2,280 per ounce rather than screaming higher. That suggests institutional flows are going into oil and industrial metals for the carry, not into bullion for the hedge.

The next leg depends entirely on whether shipping insurance rates in the Persian Gulf force physical cargoes to reroute around the Cape, adding 15 to 20 days of transit time and pulling available supply off the market in real terms.

The labor market is cracking in the places no one is watching. Initial jobless claims for the week ending March 8 came in at 232,000, the third consecutive week above 225,000 and a level that six months ago would have drawn shrugs but now sits uncomfortably above the trailing twelve-month average of 214,000. That change is not dramatic. It is quite persistent though, and persistent is what matters when you are trying to figure out whether the economy is cooling or breaking.

Temporary staffing hours fell again in February, down roughly 2.1 percent year over year. Temp work is the canary. Companies cut contractors before they cut headcount, reduce hours before they post layoffs. The signal here is not recession. It is caution hardening into something structural, particularly across logistics and warehouse operations where energy costs are now compressing already-thin margins.

Wage growth tells the opposite story, which is exactly the problem. Average hourly earnings for production and nonsupervisory workers ran at 4.1 percent annualized in February, still above the pace consistent with the Fed's inflation target. Workers have pricing power in services. They have less of it in goods-producing sectors, where hiring has flatlined. That divergence is creating a two-speed labor economy: healthcare, leisure, and government adding jobs at a steady clip while manufacturing and transport sit on their hands.

Productivity is the missing piece. Q4 nonfarm productivity growth revised down to 1.2 percent annualized, well below the 2.3 percent pace posted in Q3. Unit labor costs revised up to 3.8 percent. When output per hour declines and labor costs per unit rise simultaneously, margins compress. That compression eventually becomes someone's pink slip.

The hiring freezes spreading through mid-cap industrials this month will show up in the April payrolls report, and by then the narrative will have already shifted.

The IEA called this the largest oil supply disruption in history. That framing matters less than what is happening underneath it: shipping insurance premiums for vessels transiting the Persian Gulf have roughly tripled since late February, with war risk rates now running above 2 percent of hull value on some routes. That number sounds small until you realize it translates to $1.5 million or more per voyage for a loaded VLCC, a cost that gets passed through in the form of wider FOB differentials and longer delivery windows.

This is the signal worth isolating from the noise.

Physical crude markets are behaving differently than futures markets. Dated Brent cargo premiums to North Sea benchmarks blew out to nearly $3.40 per barrel late in the week, a level last seen during the initial weeks of the Russia sanctions scramble in 2022. Futures can rally on fear. Physical premiums rally on actual scarcity. When traders with actual barrels to deliver start demanding that kind of spread, it means the logistical cost of moving oil from origin to refinery has changed in ways that do not reverse quickly even if the geopolitical headlines calm down.

The second-order effect is already visible in refining margins. Singapore complex gross refining margins jumped to about $8.70 per barrel, up from roughly $5.90 two weeks ago. Asian refiners are the most exposed because they pull the heaviest share of Middle East sour crude, and rerouting around the Cape of Good Hope adds transit time that drains floating storage and tightens prompt supply.

None of this requires the conflict to escalate further. The disruption to trade routes alone, if sustained through Q2, reprices the entire global energy supply chain from tanker rates to jet fuel cracks to petrochemical feedstocks. Markets are trading the war. They have not yet priced the logistics.

The FOMC meeting on Wednesday is the main event. The decision itself is almost certainly a hold, but the updated dot plot and Summary of Economic Projections will force every committee member to put a number on where they think rates land by December. The median dot in December's projections pointed to two cuts in 2026. That was before Brent moved 20 percent in a week. If even three participants shift their dots hawkish, the market will reprice the entire rate path, and fed funds futures for September, currently implying about a 62 percent probability of a cut, will have to adjust fast.

Thursday brings February housing starts and building permits. January permits came in at 1.483 million annualized, already soft. Mortgage applications have declined for four consecutive weeks, and homebuilder sentiment surveys released this past week showed traffic of prospective buyers hitting a seven-month low. The housing data will either confirm or complicate the narrative that the bond market is doing the Fed's tightening work for it.

Friday is the preliminary March PMI from S&P Global. The manufacturing index sat at 51.6 in February, barely in expansion territory and heavily dependent on new orders from domestic buyers. If the input prices subindex spikes on energy pass-through while output slips, you get the exact stagflationary print that equity markets are not yet positioned for. Services PMI at 53.4 last month has more room to absorb cost pressure, but even there, margins on forward contracts are thinning.

Also on the calendar: existing home sales for February, the Conference Board's leading economic index, and a dense schedule of Fed speakers including Waller and Barkin, both of whom have been notably quiet since the oil shock began. What they say about the inflation trajectory will matter more than any single data release.

Next week is when the Fed has to acknowledge, on the record, that the world changed.