In focus today
All focus this morning is on the escalating situation in the Middle East and the impact on energy prices. It is a fluid situation, and investors will monitor the news flow communication as well as any revised policy signals from central banks.
In the euro area, we will receive the Sentix investor confidence for March. We expect to see a sharp decline in the index due to the war in Iran.
Overnight, China releases trade data for January and February combined. Especially exports are in focus. We expect to still see solid export growth out of China due to strong competitiveness and robust global manufacturing activity.
Economic and market news
What happened over the weekend
In Iran, the Assembly of Experts has officially elected Mojtaba Khamenei, the late leader’s son, as the new supreme leader, consolidating the hold of hardliners over the country. Mojtaba’s appointment followed a decisive vote on Sunday, granting him ultimate authority over all state matters, with Iran’s armed forces and the Islamic Revolutionary Guard Corps pledging allegiance to the new leader.
Fighting escalated on day nine of the US-Israeli campaign against Iran, as Israeli forces expanded their bombardment of Iran, striking major oil storage facilities near Tehran. Israeli forces also targeted senior Iranian Quds Force commanders in a drone strike on Beirut on Sunday. Meanwhile, Bahrain reported that an Iranian drone attack had damaged one of its desalination plants, according to Reuters. For a deep dive on recent events, read our Geopolitical Radar Extra: Contagion risk from Middle East is significant, 8 March.
Oil prices rose sharply as the market opened after the weekend. At the time of writing, Brent crude is up 25% to USD 116/bbl. The increase follows the developments over the weekend in the Middle East, where producers have started to shut down production amid the halt of traffic through the Strait of Hormuz and a large oil depot in Iran was hit. The pace of the price increase and the level of prices are reminiscent of the developments in 2022, when Russia attacked Ukraine. Then US sold strategic reserves to help cap the price increase. It will likely take similar action although, it will not be able to replace all the oil shutdown in in the Middle East. It further raises the pressure on the US to finish the war to cool energy markets. The current situation is unprecedented, and we stress that the oil price may rise further as the war continues. The key point for the oil market and a reversal of prices is still a potential resumption of shipments through the Strait of Hormuz.
In the US, the February jobs report showed a sharp deterioration in labour market conditions, with nonfarm payrolls declining by 92k (Danske: +70k, cons: +60k). The unemployment rate rose to 4.4% from 4.3% in January. A technical revision to household employment in January also revealed a 1.4 million downward adjustment due to updated population estimates. On a positive note, wage growth surprised to the upside, with average hourly earnings rising 0.4% m/m. Market reaction saw US Treasury yields decline, as the report reinforced expectations for a potential Fed rate cut. Markets have now almost fully priced in a cut by July.
Separately, President Trump hosted Latin American leaders in Florida to launch a new coalition aimed at combating drug cartels. Leaders from Argentina, Chile, Ecuador and other nations joined the summit where Trump pledged stronger US involvement in the region, including military support if requested by partners.
Overnight, China released February CPI inflation, showing a surge to 1.3% y/y (1.0% m/m) from 0.2% y/y (0.2% m/m) in January, marking the highest print in over three years and exceeding market expectations of 0.8% y/y. The rise was driven by the Lunar New Year holiday, which boosted domestic travel and consumer spending. Food inflation rebounded sharply to 1.7% y/y from -0.7% y/y, while non-food inflation rose to 1.3% y/y from 0.4% y/y. Core inflation, excluding food and energy, climbed to 1.8% y/y, the strongest since March 2019, indicating broad-based price pressures.
In the euro area, the third estimate of Q4 2025 GDP confirmed softer growth momentum, with the economy expanding by 0.2% q/q, down from both the earlier estimate of 0.3% and the 0.3% pace recorded in Q3. For the full year 2025, growth reached 1.4%, up from 0.9% in 2024. Meanwhile, compensation per employee grew by 3.7% y/y in Q4, down from 4.0% y/y in Q3, reflecting softer wage growth than we anticipated.
In Germany, Sunday’s state election in Baden-Württemberg was the first test this year for Friedrich Merz and his grand coalition. Home to around 11 million residents and one of Germany’s most economically important regions, the state has been governed by the Greens since 2011. The results on Sunday showed that the Greens narrowly defeated Merz’s CDU, securing 30.2% of the vote against the CDU’s 29.7%. The far-right AfD came in third with 18.8%, confirming its status as Germany’s main opposition party.
In Norway, manufacturing production disappointed with a 0.3% m/m decline in January, which fell short of expectations for a 0.7% increase. Capital goods (energy) supported production, while intermediate goods became a significant drag, and consumer goods remained flat amid monthly volatility.
Equities: The transmission mechanism from this war to financial markets remains through the oil price. As such, futures are down meaningfully this morning with US and European futures down ~-2%. Asia is hit the worst, with South Korea’s Kospi down -6% this morning and the Nikkei 225 down -5%. These are all sizeable moves, but in line with historic events: it is when oil prices have risen dramatically and persistently that the biggest impact on equities has occurred. Hence, our assessment is that market moves have been sound and measured, including today’s sell-off. The backside of this is that positioning metrics are far from “oversold”, partly as positioning has not moved aggressively underweight risk yet, but adjustment has largely been back towards benchmark levels. Hence, positioning metrics do not yet support a contrarian “buy the dip” strategy. Instead, the oil price will continue to govern the direction of equities. That naturally involves upside risk as well: the oil price spike has only lasted just over a week. If a solution emerges, or negotiations allow oil to flow, oil prices could drop just as quickly, equities should rebound.
FI and FX: Last week saw a sharp increase in oil and gas prices following the developments in the Middle East. Overnight, oil prices continued to increase with Brent crude up 25% to USD 116/bbl. The overall themes were a stronger USD and CHF, while NOK had a mixed performance amid rising energy prices and a deterioration of risk sentiment. EUR FI sold off following renewed inflationary pressures from the sharp rise in energy prices and by extension short term inflation expectations. During Friday’s session, NFP released in the negatives and undershot expectations. The move reversed some of the USD strength and sent US yields slightly lower.
