First Light News – Oil Prices in the Driving Seat: The Middle East Keeps Markets on Edge

US equity benchmarks slid across the board, with the Dow Jones shedding 784 points (1.6%) to 47,954, along with the S&P 500 falling 38 points (0.5%) to 6,830, and the Nasdaq 100 easing 73 points (0.3%) to 25,020. Under the hood, 365 Stocks ended in the red in the S&P 500, while 137 ended positively, with 1 unchanged.

Oil Markets Continue to Push Northbound

The focus remains on energy prices, driven by sentiment in the Middle East. WTI Oil ended yesterday higher by 3.6%, clocking peaks of US$82.00 and is on track for its largest weekly gain since 2022.

WTI is also up 2.2% today and nearing yesterday’s highs, essentially demonstrating that the market is unconvinced of the Trump administration’s attempt to calm nerves. This included naval escorts through the Strait of Hormuz, political risk insurance and the emergency release of reserves. According to reports, the Strait is now at a near-halt.

I do want to add this chart that was created by our Team yesterday regarding the monthly price of WTI Oil. They noted the following:

‘WTI Oil is up 18% this month already – a move that triggered a breakout above the upper boundary of a monthly falling wedge, taken from US$95.00 and US$64.41. This deserves notice as technical elements suggest further outperformance could be on the table until monthly resistance at US$93.05. You may also acknowledge that the monthly flow is close to establishing a double bottom from lows around US$55.00; the neckline extended from the high of US$77.57 has been tested, but the pattern is not complete until a CLOSE north of the line is seen’.

USD: King of the Havens

Interestingly, the USD is also on track to chalk up its largest one-week return since Trump took office. Higher Oil prices are positive for the USD due to terms of trade in the petrodollar system – as Oil rises, demand for the USD will continue to find a footing. Another layer supporting the buck, of course, is markets pricing out expectations for Fed rate cuts.

The CHF and JPY have taken a back seat in the haven trade, it seems. I could also say the same for Bonds, with yields continuing to rise across the curve. Spot Gold has also served as a limited haven this week. It rallied on Monday, fell on Tuesday, rose moderately on Wednesday, and erased those gains yesterday. But it is important to note that during times of acute market stress, the correlation between Stocks and Gold is moderately positive.

US Jobs Data to Claim Some of the Spotlight

Against a backdrop of geopolitical turbulence, today’s February US employment situation report arrives at a peculiarly fraught moment. While I do believe the release could alter the short-term sentiment around the USD and yields, attention remains squarely on headline-driven volatility from the Middle East, which may well overshadow the print entirely.

As shown in the LSEG calendar below, the consensus for non-farm payrolls suggests that the economy added 59,000 jobs (the whisper number is about 65,000), down from 130,000 in January. The previous month’s print was a genuine upside surprise, with all numbers essentially coming in positive. The unemployment rate is expected to remain unchanged at 4.3%, with YY average hourly earnings also anticipated to remain unchanged at 3.7%.

What does this mean for the Fed?

Despite about 40 bps priced in for the Fed this year, we still have inflation above the target, expected tariff feed-through, and, of course, the Oil price shock to contend with. Economic growth is also above potential. Additionally, club the two ISM February reports for manufacturing and services PMIs released this week; there is an uptrend.

Despite Fed Governor Stephen Miran sticking to his guns and calling for a rate cut, I see little reason to lower rates at this point and depending on how long the Strait of Hormuz remains closed, this could even mean no rate cuts at all this year.

Written by FP Markets Chief Market Analyst Aaron Hill