Stocks are lower after the US decapitated Iran over the weekend. Bonds and MBS are down. Oil is up about 7%.
Welp. Did not have this on my 2026 Bingo card. Over the weekend the US and Israel attacked Iran and killed the Ayatollah Ali Khamenei and much of the Iranian leadership. The impact of this on global politics is hard to predict, let alone what it means for markets. Tehran has launched strikes on some of its neighbors, which poses the threat for a bigger confrontation. These strikes also isolate Iran in the Gulf, which looks to be a mistake. “Many people in the Gulf woke up Saturday pissed off at the United States and Israel, and went to sleep pissed off at Iran,” said William Wechsler, director of Middle East programs at the Atlantic Council in Washington and a former U.S. deputy assistant secretary of defense.
The most immediate impact will be the spike in the price of oil. Oil (both Brent and WTI) is up on the open. The big question is whether this is going to be sustainable. Note after the US captured Venezuelan President Maduro oil spiked momentarily and went back down. Since most of the US uses WTI oil and not Middle Eastern oil the US should be relatively insulated from any supply shocks, however WTI and Brent still correlate price-wise so we could be looking at higher oil (and gasoline) prices going forward. Needless to say this doesn’t help things on the inflation front and that will be another reason for the Fed to maintain the status quo.
The Chinese get a lot of their oil from two places: Iran and Venezuela. No doubt they are acutely aware of the message this all sends. Might China start dumping Treasuries in response? Something to watch.
The week ahead will be dominated by the jobs report on Friday. We will also get ISM data, retail sales and a slew of Fed speakers.
Construction spending rose 0.3% MOM but fell 0.4% YOY in December. Residential construction rose 1.5% on a monthly basis but declined 1.2% annually. Single family construction was up about 1.5%, but multifamily was roughly flat.
The Chicago PMI climbed to a 4 year high, driven by increases in new orders, production, employment and supplier deliveries. The employment subindex spiked, rising to the highest level since 2021.
