Issue #50 - Why Markets Are Nervous: Iran, Inflation & AI Reality

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What Moved Markets This Week

Markets were driven by a mix of geopolitical tensions, inflation data, and sector-specific rotation. UK equities extended their rally to fresh record highs, supported by strength in AI-linked stocks and defensives, while U.S. markets came under pressure following hotter than expected producer inflation data and rising concerns over escalating tensions between Iran and Western powers.

Key market drivers this week:

What This Means for Investors

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Track Inflation Across Europe & US

🌍 Global Inflation: From Crisis to Cooldown (2023–2026)

Tracking inflation across major economies reveals a clear “macro-cooling” trend as central banks edge closer to their 2.0% targets. After the extreme volatility of 2022 and 2023, the period from 2024 to 2026 has been defined by a steady — if occasionally sticky — descent toward price stability.

1. The Eurozone: Leading the Descent

The Eurozone has delivered the fastest normalisation. As of January 2026, headline inflation fell to 1.7%, dipping below the ECB’s 2.0% target for the first time in years.

What’s driving it:

Energy prices: A sharp decline (-4.0% YoY) has been the primary cooling force.

Sticky services: Core inflation remains higher at 2.2%, fuelled by persistent wage growth in the services sector.

Bottom line: Headline inflation is under control, but underlying price pressures haven’t fully disappeared.

2. The United States: The “Sticky” Middle

US inflation has proven more resilient than Europe’s, reflecting a stronger domestic economy and tight labour market.

Current picture:

Headline CPI: 2.4% (Jan 2026), down from 3.0% a year ago.

Core inflation: 2.5%, still running above headline.

What this tells us:

While energy and food prices have stabilised, housing and domestic services remain the key inflation drivers, keeping the Fed cautious about declaring victory.

3. The United Kingdom: The Longest Road Back

The UK has faced a “double whammy” — European energy shocks combined with a tight post-Brexit labour market.

Progress so far:

Inflation has collapsed from double digits to 3.0% (Jan 2026).

Why it’s lagging:

Persistent food price inflation

Slower cooling in services and wage growth

Bottom line: The UK remains the inflation outlier among major developed economies.

📊 Visual Outlook

The chart below illustrates the converging inflation paths of the US, Eurozone, and UK toward the 2% target — with the Eurozone already undershooting and the US and UK still navigating the final stretch.

🎯 Key Takeaway for 2026

The global macro narrative has shifted from “fighting an inflation crisis” to “fine-tuning a soft landing.”

Eurozone: Managing the risk of undershooting its target.

United States: Carefully cooling sticky domestic inflation. United Kingdom: Grinding through the final phase of disinflation.

The battle has been won — but the war on price stability isn’t quite over.

Hot Take 🔥 - The AI Bubble Didn't Pop, It Just Moved In

After the AI-fuelled euphoria of 2024 and 2025, we’ve hit a wall of reality, geopolitical friction, and a massive rotation in where the money is actually going.

Here is the breakdown of the current chaos:

For the last two years, we treated AI like a magic wand.

Now, the market is treating it like a utility bill. Investors are no longer rewarding "AI potential"; they are punishing companies that aren't showing immediate, massive ROI from their $100B+ hardware spends.

📉 Equities: The "Magnificent Seven" Are Tired

The dominance of Big Tech has fractured. We are seeing a violent rotation from high-growth software into "Old Economy" value stocks.

The Laggards: Microsoft and Amazon have taken hits recently as Azure/AWS spending remains eye-wateringly high. Microsoft is actually down about 25% from its October highs.

The Winners: Industrial and Energy stocks. Companies like Deere & Co and GE Vernova are the new darlings because they provide the physical infrastructure (power and machinery) that the AI world actually runs on.

Valuation Warning: The S&P 500’s CAPE ratio (a measure of whether stocks are overpriced) hit 39.8 in February—levels we haven't seen since the Dot-com crash. Warren Buffett recently retired, leaving behind a massive $187 billion cash pile, signalling he thinks the market is way too expensive right now.

🛡️ Macro & Geopolitics: The "Tariff Tantrum"

Volatility is back with a vengeance.

Trade Wars: Recent headlines about a 15% global tariff proposal have sent shockwaves through supply chains.

Geopolitical Spikes: Tensions in the Middle East (specifically recent strikes involving Iran) have pushed Gold to record highs above $5,230, as investors flee to safety.

Central Banks: The "easing cycle" of 2025 is over. Most central banks are now in a "hold" pattern, keeping rates higher for longer to fight sticky inflation.

₿ Crypto: A Brutal "Crypto Winter" 2.0?

If you’re holding BTC, it’s a test of nerves.

The Slide: Bitcoin is stuck in a $60k–$70k range, down over 30% year-on-year.

Fear Index: The "Fear and Greed Index" is currently hovering around 11–16 (Extreme Fear).

The Catalyst: Between potential US tariffs and the "Clarity Act" (new stablecoin regulations), the "risk-on" appetite has evaporated. Many analysts expect sideways movement or further drops to $50k before we see any real recovery.

💭 The Bottom Line

The "easy money" of the mid-2020s is gone. We are in a stock-picker’s market where fundamentals, energy independence, and physical infrastructure are outperforming "vibes" and "disruption."

Emerging Markets Weekly — March 2026 Outlook

Emerging markets (EM) enter March 2026 with strong momentum, having outperformed developed markets throughout 2025. This week, the narrative shifts from a “broad-based rally” to “selective winners,” driven by a softening U.S. dollar and diverging global central bank paths.

1) The Central Bank “Pivot Point”

While G10 central banks such as the Fed and ECB are widely expected to hold rates steady this month, EM central banks are beginning to move.

Russia

Markets are closely watching the Central Bank of Russia after last week’s surprise 50 bps rate cut. Further easing could follow as policymakers balance persistent inflation risks against slowing growth and geopolitical pressures.

Hungary & Poland

The Magyar Nemzeti Bank and the National Bank of Poland both have upcoming policy meetings. With Eurozone inflation stabilising, regional policymakers are looking for opportunities to ease without triggering excessive currency weakness.

The Carry Trade Shift

The Brazilian real gained nearly 2.7% in February, while the Chinese yuan has now strengthened for eight consecutive months. Investors should watch whether EM currencies can sustain this momentum if EM rate cuts begin before the Fed.

2) Major Economic Data Releases (March 2–6)

This week is heavy on manufacturing and inflation data, key to validating the “industrial recovery” narrative.

March 2 – Indonesia: Inflation Rate (Feb)

A bellwether for Southeast Asian consumer demand and near-term rate-cut potential.

March 2 – Turkey: Q4 GDP Growth

Expected around 3.7% YoY, highlighting resilience despite aggressive prior monetary tightening.

March 2 – India: HSBC Manufacturing PMI

India’s manufacturing sector remains exceptionally strong; any slowdown could hint at moderation in the 2026 growth cycle.

March 4 – China: Caixin Services PMI

Critical for assessing whether domestic consumption is finally catching up with export-led growth.

3) The “AI Adoption” Rotation

A defining theme for 2026 is the divergence between AI producers and AI adopters.

India’s Edge

India is increasingly viewed as a key beneficiary if capital rotates away from an overheated U.S. AI hardware sector, toward EM markets with high digital adoption, strong demographics, and scalable service models.

China’s Dual Circulation Strategy

Watch closely for policy updates around domestic semiconductor and green-technology subsidies. Industrial policy is now structural rather than cyclical, creating long-term opportunities—but also higher risks—for foreign firms operating in these sectors.

4) Key Conferences & Events

J.P. Morgan Global EM Corporate Conference (March 4)

A major catalyst for corporate guidance. Expect discussions around supply-chain diversification, reshoring strategies, and the impact of newly signed trade deals between India, the EU, and Brazil.

OECD Financial Markets Week, Paris (March 2–6)

Focus will centre on EM and developing economy sovereign debt, financing gaps, and restructuring frameworks—critical for investors in EM bonds and distressed debt strategies.

Bottom Line:

The EM story in 2026 is no longer about broad exposure. It is increasingly about identifying policy winners, currency trends, and structural growth themes—particularly across AI adoption, manufacturing recovery, and selective rate-cut cycles.

Looking Forward: What We Anticipate Next Week

For traders and investors, the week of March 2–6, 2026, is all about "The Big Two": US Labour Data and Global Inflation Trends. Markets are currently on edge following news of renewed geopolitical tensions in the Middle East, which could impact oil prices and inflation expectations.

Here is your high-impact economic calendar for the week:

📉 Monday, March 2: Manufacturing & Sentiment

01:45 ET – China: Caixin Manufacturing PMI (February). A crucial pulse-check for the world’s second-largest economy.

08:00 ET – Central Banks: Speech by RBA Governor Michele Bullock.

10:00 ET – US: ISM Manufacturing PMI (February). Markets expect a reading near the 50.0 "expansion/contraction" line. Watch the Prices Paid sub-index for hints of hidden inflation.

11:00 ET – Canada: Speech by BoC Deputy Governor Sharon Kozicki.

📉 Tuesday, March 3: The Inflation Check

05:00 ET – Eurozone: Preliminary CPI (Inflation). With the previous month at 1.7%, traders are watching to see if the ECB has room for further rate cuts or if energy prices are starting to push back up.

10:00 ET – US: JOLTS Job Openings. An early indicator of labour market tightness ahead of Friday’s big report.

📉 Wednesday, March 4: Employment Preview

01:30 ET – China: Services & Manufacturing PMI (CFLP).

08:15 ET – US: ADP Non-Farm Employment Change. The "private sector preview" for Friday's jobs report.

10:00 ET – US: ISM Services PMI. Given that the US is a service-based economy, this often moves the needle more than manufacturing.

12:30 ET – Canada: Fireside chat with BoC Governor Tiff Macklem. While the next rate decision isn't until March 18, his tone will be heavily scrutinized for "hawkish" shifts.

📉 Thursday, March 5: Trade & Claims

08:30 ET – US: Weekly Jobless Claims. A steady climb here would signal the labour market is finally cooling.

08:30 ET – US: Revised Q4 Productivity and Costs.

10:00 ET – Eurozone: Retail Sales. A key measure of consumer strength in the EU.

📉 Friday, March 6: "Jobs Friday"

This is the most important 90 minutes of the week for the S&P 500 and the Dollar.

08:30 ET – US: The Employment Situation (Non-Farm Payrolls).

Expectation: Analysts are forecasting a modest gain of +65k to +80k jobs (following a massive January surge).

Unemployment Rate: Expected to tick up slightly to 4.4%.

Average Hourly Earnings: This is the "inflation" part of the jobs report; high wage growth could delay Fed rate cuts.

08:30 ET – US: January Retail Sales. Released simultaneously with jobs data, adding extra volatility to the market open.

⚠️ Market "Wildcards" to Watch:

ICYMI

The dominant story shaking markets right now is the escalating US-Israel strikes on Iran, including the reported death of Iran’s Supreme Leader Khamenei, leading to vows of retaliation from Iran and threats to restrict traffic in the Strait of Hormuz (a critical oil chokepoint). This has triggered geopolitical risk premium across assets.

Oil prices surged (crude up ~2.78% in recent data), with warnings of potential jumps of $10–20+ per barrel if no de-escalation occurs. OPEC+ responded by raising production quotas by 220,000 barrels/day to calm markets.

Equities sold off sharply: Dow closed down >500 points (~1.05%), S&P 500 -0.43%, Nasdaq -0.92% in the latest session, with broader monthly declines (worst for Nasdaq/S&P since March in some reports). Investors rotated to “haven-first” strategies.

Crypto volatile: Bitcoin dipped then recovered tepidly (above $67k–68k range), with majors like Ether/Solana/XRP bouncing up to 10% after initial war-driven losses, but uncertainty persists.

This directly impacts investors via higher energy costs (inflation risk), supply chain disruptions, and flight to safety (gold up, bonds/havens favoured). Broader AI/tech concerns linger (e.g., Nvidia weakness, questions on AI hype sustainability), plus recent hot inflation data and tariff-related uncertainties (Supreme Court rulings clipping some Trump-era tariff approaches).

What Else is Happening?

US markets outlook mixed: Wall Street forecasts S&P 500 returns ~12% for 2026 (above long-term average), but near-term volatility from geopolitics, AI rotation fears, and economic slowdown signals (e.g., Q4 2025 GDP growth deceleration tied heavily to AI/data center investments).

European/UK markets: Some resilience with “AI-resistant halo stocks” (heavy-asset, low-obsolescence firms) driving records in UK/EU indices per Goldman Sachs.

Corporate highlights: Swiss Re surged on record profits and buyback; Shell dealing with debt issues in clean energy ventures; auto sector weakness (e.g., France car registrations down sharply).

Other: Mortgage rates dipped below 6% (positive for housing/investors); ongoing AI developments (e.g., Nvidia alliances for 6G).

Useful Links

Bloomberg on Mideast attacks and Iran vows — Core to the current risk-off move; tracks oil, equities, and crypto reactions in real time—investors watch for escalation impacting energy/commodities and global growth.

Reuters on global markets amid conflict — Highlights top investor worries shifting to Middle East power struggles; useful for seeing index moves and why havens are in play.

CNBC on recent stock close and AI/inflation concerns — Explains Dow’s big drop and broader fears (hot PPI data + AI impact doubts)—key for understanding tech/equity weakness.

Yahoo Finance on oil quota hike and regional market slumps — OPEC+ response aims to stabilise supply, but Iran threats could override; critical for energy investors and inflation watchers.

CoinDesk on crypto recovery post-strikes — Shows Bitcoin/Ether/Solana bounces despite uncertainty—relevant for risk-asset traders as crypto often amplifies macro/geopolitical swings.

Markets are in a high-uncertainty phase—geopolitics trumping other factors short-term, with energy and risk premiums front and center for investors. Stay tuned for any de-escalation signals or further strikes.

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