Pretty, Pretty, Pretty Nervous

March 13, 2026

Elias Haddad

Financial markets highly sensitive to small shifts in perceived risks to shipping through the Strait. USD is nearing fresh cyclical highs.

US PCE, JOLTS, and U. of Mich sentiment in focus. Watch long-term inflation expectations.

UK economy showed no growth in January. Canada February labor force survey due today.

Financial markets remain extremely war headline-driven, with the safety of shipping through the crucial Strait of Hormuz the primary barometer for risk sentiment. Brent crude oil prices are up above $100 a barrel as Iran's new supreme leader, Ayatollah Mojtaba Khamenei, warned yesterday that “the lever of the Strait of Hormuz must certainly continue to be used.”

The rebound in crude oil prices continues to weigh on global bond and stock markets due to heightened stagflation risks and fiscal concerns. USD is up across the board with the DXY index just shy of the November 21, 2025, high. As long as the Strait is effectively shut for shipping, USD can continue to benefit from haven bid driven by dollar funding needs.

Today’s US data lineup features January PCE, January JOLTS, and March University of Michigan consumer sentiment survey. Particular attention will fall on the sentiment survey’s long-term inflation expectations, which will help gauge whether the recent surge in energy prices is beginning to de-anchor inflation expectations.

Consensus sees 5-10 year inflation expectations up just 0.1pts to 3.4% in March. A bigger rise would complicate the Fed’s ability to ease further, even though US labor demand is weak. Fed funds futures have already slashed rate cut expectations by year-end to 20bps from just a little over 50bps ahead of Operation Epic Fury.

The January JOLTS data should also be closely watched to see whether a rise in the hiring rate validates January’s strong non-farm payrolls gain (+126k). The JOLTS job opening rate will also offer a forward-looking read of labor demand. In December, the job opening rate fell to 3.9%, the lowest since April 2020, indicative of a rising unemployment rate. Consensus expects the job opening rate to improve to 4.0% in January. Regardless, Fed research showed that the unemployment rate tends to rise faster when the job opening rate falls under 4.5%.

Finally, markets will look past the January PCE deflator figures given the recent surge in gasoline prices is poised to lift inflation sharply in coming months and February CPI data was already released this week. Instead, the real personal spending data will provide a useful read on how resilient household demand was ahead of the jump in energy costs. Real personal spending is expected at 0.0% m/m vs. 0.1% in December.

CANADA

USD/CAD is not bucking broad USD strength, but CAD is performing better on the crosses. Canada February labor force survey is on deck today (12:30pm London, 8:30am New York). The economy is expected to add +10k jobs vs. -24.8k in January and the unemployment rate is seen rising 0.1pt to 6.6%. Canada’s labor market backdrop is soft and argues against swaps market pricing nearly 50bps of Bank of Canada (BOC) rate hikes in the next twelve months.

However, the BOC could still be forced to tighten policy if the current oil price shock proves large or persistent enough to push inflation higher. In the meantime, CAD can continue to outperform most major currencies supported by the positive terms of trade shock from higher crude oil prices and Canada’s sound fiscal backdrop.

GBP/USD plunged under 1.3300 and vulnerable to more downside. The UK economy unexpectedly showed no growth in January. Real GDP was 0.0% m/m (consensus: 0.2%) vs. 0.1% in December with services output flat, production down -0.1% and construction up 0.2%. Real GDP is undershooting the Bank of England’s (BOE) Q1 0.3% q/q projection.

Stagnating UK growth is not a good sign ahead of the energy-driven supply shock to inflation. That raises stagflation risks and puts the BOE in a difficult policy bind which is already reflected in the sharp upward adjustment to UK rate expectations. The UK swaps curve has swung from pricing a full 50bps of cuts by year-end on February 27 to nearly 25bps of hikes currently.

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