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Global equity markets finished lower over the week ended March 13. Geopolitical tensions in the Middle East along with concerns over the potential impact of higher oil prices on inflation weighed on investor sentiment. In Canada, the S&P/TSX Composite Index finished lower, getting a weak performance from the information technology sector. U.S. equities declined over the week. Yields on 10-year government bonds in Canada and the U.S. increased. The price of gold finished lower, while the price of oil finished higher in a choppy week.
Middle East tensions raise fears of an energy crisis
Tensions in the Middle East remained ongoing last week, raising concerns about the global economy, in particular the oil market.
Amid the U.S. strikes on Iran and Iran’s strikes on neighbouring countries, the Strait of Hormuz remained effectively closed. This shut off the global shipments of oil from the region, raising concerns about global supply and a building energy crisis.
The International Energy Agency agreed to release 400 million barrels of oil from its members’ emergency reserves to help stabilize the oil market and put a cap on oil prices.
However, the release of oil did little to slow upward pressure on oil prices as Iran continued to strike commercial ships near the Strait of Hormuz. U.S. President Donald Trump commented that stopping Iran’s nuclear weapons program was a bigger priority than higher oil prices.
The price of oil has surged higher since tensions in the Middle East escalated, stoking inflationary concerns. This could keep central banks on the sidelines regarding further cuts to interest rates at their upcoming meetings, amid concerns that inflation will move higher.
Canada’s labour market weakens in February
Canada’s economy lost 83,900 jobs in February, which was the most since January 2022. The full-time sector lost 108,400 jobs, while the part-time sector added 24,500 jobs.
Significant losses were seen in the retail and wholesale trade industry and the culture and recreation industry.
Canada’s unemployment rate rose to 6.7% in February from 6.5% in January.
Canada’s trade activity slowed in January, widening its trade deficit, suggesting it might have been a tough start to 2026 for Canada’s economy. Exports dropped by 4.7% in January, while imports declined by 1.1%. Shipments of motor vehicles and parts fell by 21%, due in part to seasonal production stoppages.
Canada has experienced two straight months of job losses, suggesting the labour market may be weakening. This could keep the Bank of Canada (BoC) accommodative on interest rates. However, the BoC will need to weigh a sluggish labour market with the potential for higher inflation in response to the conflict in the Middle East.
Headline inflation in the U.S. unchanged in February
The annual inflation rate in the U.S. was unchanged at 2.4% in February, holding at its lowest level since May 2025. Economists were expecting the 2.4% rate. A rise in energy prices was offset by a drop in prices for used cars and trucks.
The annual core inflation rate also held steady in February at 2.5%, which was the softest pace since March 2021.
Back in January, the personal consumption expenditure price index (PCE) increased by 2.8% year-over-year, which was down slightly from the 2.9% increase in December and was below expectations. The PCE is the preferred inflation gauge of the U.S. Federal Reserve Board (Fed).
Meanwhile, a second reading of U.S. economic growth showed the economy grew at an annualized pace of 0.7% in the fourth quarter of 2025, down from the preliminary estimate of 1.4%.
The Fed makes its interest rate decision on March 18. While inflation appears largely contained, upside risks heightened in March given the conflict in the Middle East. The Fed will have to navigate carefully as it contends with slowing economic activity with the threat of higher inflation.
China’s trade activity accelerates to start the new year
China saw increased trade activity over the first two months of 2026 compared to the same period in 2025.
Over January and February, exports from China increased by 21.8% year-over-year. This was the sharpest pace of annual growth since October 2021. Contributing to the increase was a rise in shipments of refined oil products. Exports to the U.S. declined over the period but increased to other countries around the world.
Imports surged higher by 19.8% year-over-year. Like exports, imports from the U.S. declined.
Looking at consumer prices, China’s annual inflation rate accelerated to 1.3% in February, which was its fastest pace since January 2023. Prices pushed higher in large part due to the Lunar New Year holiday, which helped boost demand.
Data points to a strong beginning of 2026 for China’s economy. Still, China’s economy faces several risks, including geopolitical tensions weighing on global economic activity, higher oil prices and ongoing trade tensions. At the National People’s Congress, China’s government set a 2026 economic growth target of 4.5%-5.0%, which is down from the 5.0% in 2025.
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