Rates Ignore Data…It’s All About Oil

Middle East Conflict Jolts Markets 

Wow. What a difference a couple days make! On Friday, we were looking at the lowest interest rates since 2022. Over the weekend, the world was rocked by news of the U.S. and Israeli attacks in Iran. Retaliatory strikes that appear to be a “scorched earth” tactic rained down on the surrounding Gulf Nations drawing many of them into the conflict.   

Strait of Hormuz Oil Risk 

Despite the attacks and loss of life, the world is watching one small body of water: the Strait of Hormuz. This 21-mile-wide channel sees over 20% of the world’s oil pass annually. China gets 45% of its oil via this route. The actual shipping lanes, where ships can safely pass, are only two miles wide. Iran has said it will destroy anything attempting to traverse the Strait.   

Rising Oil Prices Fuel Inflation 

Naturally, shipping companies and crew are reluctant to make this journey and that has greatly increased the price of oil. As we have discussed, Core Inflation strips out volatile food and energy prices, like oil, as they aren’t directly influenced by the Federal Reserve’s monetary policy.  

What can’t be overstated is that oil prices influence virtually all other prices indirectly. The cost to manufacture and transport goods will go up as energy costs rise, pushing their prices up too. This is highly inflationary and terrible news for mortgage rates. The US has indicated their willingness to open the shipping companies to US-backed insurance and the possibility of US Navy escorts. It still hasn’t settled oil prices. 

History Shows Oil Price Reversals 

What is the silver lining?  If we look at military events over the past couple of years, a pattern appears. Oil prices and Treasury yield often rise at first. But within two to three weeks, they usually fall back to the same level they were before the event, or even lower. This includes the Soleimani assassination in 2020, the Hamas attack in October 2023, and the 12-day war in 2025. We know there is no guarantee that a rebound will occur this time, but history does give us hope. 

Major Reports Markets Ignored 

There were some major economic releases this week, though the markets basically ignored them all. If the Iran conflict settles, the reports will become very important and can shift rates. The Bureau of Labor Statistics (BLS) Non-Farm Payroll Report (Jobs Report), as well as ADP’s Private Payrolls and Productivity & Unit Labor Costs came out this week. These reports should have been very good news for mortgage rates. 

ADP Private Payrolls Report 

ADP released their February Private Payrolls report. It came in showing 63,000 jobs created, higher than the 50,000 expectations. This might have been bad news for rates, but the source of those jobs matters. 58,000 of those jobs were from Education/Health Services. Those jobs are not indicative of how the economy is really doing as they are services needed regardless of the strength or weakness. 

Productivity Report Beats Expectations 

Looking at the Productivity report, Q4 of 2025 productivity rose to 2.8%, stronger than the 1.9% expected. Higher productivity is actually good for rates. The Federal Reserve Chairmannominee, Kevin Warsh, believes the Fed can cut rates and not cause inflation due to the high productivity.   

BLS Jobs Report Shows Losses 

The BLS Jobs Report for February came out on Friday. Remember that January’s number was a huge 126,000 jobs created. We discussed that this was all due to seasonal adjustments. The BLS revised the December and January numbers down by a combined 69,000. Expectations were to have an increase of 59,000 jobs for the headline from February. What we got was a LOSS of 92,000. The math simply doesn’t add up to a 126,000-gain followed by a 92,000 loss, with more revisions still coming. What the BLS gives, it often takes back. 

Household Survey Shows Job Losses 

The Household Survey component of the BLS Jobs report showed losses of 185,000 jobs, even worse than the Business Survey. The unemployment rate ticked up to 4.4% from 4.3%. Looking at one decimal place more, it was 4.44%, extremely close to 4.5%. With the Fed’s dual mandate of price stability and maximum employment, the rise in the unemployment rate may help push them to cut rates further. 

Looking Ahead: Key Inflation Reports 

As we stated, this rate-friendly news was ignored. As a result, rates moved higher this week. Next week, we will get the Fed’s favorite inflation report, PCE, along with the important CPI report. 

Tuesday, March 10: ADP Weekly Report, Existing Home Sales 

Wednesday, March 11: Consumer Price Index (CPI inflation report), 10-year auction 

Thursday, March 12: Housing starts, Jobless claims, and 30-year auction 

Friday, March 13: Personal Consumption Expenditures (PCE), GDP Q4 second reading, Job Openings and Labor Turnovers (JOLTS)