Inflation risk rises

U.S. producer prices came in hotter than expected this week, with the February PPI rising 0.7% month over month, above the 0.3% consensus, after a 0.5% increase in January. On a year-over-year basis, headline PPI rose 3.4%, up from 2.9% in January and the fastest annual pace in a year. The details were firm as well: final demand services rose 0.5%, goods rose 1.1%, and the BLS’s underlying measure excluding foods, energy, and trade services increased 0.5% in the month and 3.5% over the past 12 months. Core PPI excluding food and energy rose 0.5% in the month and 3.9% year over year, both above expectations. The takeaway is simple: producer inflation is not cooling fast enough, and with the war in the Middle East already pushing up energy costs, the risk is that pipeline inflation starts to show up more clearly in consumer prices and keeps the Fed boxed in.

• This was a meaningful upside surprise
• The mix matters: goods +1.1% and energy +2.3% suggest inflation is broadening, not narrowing
• If producer prices stay firm, margins get squeezed unless companies pass costs through
• The Fed is likely to lean hawkish (fewer cuts) if this persists
• This keeps stagflation risk alive: slower growth, but renewed price pressure
  
  

10-year yield rises due to war

The 10-year U.S. Treasury yield hit a high of 4.38% on Friday this week, attributed to rising oil prices, war-related inflation fears, and fading hopes for Fed rate cuts. The broader point is not just the day-to-day move, but the direction: Treasury yields have been climbing as the market prices in the possibility that the war in Iran will keep energy prices elevated and force central banks to stay tighter for longer. The same move has already fed directly into consumer borrowing costs, with the average 30-year mortgage rate rising to 6.22% this week from 6.11% last week, a three-month high. In other words, the rise in the 10-year is no longer just a bond-market story; it is already tightening financial conditions in housing and credit. If oil remains over $100 and the Strait of Hormuz situation worsens, long-end yields can stay under pressure even if growth expectations soften.

• A 4.3% 10-year is a problem when inflation is re-accelerating, and growth is already fragile
• Higher long rates raise discount rates, pressure valuations, and tighten credit conditions
• The mortgage market is already feeling it: 6.22% mortgage rates are moving the wrong way for housing
• This is what stagflation looks like in markets: oil up, yields up, and risk assets under pressure
• The real danger is that bonds stop acting like a clean, safe haven if inflation is the shock
  
  

Gold and silver implode

Gold and silver sold off hard this week, even as geopolitical risk intensified, which is the opposite of what many investors would normally expect. Spot gold fell 1.8% on Friday to $4,566.26, while spot silver dropped 4.6% to $69.52. Gold was on track for roughly a 8% weekly decline, its worst week since 2020, while silver extended a brutal slide and had fallen more than 20% over seven sessions. On Thursday alone, gold was down 5.9% and silver down 8.2%, underscoring how violent the move has been. The reason is straightforward: the market is treating the war primarily as an inflation shock, which means higher oil, a stronger dollar, higher Treasury yields, and fewer expected rate cuts, all of which are headwinds for non-yielding metals. So instead of behaving like classic safe havens, gold and silver got caught in a liquidation driven by rising real-rate fears and a scramble into dollars.

• This move down was triggered by the Fed holding rates steady, and the markets are now pricing no rate cuts for the rest of the year
• While the move down has been violent, it follows a historic rise throughout the last year
• Gold is still up almost 7% for the year and up 55% on a year-over-year basis
• Silver is up over 110% on a year-over-year basis
• Silver’s move has been exacerbated by the fact that it has industrial uses

• The selloff does not necessarily kill the long-term bull case for metals, as ultimately the Federal Government is likely to attempt to stimulate a sluggish economy, which will put pressure on the US dollar and be bullish for metals

‍