Good morning. Significant developments unfolded overnight and into this morning.
U.S. stock indices closed higher across the board, with most large-cap tech stocks and Chinese ADRs also posting gains. The Federal Reserve's Beige Book indicated overall stable employment and moderate price increases in the United States. U.S. crude oil futures opened strong, while Federal Reserve Governor Milan suggested it would be appropriate to continue with interest rate cuts in March.
U.S. stock indices advanced uniformly. The Dow Jones Industrial Average rose 0.49%, the S&P 500 increased by 0.78%, and the Nasdaq Composite climbed 1.29%.
Leading the gains within the Dow were Amazon, which rose 3.88%, Cisco, up 2.42%, and IBM, which gained 1.91%.
Most major technology stocks trended upwards. The index tracking seven major U.S. tech giants advanced by 1.13%. Amazon, Tesla, and Facebook led the gains within this group, rising 3.88%, 3.44%, and 1.93% respectively.
Chinese ADRs also mostly increased. The Nasdaq Golden Dragon China Index rose 0.8%, while an index of leading Chinese tech stocks gained 0.58%. Constituents such as Xiaomi Group, BYD, and NetEase led the advancers, rising 4.40%, 1.74%, and 1.32% respectively.
The Federal Reserve's Beige Book, released on March 5th, stated that the number of districts reporting unchanged or declining activity increased from four to five compared to the previous period. In recent weeks, employment levels were generally stable, with prices rising at a moderate pace.
Regarding overall economic activity, the report noted that seven of the twelve Federal Reserve Districts saw slight to modest growth. The number of districts reporting flat or declining activity rose to five. Financial services activity was generally reported as stable or increasing, with commercial lending being a key area of strength. Residential real estate and construction saw slight declines in most regions, with low inventory and affordability remaining key concerns. Non-residential construction activity was mixed but showed a slight net increase. Agricultural conditions were mostly flat, while energy activity saw modest growth overall. Economic outlooks remained optimistic, with most districts expecting slight to modest growth in the coming months.
In the labor market, employment levels were broadly stable, with seven districts reporting no change in hiring. Some contacts cited rising non-labor input costs, weak demand, or uncertainty about the economic outlook as reasons for flat or declining employment. Companies in some districts and industries sought to utilize AI or other automation to enhance efficiency, with most emphasizing productivity gains rather than worker replacement. Wages increased at a moderate pace in most districts as firms competed for talent, particularly in skilled trades. Several districts continued to report upward pressure on total compensation due to rising health insurance premiums.
On prices, the Beige Book indicated moderate increases in recent weeks, with eight districts reporting moderate growth and four reporting slight or modest increases. Many districts reported rising costs for various non-labor inputs, including insurance, utilities, energy, metals, and other raw materials. Nine districts mentioned tariffs contributing to cost increases. Some companies continued to pass these tariff-related costs to customers, while others began doing so after absorbing previous increases. Nevertheless, most districts reported that some companies held selling prices steady despite cost pressures due to heightened customer price sensitivity. Overall, businesses anticipated a slower pace of price increases in the near term.
U.S. crude oil futures opened higher on March 5th, at one point surging 2.05%. This follows a 2.08% gain for the main contract on March 4th, closing at $76.11 per barrel. Brent crude also rose 1.36% to $82.51 per barrel. Tensions in the Middle East persist, with shipping through the Strait of Hormuz remaining paralyzed, continuously disrupting oil and gas supplies from the region.
Data from the U.S. Energy Information Administration showed a larger-than-expected build in crude inventories last week, adding 3.475 million barrels versus an expectation of 2.305 million. However, market focus remained on geopolitical supply risks.
Analysts at Goldman Sachs suggested that if the closure of the Strait of Hormuz persists for another five weeks, Brent crude prices could reach $100 per barrel. The firm raised its average price forecast for Q2 2026 for Brent by $10 to $76 per barrel and for WTI by $9 to $71 per barrel.
China Galaxy Securities projected a March trading range for Brent crude between $75 and $90 per barrel, suggesting investors focus short-term on high-dividend oil and gas stocks.
In related developments, former U.S. President Donald Trump announced plans to provide insurance for maritime crude transport, with naval escorts if necessary. Iranian media reported on the 4th that candidates for the next Supreme Leader have been identified, with a selection imminent.
On March 4th, White House Press Secretary Caroline Leavitt stated that the "Epic Fury" operation initiated over the weekend primarily aims to destroy Iran's ballistic missiles and production infrastructure, strike Iranian naval capabilities, weaken Iran's proxy forces in the Middle East, and ensure Iran cannot obtain nuclear weapons. She reported that to date, U.S. forces have struck over 2,000 targets, destroyed numerous missiles, launchers, and drones, and sunk more than 20 Iranian vessels, including a submarine.
Federal Reserve Governor Milan commented that a total of one percentage point in interest rate cuts this year would be appropriate. He stated that it would be suitable to continue cutting rates at the March meeting and that his outlook has not changed due to the outbreak of conflict with Iran.
