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MacroFed

The Stagflation Signal

What happened this week in crypto and macro

By Akram Ayyash

The Signal

This week forced markets to take stagflation seriously. Three things converged: oil surged 35% after U.S.-Israeli strikes killed Iran's Supreme Leader and the Strait of Hormuz shut to commercial shipping. Friday's payrolls showed the economy lost 92,000 jobs in February, the third decline in five months. And ISM manufacturing prices paid hit 70.5, the highest since June 2022.

Rising energy costs, a weakening labor market, and a Fed boxed between inflation and employment with one tool. The word is stagflation, and in my view, this week made it harder to dismiss.

What makes this cycle different from prior slowdowns is the nature of the labor weakness. This is not a demand-driven downturn that rate cuts can reverse. Companies are cutting headcount because AI is making them more productive with fewer people. Block is shrinking from 10,000 to 6,000 employees, explicitly citing AI gains. Amazon eliminated 16,000 roles to "reduce management layers." If companies produce the same output with fewer workers, cheaper borrowing does not bring those jobs back. It may accelerate displacement by making AI capital expenditure more attractive. That distinction, cyclical weakness versus structural displacement, is central to everything that follows.

Meanwhile, Bitcoin rallied roughly 7% on a short-squeeze and renewed ETF inflows, pulling the broader crypto complex higher. Gold, the traditional haven, fell 4.5% as a surging dollar and rising yields overpowered the geopolitical bid. The divergence says something about what each asset has become.

The Hormuz Shock

On February 28th, U.S.-Israeli joint strikes on Iran killed Supreme Leader Ali Khamenei. Iran responded with 500-plus ballistic and naval missiles and roughly 2,000 drones over the following days. By March 5th, the IRGC prohibited vessel passage through the Strait of Hormuz, effectively halting commercial shipping.

The Strait handles roughly 20 million barrels per day, approximately 20% of global supply. The closure was not a physical blockade but an insurance event: underwriters pulled coverage, and without coverage, tankers do not sail.

WTI crude settled Friday at $90.90, up 35.6% on the week. Brent closed at $92.69, up roughly 28%. These are the largest weekly gains in the history of crude oil futures. OPEC+ pledged to increase output by 206,000 barrels per day, a rounding error against the 20 million at risk.

Oil feeds directly into CPI through energy costs, transportation, and petrochemical inputs. J.P. Morgan now projects CPI accelerating to 3.6% by mid-year as tariff feedthrough and energy costs compound. February CPI arrives on March 11th. January's print came in at 2.4% year-over-year, the lowest since May.

For the Fed, the bind is real. KC Fed President Schmid said inflation is "still running hot." Markets have responded: pre-shock, markets priced roughly 80% probability of a rate cut at the late-March FOMC meeting. That probability is now near zero.

As Bloomberg noted, this oil shock hits differently because the U.S. is now a net energy producer. Higher crude benefits U.S. producers but hurts consumers. The net GDP effect is closer to neutral, but the CPI impact is unambiguously inflationary.

The Labor Market: AI's Quiet Restructuring

Friday's jobs report carried a different kind of unsettling. The economy lost 92,000 jobs against expectations of roughly 55,000 to 60,000 gains. Unemployment rose to 4.4%. Labor force participation fell to its lowest level since 2021.

The sectoral breakdown tells the story. Professional and business services lost 30,000 jobs. Healthcare shed 28,000, though approximately 30,000 reflect the Kaiser Permanente strike rather than structural decline. Information and IT lost another 11,000, extending 12 consecutive months of losses.

The BLS benchmark revision added a quieter bombshell. Total 2025 job growth was revised down from 584,000 to 181,000, cutting reported gains by roughly 70%. The labor market narrative for all of last year was retroactively rewritten.

This is the same structural pattern I described in "When Everything Became One Trade". The January Challenger report logged the highest January layoff total since 2009. Year-to-date hiring announcements are down 56%. Companies are not cutting because demand collapsed. They are cutting because they need fewer people.

Average hourly earnings still rose 0.4% month-over-month and 3.8% year-over-year, beating forecasts. Wages outpacing inflation provides a household buffer, but the Fed has historically treated wage growth above 3.5% as inflationary. Add $90 oil and ISM prices at 70.5, and the inflation side of the ledger is stacking up.

Where the Haven Bid Actually Went

This week provided a clean test of which assets absorb capital when the world gets more dangerous.

The dollar surged. DXY hit 99.1 on Thursday, its best weekly performance since 2022. Gold spiked to $5,408 on Monday on the initial panic, then sold off to $5,097 by Friday, down 4.5% on the week. The stronger dollar and rising real yields won the tug-of-war. The 10-year Treasury yield rose roughly 20 basis points to 4.17%, its largest weekly jump since April.

That is the stagflation signature: bonds selling off alongside equities because inflation expectations are dominating growth concerns. For TradFi readers, this is critical. In a normal risk-off event, Treasuries rally as investors seek safety. This week, they sold. When both stocks and bonds decline simultaneously, the 60/40 portfolio offers no shelter. That was the 2022 playbook, and it is reasserting itself.

Bitcoin did something different. BTC rallied roughly 7% to approximately $69,900, driven by a short-squeeze on Monday that cleared bearish positioning and renewed ETF inflows. Wednesday saw approximately $500 million in inflows, the best single day of the year.

But calling this a "haven bid" requires caution. Bitcoin's 30-day correlation with gold stands at -0.27, while its Nasdaq correlation, though declining from 0.92 to 0.69, remains positive. In my view, Bitcoin's rally reflects technical mechanics rather than macro haven demand. The Coinbase premium rose to its highest since December, signaling renewed U.S. institutional interest. Bitcoin is behaving less like gold and more like an institutionalized risk asset with its own flow dynamics.

Ethereum rose approximately 7% to $2,030. Total crypto market cap rose 2.9% to $2.48 trillion. This is what I described in Tuesday's deep dive, "Treasury 3.0: How Crypto Became a Financial Operating System": as institutional adoption deepens, the asset class develops demand drivers independent of the macro risk-on/risk-off toggle. A week where BTC rallies while gold falls and equities sell off is exactly what that structural evolution looks like.

The Setup

Step back and the picture is uncomfortably clear. Oil at $90 with the Strait of Hormuz closed. ISM prices at their highest since 2022. An economy losing jobs where it was supposed to add them. A benchmark revision that erased 70% of 2025's reported job growth. A Fed that was preparing to cut but now faces an inflation shock that makes easing dangerous and inaction painful.

The stagflation framework is not confirmed. But the ingredients are assembled, and the margin for error has narrowed considerably. What happens next depends on whether Hormuz reopens, whether March 11th's CPI print reflects the oil shock, and whether the Fed acknowledges what markets are already pricing: that the dual mandate is pulling in opposite directions.

Bitcoin's resilience this week is notable, but it is too early to call it a regime change. The structural supply picture is tightening, institutional flows are returning, and the crypto complex is evolving from a leveraged tech proxy into something with its own demand architecture. Whether that architecture holds through a genuine stagflationary environment is the test ahead.

Tidbits

ICE invests in OKX, bridges NYSE and crypto. On March 5th, Intercontinental Exchange announced a strategic investment in crypto exchange OKX at a $25 billion valuation. The deal includes an ICE board seat and plans to license OKX spot crypto prices for futures products. When the company that operates the infrastructure underlying U.S. equity markets takes a governance stake in a crypto exchange serving 120 million users, the convergence thesis moves from theoretical to operational.

Broadcom signals AI spending acceleration. Broadcom reported Q1 revenue of $19.31 billion on March 4th, with AI revenue of $8.4 billion, up 106% year-over-year. CEO Hock Tan guided Q2 revenue to $22 billion versus $20.56 billion consensus. Broadcom's results suggest hyperscaler AI spending is accelerating, not decelerating, even as broader labor markets contract.

The great sector rotation. Energy leads the S&P 500 year-to-date at +22%, followed by industrials at +16% and consumer defensives at +13.3%. The Magnificent Seven continue to lag. Analysts are calling it "trading silicon for steel", a rotation from high-multiple tech into sectors that benefit from inflation and geopolitical risk premiums.

Court orders $130-175 billion in tariff refunds. On March 5th, the Court of International Trade ordered refund processing from tariffs levied under IEEPA, which the Supreme Court ruled unconstitutional on February 20th. The administration has pivoted to Section 122 of the Trade Act, imposing a 10% temporary global import surcharge with signals of an increase to 15%. Another inflationary input at the worst possible time.

What I'm Watching

February CPI on March 11th. The week's most consequential data point. January printed 2.4% year-over-year. With oil at $90 and ISM prices at 70.5, the trajectory matters more than the level. A print showing acceleration would further constrain the Fed's ability to cut into labor weakness.

Strait of Hormuz commercial shipping. Whether insurance markets reopen and tanker traffic resumes determines whether oil sustains above $90 or retraces. Every day the Strait stays closed tightens the supply picture and raises the CPI floor.

Fed language on the dual mandate. Watch for any acknowledgment of the tension between rising energy-driven inflation and weakening employment. Markets are pricing roughly 55 basis points of easing for the full year, with the first cut pushed to June at the earliest.

Bitcoin's correlation regime. This week's divergence from gold and partial decoupling from the Nasdaq is a single data point, not a trend. If BTC holds above $70,000 through CPI and the next FOMC while maintaining positive ETF flows, the structural supply-demand case strengthens.

Next Tuesday: Regulation as Market Structure. Washington is writing the rules for crypto's next chapter. The GENIUS Act is live. The CLARITY Act stalled over whether stablecoins can offer yield. The SEC has cut enforcement 60% and slashed stablecoin capital haircuts from 100% to 2%. I will break down why regulation is a market-structure force, not just a compliance exercise, and draw the Dodd-Frank parallel that nobody is making yet.

Drop me a line:

What do you think? Do you like this? Do you not like this? I would love to hear your thoughts, so please reach me at akram@span.blog

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