Day five of the US–Israel conflict with Iran continues to unfold. Reports suggest that financial markets have reacted largely in line with expectations. Although markets initially reacted calmly on Monday, sentiment weakened considerably yesterday. The FTSE 100 declined 2.75% and the Euro Stoxx 600 fell more than 3%, while US equities held up relatively better, with the S&P 500 down 0.9% as investors consider whether rising oil prices could add to global inflation pressures and potentially delay interest rate cuts, with possible implications for future economic growth. Brent crude has climbed to around $84 per barrel at the time of writing. President Trump has stated that the US Navy will work to ensure the safety of vessels navigating the Strait of Hormuz – a vital, Iran‑controlled waterway currently considered high‑risk. Around one‑fifth of the world’s oil and gas supply typically passes through this route. Asian markets have not shared in that cautious optimism, but European futures point to a stronger start. This morning the FTSE 100 opened 0.3% higher.
As noted in our update on Monday, an initial spike in oil prices is not in itself a reason for knee‑jerk adjustments to long‑term investment strategies. Much of the geopolitical risk now appears to be reflected in oil markets, with traders already factoring in the potential for disruption. At the same time, spare production capacity elsewhere is being viewed as a possible buffer should supply from the region be affected.
This week, Canadian Prime Minister Mark Carney, travelled to India to meet President Narendra Modi in what marked his first official visit since taking office. Discussions reportedly centred on rebuilding economic ties, with both sides exploring the possibility of expanding two-way trade to $50 billion by 2030 – a substantial rise from approximately $9 billion in 2024–25. Among the proposals under consideration is a long-term uranium supply arrangement, intended to support India’s efforts to expand reliable baseload electricity generation while reducing its reliance on more carbon-intensive sources.
In the United Kingdom, Chancellor Rachel Reeves delivered her Spring Forecast yesterday. The announcement was notably restrained, offering no major policy shifts or new fiscal initiatives. Instead, the focus lay on revised economic projections. Inflation is anticipated to move gradually back toward the Bank of England’s 2% target by 2027, while unemployment is forecast to peak in 2026 amid ongoing softness in hiring. Economic growth expectations for the current year have been adjusted down to 1.1%, though a modest recovery is projected thereafter. Financial markets reacted calmly overall. Movements in gilt yields were limited, with any upward pressure attributed more to geopolitical tensions in the Middle East than to domestic fiscal policy developments.
In Japan, manufacturing activity accelerated in February, reaching its strongest pace in nearly four years. The purchasing managers’ index rose to 53, up from 51.5 in January, indicating solid expansion. The improvement was broad-based, with notable gains in new orders, production, and hiring. Corporate sentiment also strengthened, with firms expressing increased confidence in global demand over the coming year – particularly in sectors such as technology and automotive manufacturing.
Still to come this week we have US non farm payrolls, retail sales, and unemployment rate and China’s inflation rate.
Nicola Tune, Portfolio Specialist
