Markets slip as Middle East tensions lift oil and bond yields

Market Commentary

European stocks traded lower on Thursday, with both the STOXX 50 and STOXX 600 falling around 0.60% amid rising oil prices and no sign of a resolution to the Iran conflict. Almost all sectors were in negative territory, with consumer cyclicals, financials, and healthcare among the biggest decliners. BMW shares fell 2.30% after the automaker warned that tariffs are expected to weigh on its 2026 earnings, while HSBC Holdings (-4.30%), Roche (-3.70%), and LVMH (-1.10%) also lost ground. Defence stocks outperformed, with Leonardo rising 7.80% and Rheinmetall up 3.50%. Daimler Truck added 0.60%, citing broadly stable margins in 2026, and Generali gained 0.40% after reporting a 12% increase in annual net profit. Zalando jumped over 5% following a €300 million share buyback announcement.

London’s FTSE 100 fell 0.60% to 10 290 points, approaching its lowest level since late January, as investors factored in a potential Bank of England rate hike amid surging energy prices linked to Middle East tensions. Airlines were among the weakest performers, while exporters faced renewed pressure from tariff concerns. Travel operator On the Beach slid 14% after withdrawing guidance due to regional travel disruptions. Informa lost 2%, noting its 2026 outlook remains unchanged despite exposure to the region.

US equities retreated to their lowest levels since November 2025, with the S&P 500, Dow, and Nasdaq 100 all down by almsot 1%. Surging energy prices exacerbated stagflation concerns. Treasury yields climbed further, with the US 10-year note edging up to 4.24% after a two-session rally of roughly 13 basis points. Rising yields and energy costs weighed on credit-sensitive companies. Morgan Stanley fell 4%, Goldman Sachs and Blue Owl dropped 3%, while Adobe remained flat. Markets continue to price in only one 25bps Federal Reserve rate hike this year, likely in September, though attention focuses on the updated dot plot.

The dollar index topped 99.60, extending gains for a fourth consecutive session and reaching its highest since November 2024. The greenback strengthened against all major currencies as investors weighed escalating conflict in Iran. The new supreme leader of Iran stated the Strait of Hormuz should remain closed, warning the war will continue “out of necessity” with additional fronts under consideration. Oil prices surged further despite the IEA’s decision to release 400 million barrels from strategic reserves.

Asian markets traded lower, with the Hang Seng retreating 0.70% to 25 717 points, marking a second consecutive session of declines. US equity futures fell amid intensifying Middle East attacks on oil and transport facilities. Cathay Pacific dropped 1.60% after announcing fuel surcharge increases, while Swire Properties fell 1.20% following the CFO’s resignation. Other decliners included Knowledge Atlas (-9.20%), Nongfu Spring (-4.50%), and Henderson Land Development (-3.70%). Authorities in Hong Kong also launched an insider trading probe into two brokerages and a hedge fund, arresting eight people.

In South Africa, manufacturing output fell 0.70% year-on-year in January 2026, marking the third consecutive month of declines. Key contributors included the wood and paper sector (-11%) and basic metals and machinery (-5.70%). On a seasonally adjusted monthly basis, output rose 1.50% after a revised 1.30% decline in December. Mining production grew 4.60% year-on-year, led by platinum group metals (+10.80%), chromium ore (+37.30%), and manganese ore (+12.50%), while copper (-21.70%) and other non-metallic minerals (-21.70%) declined. Gold output rose 0.70%, contributing 0.1 percentage point to overall mining growth.

South Africa posted a current account surplus of R50.2 billion in 4Q25, driven by a trade surplus of R282.2 billion. The services, income and current transfer account deficit narrowed to R232.1 billion, and the current account balance shifted to a 0.60% GDP surplus from a 0.90% deficit in 3Q25.

In commodities, gold stabilised above $5 180 per ounce as investors balanced safe-haven demand against a strong dollar and rising Treasury yields. Surging oil prices above $100 per barrel boosted bullion’s appeal, though gains were capped by margin call liquidations. Silver climbed above $86 per ounce, supported by geopolitical risks and inflation pressures, despite volatility from falling equities. Traders now monitor upcoming US personal consumption expenditures data for indications on central bank policy.