📊 Performance snapshot:
- FTSE 100: 10,284.75 | -5.7% (YTD +3.6%)
- S&P 500: 6,740.02 | -2.0% (YTD -1.5%)
- MSCI World: 4,407.04 | -3.3% (YTD -0.5%)
- UK 10y gilt yield: 4.63% (+33 bp) | US 10y: 4.13% (+17 bp)
- GBP/USD: 1.3335 (-1.1%) | Brent: $92.69 (+27.2%)
What moved markets:
- US-Israeli military strikes on Iran (28 Feb) triggered a broad risk-off shock, with Brent surging as much as 13% intraday on 2 March as Strait of Hormuz disruption fears dominated sentiment.
- US February Nonfarm Payrolls shocked consensus with an unexpected -92,000 print, while the unemployment rate rose to 4.4% — stacking growth risk on top of an already volatile geopolitical backdrop.
- FTSE 100 endured its worst weekly performance since the April 2025 tariff shock, shedding over 5.5% — ending a five-week streak of record highs — as miners, housebuilders, and consumer names all sold off heavily.
Sector & style:
- Best sector: Energy — Shell +0.4%, BP +1.0% on the week as oil majors benefited directly from crude surge
- Worst sector: Miners — Anglo American -4.9%, Glencore -3.1%, hit by growth fears and China demand uncertainty
- Value beat Growth: Energy/defence names led; Nasdaq fell harder than S&P 500 (-1.6% vs -1.3% on Friday alone)
So what?
- Markets enter the week still processing the full geopolitical and oil shock. The key question now is whether the Middle East conflict stabilises (enabling a relief rally) or broadens further — with US CPI on Wednesday providing the first major data flashpoint.
🌟 The Defining Narrative
The Middle East conflict has created a stagflation trap — forcing investors to choose between the growth hit from higher oil and the inflation trap that delays rate cuts.
Why it matters:
The US-Israel conflict with Iran pushed Brent crude up nearly 20% in a week from ~$67 to ~$82, an inflationary shock arriving precisely when central banks were on a cautious easing path. Higher energy costs feed directly into CPI, delay BoE and Fed cuts, lift gilt and Treasury yields, and compress equity multiples — particularly for rate-sensitive sectors. At the same time, if oil stays elevated and growth weakens, the risk of stagflation rises, the least favourable environment for balanced portfolios.
UK investor angle:
- Energy overweights offer a partial natural hedge; FTSE 100’s energy weighting (Shell, BP) is a structural cushion that S&P-heavy portfolios lack.
🏦 Central Bank Watch
No major policy decisions are scheduled this week — but the meetings directly ahead make incoming data this week especially high-stakes.
Federal Reserve
- What’s scheduled: No meeting (next FOMC: 18 March); various Fed speakers likely through the week
- Market pricing: Fed funds rate at 3.50–3.75%; March cut probability materially reduced given oil-driven inflation risk
- Key thing to listen for: Any Fed commentary linking Middle East oil shock to PCE/inflation path, or pushback on growth fears from the NFP miss
Bank of England
- What’s scheduled: No meeting this week; BoE speakers expected in context of sharp rate cut repricing
- Market pricing: Only ~5 bp of cuts priced for March — down sharply from 20 bp last week; full 2026 easing cycle now ~50% probability
- UK implications: Hawkish BoE repricing supports short-end gilts selling off; GBP could benefit slightly from “higher for longer” if confirmed
ECB
- No meeting or major catalyst this week. Eurozone inflation expected at 1.9% for 2026; oil shock threatens to reverse recent disinflation progress.
🌍 Macro Calendar
| Day (UK) | Region | Event | Consensus vs Prior | Why it matters | Most sensitive asset |
|---|---|---|---|---|---|
| Mon 01:30 | China | CPI / PPI (Feb) | CPI 0.7% y/y vs 0.2% prior; PPI consensus n/a vs -1.4% prior | Quick read on China demand and commodity pressure | Miners / China equities |
| Wed 12:30 | US | CPI (Feb) | 2.5% y/y expected vs 2.4% prior | Main test of whether inflation is re-accelerating | US 2y / S&P 500 |
| Fri 07:00 | UK | Monthly GDP (Jan) | 0.2% m/m expected vs 0.1% prior | Shows whether UK growth had momentum before the energy shock | Gilts / GBP |
| Fri 10:00 | Eurozone | Industrial production (Jan) | Consensus n/a; prior +1.1% y/y | Gauges whether euro-area industry is still fragile | EUR / cyclicals |
| Fri 12:30 | US | GDP, second estimate (Q4 2025) | Consensus n/a; prior 1.4% saar | Confirms how much US growth was already slowing | Treasuries |
| Fri 12:30 | US | Personal income / outlays + PCE (Jan) | Income +0.5% m/m, spending +0.3% m/m expected; prior PCE 2.9% y/y, core 3.0% | Fed-preferred inflation gauge plus consumer spending pulse | US 2y / USD |
| Fri 14:00 | US | JOLTS job openings (Jan) | 6.84m expected vs 6.542m prior | Checks whether labour demand is weakening further | US 2y / small caps |
| Fri 14:00 | US | Michigan sentiment, prelim (Mar) | 56.2 expected vs 56.6 prior | Tests whether higher petrol prices are hitting consumers | Consumer stocks |
📊 Earnings Watch
Earnings are light this week — the US Q4 season has closed, and Q1 reporting does not begin until mid-April. No S&P 500 mega-caps or FTSE 100 heavyweights have confirmed major results this week.
Macro read-across to watch instead:
- Energy sector (Shell, BP, Exxon, Chevron): No earnings, but daily moves will track Brent closely. A sustained Brent above $80 boosts their 2026 cash generation outlook materially.
- UK retail/consumer (Kingfisher, B&M): Both fell sharply last week on growth fears; any trading update language or analyst briefings will be watched for demand signalling.
- Defence names (BAE Systems, Rolls-Royce): Continued geopolitical risk keeps defence premia elevated; Rolls-Royce already up 4.6% last week.
💷 Fixed Income & Currency Outlook
A) UK Gilts / Rates
- Facts: 10Y gilt at 4.57% (up ~9 bp on Friday alone); 2Y gilt at 3.77% (up 15 bp over the past month). The curve has bear-steepened sharply as oil reprices the BoE pathtradingeconomics+1
- View: Underweight long-dated gilts — the risk/reward is unfavourable while oil stays elevated and BoE cut expectations are being repriced upward
- Watchlist: UK GDP Friday (growth upside = gilts sell off more); BoE speakers; any surprise in oil price direction
- Portfolio angle: Reduce duration at the long end; short-dated gilts (2–3Y) offer a more defensible carry profile if cuts are delayed further
B) FX (GBP focus)
- Facts: GBP/USD 1.3401 (approx. -0.5% on the week); GBP/EUR est. ~1.1533 (EUR/USD ~1.1619)
- View: Range-bound with downside skew — GBP is caught between a risk-off impulse (weakens sterling) and potential BoE “higher for longer” support
- Watchlist: UK GDP Friday (strong print = GBP positive); US CPI Wednesday (hot print = USD strength = GBP/USD lower); oil direction
- Portfolio angle: Unhedged US/global equity allocations will benefit if USD strengthens further; consider partial FX hedge on EUR exposure given energy import exposure
🧠 Sentiment Check
- Current mood: Risk-off — geopolitically driven, with oil as the primary fear channelreuters+1
Market gauges:
- VIX: Data not available for precise level; implied volatility spiked sharply on the Middle East shock — directionally in “elevated fear” territory
- Rates: UK 10Y at 4.57% — the bear steepening signals markets pricing stagflation, not just inflation
- Credit spreads: Likely widening, particularly for consumer and travel-adjacent issuers; energy high-yield may be tightening
- CNN Fear & Greed Index: Data not available; directionally consistent with rapid deterioration in sentiment following the geopolitical shock
Positioning / flows:
- FTSE 100’s -5.7% weekly drop — worst since the April 2025 tariff shock — suggests institutional repositioning, not just retail panic
- US unemployment hit 4.4%, in line with the Fed’s own 2026 median forecast — this creates a subtle dovish undercurrent that may temper risk-off extremes
📈 Valuations & Expectations
Valuation snapshot:
- S&P 500 fwd P/E: est. ~20–21x — still elevated relative to the 15–18x 20-year average, having drifted lower from ~22x as prices fell
- FTSE 100 fwd P/E: est. ~11–12x — significantly cheaper on a relative basis; energy and financials weighting limits re-rating but also limits downside
- Implication: The US is still priced for near-perfection; the UK re-rating story is partially intact but geopolitical risk clouds the energy/mining premium
Earnings expectations:
- Next-year EPS growth (consensus): US ~10–12% | UK ~6–8% (data not available for updated consensus post-conflict)
- Revisions trend: Deteriorating — the NFP miss, oil shock, and delayed rate cuts all argue for downward EPS revisions, particularly for consumer and transport sectors
So what?
- For the US, the current P/E still demands smooth disinflation and mid-teens EPS growth — a stagflationary oil shock is precisely the scenario where this breaks down. UK equities look structurally cheaper, but the energy and mining sectors need global growth to hold.
🗳️ Geopolitics & Wildcards
1. US-Israel vs. Iran (Middle East Conflict)
- Event: Ongoing since 28 Feb US-Israeli strikes; active as of 6 Marchnytimes+1
- Impact channel: Oil supply disruption, shipping (Strait of Hormuz), inflation, central bank paths
- What to watch: Any ceasefire signals; Iranian counter-escalation targeting Gulf energy infrastructure; UAE/Saudi Arabia statements on OPEC+ response
- Most sensitive assets: Brent crude, energy equities (Shell, BP, Exxon), aviation stocks, EM FX, gilts via inflation pass-through
2. Strait of Hormuz Shipping Risk
- Event: Ongoing — Fujairah port fire, Iraq-Ceyhan loadings halted, LNG prices surging
- Impact channel: Shipping costs, energy prices, global trade
- What to watch: Any confirmed blockade or sustained disruption to crude flows through the Strait (~20% of global oil supply at risk)
- Most sensitive assets: Tanker stocks, LNG names, European gas prices, UK utility bills/CPI
3. BoE Credibility Test
- Event: Rapid repricing of BoE cuts (from 50bp to near-zero for 2026); March meeting imminent
- Impact channel: Short-end gilts, GBP, mortgage/lending spreads
- What to watch: Any BoE communication suggesting it will “look through” the oil shock — or alternatively that it is pausing cuts indefinitely
- Most sensitive assets: Short-dated gilts, housebuilders (Barratt, Persimmon), GBP
4. UK Fiscal Position
- Event: OBR Spring Statement (3 March) cut UK 2026 GDP forecast to 1.1% from 1.4%
- Impact channel: Gilt supply, fiscal credibility, chancellor’s headroom
- What to watch: Any response from bond markets to narrowing fiscal headroom; gilt auction results this week
- Most sensitive assets: Long-dated gilts, GBP
⚡ The Bottom Line
- If US CPI (Wednesday) prints above 2.7% YoY → then the stagflation narrative dominates: expect gilts to sell off further (10Y toward 4.70%+), S&P 500 to retest 6,700 and GBP/USD to slide toward 1.32 → watch the 6,700 support level on S&P 500 and UK rate cut forwards
- If credible de-escalation signals emerge from the Middle East (ceasefire, Hormuz reopening) → then Brent reverses sharply toward $72–75, rate cut expectations are rapidly repriced back in, and FTSE 100 stages a strong technical bounce from the -5.7% oversold position → watch Shell/BP spreads and BoE 2026 rate pricing as the first leading indicators
- If UK GDP (Friday) surprises to the upside (+0.4%+ MoM) → then GBP strengthens, and the “UK recovery” narrative regains traction independent of geopolitics → watch GBP/USD breaking back above 1.3450 as confirmation
© Clearly Investments Ltd. Educational information only. This is not investment advice.
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