The financial markets' reaction to the attack on Iran by the United States and Israel is fairly textbook, even if traders were struck yesterday by the resilience of US indices. Wall Street closed as though it were an ordinary, largely uneventful Monday: -0.15% for the Dow Jones, but +0.04% for the S&P 500 and +0.13% for the Nasdaq. Elsewhere, deep red dominated, save perhaps in Oslo, where the heavy weighting of oil companies propelled the local index sharply higher. The spike in crude prices is one of the most significant economic variables in this conflict. The other is the rise in risk aversion, which has driven investors back into perceived safe havens: gold, of course, but also the US dollar and American equities. That helps to explain Wall Street's relative resilience. It is not the whole story, however. The market is also betting that the current war will be short-lived. When assessing the ultimate economic impact of a conflict, time is the decisive factor. If the war proves brief, major disruptions are likely to be contained, at least in terms of the headline macroeconomic aggregates. Geopolitically, that is another matter.

Let us look more closely at these dynamics. The sharp rise in oil prices has pushed Brent crude to USD 80 a barrel, some 28% higher than on 1 January. It is the most basic mechanism at work when a serious conflict erupts in the Middle East. The White House knew this would happen. Even so, higher oil prices do not serve the economic interests of the Trump administration, as they add to inflationary pressures that have been slow to recede. In response, the market has pushed back expectations of the next rate cut to September. Analysts are beginning to doubt whether there is scope for three monetary easings this year. That scenario is now hanging in the balance. Yet again, everything will depend on how long tensions persist. The most visible short-term reaction has been a ten basis point rise in the yield on 10-year US Treasuries, from roughly 3.95% to 4.05% in a matter of hours. The move was reinforced by a robust ISM manufacturing index, featuring a prices component at its highest level in more than three years.

Risk aversion has therefore, quite logically, benefited assets deemed safer. Gold has climbed back above USD 5,300 an ounce, though it has yet to revisit the record highs above USD 5,500 reached at the end of January. The yen, the euro and even the Swiss franc have slipped against the dollar. At a sector level, energy and defence stocks have surged in both the United States and Europe. Other sectors have displayed more erratic behaviour on either side of the Atlantic. On Wall Street, risk aversion has funnelled investors back into the large technology platforms. Unlike in Europe or Asia, there has been no pronounced sector-wide sell-off, although consumer-facing segments have struggled, particularly discretionary retail and leisure, including airlines, cruise operators and hotels.

As noted earlier, the real impact of such a conflict hinges on its duration. Investors can acclimatise to almost anything, especially if they can envisage a return to normality. Overnight, the US strategist Ed Yardeni observed that geopolitical crises tend to create buying opportunities in equity markets, but the difficulty is that everyone knows this, which in turn limits the scale of those opportunities. He, too, belongs to the camp that expects the conflict to be short-lived.

That does not mean the situation is comfortable. The flare-up in the Middle East has added to an already lengthy list of market concerns, which has grown since artificial intelligence ceased to be merely a bounty of opportunities of investment and became instead a source of existential anxiety for several sectors, and even for economic stability itself. In that light, the reaction of European and Asian markets appears more "healthy" than that of Wall Street, if one may put it that way. Asia-Pacific markets are bearing the brunt this morning. In Tokyo, the TOPIX has fallen by more than 3% after already shedding 1% the previous day. South Korea's KOSPI has slumped by over 7%, dragged down by the collapse of its heavyweights Samsung Electronics and SK Hynix. The move has been amplified by a public holiday in South Korea yesterday. The country's export-driven industry could suffer from higher logistics costs. That is another concern troubling investors: the Middle East crisis is weighing on both air and maritime logistics. Once bitten, twice shy.

The Covid period and the conflict in Ukraine remain fresh in the memory. Those episodes disrupted supply chains that usually operate with clockwork precision. The automotive sector remembers all too well, as illustrated by Volkswagen's 4.4% decline. Higher energy costs are also a constant theme. The sharp fall in airline stocks, Air France-KLM down 9.4% yesterday for instance, is a reminder that industries with high fixed energy costs suffer mechanically. LVMH's 4.3% decline shows that disruption to global tourism extends beyond the simple question of jet fuel prices. Yet here again, it is a matter of duration and tectonic shifts: historically, conflict is not, statistically speaking, bad news for financial markets, unless it triggers a chain reaction.

As mentioned, Asia has followed Europe rather than the United States in equity trading. The broad MSCI AC Asia Pacific index is down more than 2% this morning. US futures are pointing sharply lower, although that was already the case yesterday before Wall Street managed to claw its way back to flat. European markets are expected to open lower, despite the previous day's decline.

Today's economic highlights:

On today's agenda: building permits in Australia; unemployment change in Spain; preliminary monthly and yearly inflation rates in Italy; monthly, yearly, and core inflation rates in the Euro Area; In the United States, speeches by Fed Williams and Fed Kashkari, followed by the API crude oil stock change; In Australia, the Ai Group Industry Index. See the full calendar here.

  • GBP / USD: US$1.34
  • Gold: US$5,308.43
  • Crude Oil (BRENT): US$80.17
  • United States 10 years: 4.06%
  • BITCOIN: US$68,157.5

In corporate news:

  • Rio Tinto approved a $473 million investment in the Zulti South project in South Africa, with construction expected to begin in Q1 2026.
  • BAE Systems announces that the Italian Army has selected its subsidiary's VBS4 and Mantle solutions to modernize virtual training.
  • Jiangxi Copper's acquisition of SolGold was sanctioned by a UK court and is expected to take effect on March 4.
  • Smith & Nephew reported a significant increase in attributable profit to $625 million for 2025 and reaffirmed its 2026 growth targets.
  • Senior reported a 21% increase in adjusted pretax profit to GBP51.2 million for 2025, following the sale of its Aerostructures division.
  • Craneware announced a 29% increase in pretax profit to $13.0 million for H1 2026, with revenue climbing 5.7% to $105.7 million.
  • GlobalData reported a 26% increase in pretax profit to GBP69.2 million for 2025, despite a 5.7% decline in adjusted EBITDA.
  • Oxford Nanopore reported a 22% increase in revenue to GBP223.9 million for 2025, while its pretax loss remained stable at GBP139.9 million.
  • BlackRock Throgmorton Trust reported a 0.7% NAV total return for 2025, lagging its benchmark, but reduced its discount through a buyback program.
  • Sage launched a GBP300 million share buyback program, citing strong cash generation and a robust financial position.
  • Beiersdorf announces a €750 million share buyback and anticipates a margin in 2026 slightly lower than in 2025.
  • Kuehne Und Nagel reports a decline in earnings and revenue in 2025.
  • VAT Group reports an increase in net income and revenue for the 2025 financial year.
  • AP Moller Maersk suspends new bookings for certain trade lanes due to the situation in the Middle East.
  • Zurich Insurance has launched a private placement to finance the acquisition of Beazley.
  • A placement of Naturgy securities representing 11.4% of the capital held by BlackRock was completed at €25.20 per share.
  • Fagron completes the acquisition of Vepakum.
  • Sika expands its digital product portfolio through a global commercial partnership with Giatec.
  • Stocks rising after hours following their quarterly results: AST SpaceMobile (+3.4%)…
  • Stocks down in after-hours trading following their quarterly results: MongoDB (-24%), Credo (-8%)…
  • The United States is considering limiting sales of Nvidia H200 chips to 75,000 per Chinese customer, according to Bloomberg.
  • LS Power wants to recoup $2.1 billion by selling its stake in NRG Energy, according to Bloomberg.
  • Eli Lilly is ready to launch its oral obesity drug in the second quarter, pending US approval.
  • Fitch Ratings downgraded Paramount Skydance's credit rating to speculative grade following the announcement of the acquisition of Warner Bros.
  • AT&T reaffirms its short- and medium-term financial targets.
  • Apple unveiled its iPhone 17e and a faster version of the iPad Air.
  • Pfizer CEO expresses concerns about the FDA's vaccine policy.
  • The Nasdaq seeks SEC approval for binary options on the Nasdaq 100.
  • An Amazon subsidiary acquires the Virginia campus of George Washington University for $427 million.

See more news from UK listed companies here

Analyst Recommendations:

  • Bytes Technology Group Plc: Deutsche Bank upgrades to buy from hold with a price target reduced from GBX 470 to GBX 390.
  • Gb Group Plc: Deutsche Bank maintains its buy recommendation and reduces the target price from GBX 490 to GBX 415.
  • Kainos Group Plc: Deutsche Bank maintains its hold recommendation and reduces the target price from GBX 1030 to GBX 860.
  • Softcat Plc: Deutsche Bank maintains its buy recommendation and reduces the target price from GBX 1900 to GBX 1700.
  • Wpp Group: BNP Paribas maintains its neutral recommendation and reduces the target price from GBX 350 to GBX 300.
  • Beazley Plc: RBC Capital downgrades to sector perform from outperform with a price target raised from GBX 1100 to GBX 1300.
  • Pan African Resources Plc: Nedbank CIB downgrades to underweight from overweight and reduces the target price from ZAR 33 to ZAR 30.
  • Legal & General Plc: Peel Hunt maintains its add recommendation and raises the target price from GBP 2.55 to GBP 2.90.
  • Ig Group Holdings Plc: UBS upgrades to buy from neutral with a price target raised from GBX 1250 to GBX 1600.
  • Aj Bell Plc: UBS upgrades to buy from neutral with a target price of GBX 520.
  • Astrazeneca Plc: HSBC maintains its buy recommendation and raises the target price from GBP 165 to GBP 170.50.
  • Unilever Plc: Argus Research Company maintains its buy recommendation and raises the target price from USD 74 to USD 80.
  • Hikma Pharmaceuticals Plc: JP Morgan maintains its overweight recommendation and reduces the target price from GBP 24 to GBP 20.
  • London Stock Exchange Group Plc: Jefferies maintains its buy recommendation and reduces the target price from GBP 115 to GBP 110.
  • Delivery Hero Se: Citi upgrades to neutral from sell with a target price of EUR 19.